The Monetary History of Gold : A Documentary History, 1660-1999 [1 ed.] 9781781446348, 9781851967858

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THE MONETARY HISTORY OF GOLD

Editor Mark Duckenfield

THE MONETARY HISTORY OF GOLD A DOCUMENTARY HISTORY, 1660–1999

Edited by Mark Duckenfield

ROUTLEDGE

Routledge Taylor & Francis Group

LONDON AND NEW YORK

First published 2004 by Pickering & Chatto (Publishers) Limited

Published 2016 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN 711 Third Avenue, New York, NY 10017, USA Routledge is an imprint of the Taylor & Francis Group, an informa business

© Taylor & Francis 2004 All rights reserved, including those of translation into foreign languages. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. BRITISH LIBRARY CATALOGUING IN PUBLICATION DATA

The monetary history of gold : a documentary history, 1660–1999 1. Gold standard – History – Sources 2. Money – History – Sources I. Duckenfield, Mark 332.4'222 LIBRARY OF CONGRESS CATALOGING- IN - PUBLICATION DATA

The monetary history of gold : a documentary history, 1660–1999 / edited by Mark Duckenfield p. cm. Includes index ISBN 1–85196–785–0 (hardcover : alk. paper) 1. Gold – History. 2. Gold standard – History. I. Duckenfield, Mark HG289.M575 2004 332.4'222'09 – dc22

ISBN-13: 978-1-85196-785-8 (hbk) Typeset by Pickering & Chatto (Publishers) Limited

2004011037

CONTENTS

Acknowledgements

xvii

Editorial Note

xix

Section I.: The Rise of the Gold Standard, 1660–1819 Resolution of the House of Commons to prohibit the Exportation of Money and Bullion from England (21 May 1660)

1 7

Excerpt from a Report of His Majesty’s Council of Trade advocating to the King the Execution of Provisions enabling the free Exportation of Gold and Silver from England (11 December 1660) 8 ‘An Act to prevent the Inconvenience arising by melting the Silver Coin of this Realm’ (20 December 1662) 10 Excerpt from the Diary of Samuel Pepys (19 May 1663)

12

Excerpt from ‘An Act for the Encouragement of Trade’ (1 August 1663)

17

‘An Act for Encourageing of Coynage’ (20 December 1666)

18

Excerpt from the Diary of Samuel Pepys (12–13 June, 19–20 June, 10–12 October 1667)

21

‘An Act for continuing a former Act concerning Coynage’ (1672 [undated])

26

Statement issued by the English Government in Response to Reports about large Amounts of Bullion exported from England by the East India Company (1674 [undated])

27

‘The Mystery of the new fashioned Goldsmiths or Bankers: their Rise, Growth, State, and Decay, discovered in a Merchant’s Letter to a Country Gent who desired to bind his Son Apprentice to a Goldsmith’ (1676 [undated])

29

v

The Monetary History of Gold Note of a Petition from London Goldsmiths to the House of Commons, complaining that the Exportation of large Quantities of Silver from England into France was placing an undue Burden upon them (9 April 1690) 34 House of Commons Committee Report issued in Response to the Petition of the previous Month from the Working Goldsmiths of London concerning the Exportation of large Quantities of Silver from England to France and the undue Burden that this was placing upon Working Goldsmiths (8 May 1690) 36 ‘Observations on the Bill against the Exportation of Gold and Silver, and melting down the Coin of the Realm’, delivered at the Bar of the House of Lords by a Group of prominent London Merchants (6 December 1690) 38 Excerpt from the Parliamentary Diary of Narcissus Luttrell on the Debate in the House of Commons over a Bill for discouraging the Exportation of Bullion (30 December 1691)

41

Sir Dudley North’s ‘Discourse of Coyned Money’ and ‘Postscript’, from the same Author’s Discourses upon Trade (1692 [undated])

42

Bank of England Charter (25 April 1694)

53

Report to the House of Commons from the Committee appointed to consider Proposals for stemming both the Clipping of the Silver Coinage of England and the Exportation of Silver (8 January 1695)

56

‘Representation to the Lords Justices from the Treasury Lords on the Price of Guineas’, reporting that the high Price of Guineas in England has encouraged the Importation of large Quantities of Gold from abroad to the Loss of the Nation (3 July 1695) 58 Resolutions put forward in the Report of the Committee of the whole House, laying the Foundation for the Great Recoinage (10 December 1695)

62

A short Paper on Guineas written by John Locke at the Request of Treasury Commissioner Sir William Trumbull in Connection with the Treasury Report of the 3rd of July 1695 (1695 [undated]) 64 ‘An Act for Remedying the Ill State of the Coin of the Kingdom’ (17 January 1696)

66

Resolution put forward in the Report of the Committee of the whole House, stating that no Guinea should pass for more than 28 Shillings (15 February 1696) 72

vi

Contents ‘An Act for taking off the Obligation and Incouragement for Coining Guineas for a certaine Time therein mentioned’ (24 February 1696) 73 ‘An Act to incourage the bringing Plate into the Mint to be Coined, and for the further Remedying the Ill State of the Coin of the Kingdom’ (10 April 1696) 76 ‘An Act for Importing and Coining Guineas and Half-Guineas’ (23 October 1696)

77

Correspondence of Isaac Newton, Warden of the Mint, dated from Jermin Street in Westminster, to John Locke (19 September 1698)

79

Report of the Board of Trade (22 September 1698)

81

Excerpts from Hopton Haynes’s ‘Brief Memoire relating to the Silver and Gold Coins of England, with an Account of the Corruption of the hammered Moneys; and of the Reform of the Late Grand Coynage at the Tower and the five County Mints in the years 1696, 1697, 1698, and 1699’ (c.1700)

84

Report of Isaac Newton, Master of the Mint, to the Lords Commissioners of His Majesty’s Treasury, concerning the high Value of French and Spanish Pistoles in England (20 January 1701) 86 Report of Isaac Newton to the Lords Commissioners of His Majesty’s Treasury, concerning edicts of the King of France relative to the Gold and Silver Coinage of France (28 September 1701) 87 Report of Isaac Newton to Sidney Godolphin, Lord High Treasurer of England, concerning the Values of various foreign Gold and Silver Coins (7 July 1702)

88

Excerpt from John Law’s famous tract Money and Trade Considered (1705 [undated])

91

Report of Sir Isaac Newton to the Lords Commissioners of Her Majesty’s Treasury, concerning the Fineness of Gold Coins in Relation to the Trial Plate used in the Trial of the Pyx of 21 August 1710 (31 December 1710) 92 Report of Sir Isaac Newton, Master of the Royal Mint, to the Lords Commissioners of His Majesty’s Treasury, on the Price and Relationship of Gold to Silver and the Consequences for the Coinage of the Kingdom (21 September 1717) 93 Royal Proclamation of King George I forbidding the Exchange of Guineas for more than 21s each and putting England on a bimetallic Standard (22 December 1717) 97 vii

The Monetary History of Gold Anonymous Communication to Sir Isaac Newton in Response to the Publication, on the previous Day, of Newton’s Report of the 21st of September to the Lords Commissioners of His Majesty’s Treasury (31 December 1717)

99

Memorandum containing Sir Isaac Newton’s Observations on the State of the Gold and Silver Coins (20 October 1718) 101 Excerpts from the Correspondence of William Pulteney, 1st Earl of Bath and MP (1705–42), to James Craggs, Secretary of State for Southern Affairs (1717–21), concerning the State of the Gold Coin in France (22 March – 12 November 1720) 104 Excerpts from John Conduitt’s Treatise ‘Observations upon the present State of our Gold and Silver Coins’ (1730 [undated]) 108 Excerpt from Richard Cantillon’s Essai sur la Nature du Commerce en General (c.1734)

114

Excerpts from John Atkins’s Account of his Travels along the west Coast of Africa, in the West Indies and Brazil in the early eighteenth Century ([1735] c.1721) 119 United States Coinage Act of 1792 (2 April 1792)

121

Newspaper Account of a Council Decision to suspend Cash Payments by the Bank of England (27 February 1797) 127 Newspaper Account of a Message of the King, read before the House of Lords by the Lord Chancellor on the preceding Day, suspending Cash Payments by the Bank of England (28 February 1797) 129 Newspaper Account of the Suspension of Cash Payments by the Bank of England (28 February 1797) 130 ‘Report, together with Minutes of Evidence, and Accounts, from the Select Committee on High Price of Gold Bullion’ (8 June 1810)

131

‘A Bill, intituled, an Act for making more effectual Provision for preventing the current Gold Coin of the Realm from being paid or accepted for a greater Value than the current Value of such Coin; for preventing any Note or Notes of the Governor and Company of the Bank of England from being received for any smaller Sum than the Sum therein specified; and for staying Proceedings upon any Distress by Tender of such Notes’ (9 July 1811) 138 ‘A Bill, to continue and amend an Act of the Session of Parliament, for making more effectual Provision for preventing the current Gold Coin of the Realm from being paid or accepted for a greater Value than the current Value of such Coin, for preventing any Note or Bill of the viii

Contents Governor and Company of the Bank of England from being received for any smaller Sum than the Sum therein specified, and for staying Proceedings upon any Distress by Tender of such Notes; and to extend the same to Ireland’ (20 March 1812) 140 ‘A Bill, to provide for the New Silver Coinage, and to regulate the Currency of the Gold and Silver Coin of this Realm’ (31 May 1816) 143 ‘First Report from the Secret Committee on the Expediency of the Bank resuming Cash Payments’ (5 April 1819) 147 ‘Proposed Resolutions [on the Expediency of the Bank resuming Cash Payments]’ (19 May 1819) 148 ‘Representation, agreed upon the 20th of May 1819, by the Directors of the Bank of England and laid before the Chancellor of the Exchequer [on the Expediency of the Bank resuming Cash Payments]’ (21 May 1819) 150 Section II.: The Heyday of the Gold Standard, 1820–1930

155

Bank of England Act, 1833: ‘An Act, for giving to the Corporation of the Governor and Company of the Bank of England certain Privileges, for a limited Period, under certain Conditions’ (29 August 1833) 163 Coinage Act, 1834, United States: ‘An Act concerning the Gold Coins of the United States, and for other Purposes’ (27 June 1834) 164 Foreign Coins Act, 1834, United States: ‘An Act regulating the Value of certain foreign Gold Coins within the United States’ (28 June 1834) 166 Bank Charter Act, 1844: ‘An Act to regulate the Issue of Bank Notes, and for giving to the Governor and Company of the Bank of England certain Privileges for a limited Period’ (19 July 1844) 167 ‘An Act to extend an Act of the Fifty-sixth year of King George the Third, for providing a new Silver Coinage, and for regulating the Currency of the Gold and Silver Coin of this Realm’ (13 July 1849) 168 The Trial of the Pyx: ‘Statement of Proceedings at the Mint as to the Deposit of the Gold and Silver Coins in the Mint Pyx Boxes; and at Goldsmiths’ Hall, in the Assay of the Gold and Silver Pieces, constituting the Public Trial of the Pyx; by Henry W. Field, Queen’s Assay Master at Her Majesty’s Mint’ (6 February 1866) 170 Standards of Weights, Measures, and Coinage Act, 1866: ‘An Act to amend the Acts relating to the Standard Weights and Measures and to the Standard Trial Pieces of the Coin of the Realm’ (6 August 1866) 173 ix

The Monetary History of Gold ‘Report from the Royal Commission on International Coinage; together with the Minutes of Evidence and Appendix’ (18 February 1868) 174 ‘Report addressed to the Chancellor of the Exchequer by the Master of the Mint and Colonel Smith, late Master of the Calcutta Mint, on the Mintage necessary to cover the Expenses of Establishing and Maintaining the Gold Currency’ (28 June 1869) 179 Coinage Act, 1870: ‘A Bill, to consolidate and amend the Law relating to the Coinage and Her Majesty’s Mint’ (10 February 1870) 183 Coinage Act, 1873, United States: ‘An Act revising and amending the Laws relative to the Mints, Assay, Offices, and Coinage of the United States’ (12 February 1873) 193 Specie Resumption Act, 1875, United States: ‘An Act to provide for the Resumption of Specie Payments’ (14 January 1875)

205

‘Report from the Select Committee on Depreciation of Silver; together with the Proceedings of the Committee, Minutes of Evidence, and Appendix’ (5 July 1876) 207 International Monetary Conference, 1878: ‘Report of the Commissioners appointed to represent Her Majesty’s Government at the Monetary Conference held in Paris in August 1878’ (27 November 1878) 214 Coinage Act, 1884, United Kingdom: ‘A Bill, for amending the Coinage Act, 1870, so far as relates to Gold Coin and for making the necessary consequential Amendments in the Banking and Weights and Measures Acts’ (2 May 1884)

221

The Monetary Convention of the 6th of November 1885, agreed upon by the Delegates of the Latin Monetary Union (6 November 1885) 225 ‘Message from the President of the United States [Grover Cleveland], transmitting, in response to a Senate Resolution of December 9, 1885, a Report of the Secretary of State, with Information relative to Gold and Silver Coinage in Europe’ (7 January 1886) 235 Letter from Mr Alfred de Rothschild to the Chairman of the Gold and Silver Commission: ‘Second Report of the Royal Commission appointed to inquire into the recent Changes in the relative Values of the precious Metals; with Minutes of Evidence and Appendices’ (30 January 1888) 253 Gold and Silver Commission: Excerpts from the ‘Final Report of the Royal Commission appointed to inquire into the recent Changes in the relative Values of the Precious Metals; with Minutes of Evidence and Appendices’ (October 1888) 256 x

Contents Coinage Act, 1889: ‘A Bill, to amend the Coinage Act, 1870, as respects Light Gold Coins’ (9 July 1889) 258 Coinage Act, 1889: ‘A Bill, to amend the Coinage Act, 1870, as respects Light Gold Coins’ (30 August 1889) 260 William Jennings Bryan’s ‘Cross of Gold’ Speech, delivered to the Democratic National Convention at Chicago, Illinois (9 July 1896) 261 Gold Standard Act, 1900, United States: ‘An Act to define and fix the Standard of Value, to maintain the Parity of all Forms of Money issued or coined by the United States, to refund the public Debt, and for other Purposes’ (14 March 1900) 268 Currency and Bank Notes Act, 1914: ‘A Bill, to authorise the Issue of Currency Notes, and to make Provision with Respect to the Note Issue of Banks’ (6 August 1914) 274 ‘A Bill, to amend the Currency and Bank Notes Act, 1914’, United Kingdom (25 August 1914)

277

Interim Report of the Cunliffe Committee, 1918: Report on Currency and Foreign Exchanges after the War (15 August 1918) 278 The Treaty of Versailles (28 June 1919)

290

Gold and Silver (Export Control) Act, 1920, United Kingdom: ‘A Bill, to control the Exportation of Gold and Silver Coin and Bullion, and to prohibit the Melting or improper Use of Gold and Silver Coin’ (4 November 1920) 297 National Bank Law, Switzerland (7 April 1921)

299

Bank Law, Germany (30 August 1924)

302

Winston Churchill’s 1925 Budget Speech (28 April 1925)

305

Gold Standard Act, 1925, United Kingdom: ‘A Bill, to facilitate the Return to a Gold Standard and for Purposes connected therewith’ (28 April 1925)

310

Decree-Law Creating the Central Bank of Chile (21 August 1925)

312

Monetary Law, France (25 June 1928)

314

Amendment to the National Bank Law, Switzerland (20 December 1929)

317

Paper issued by the Statistical Section of the Bank of England, entitled ‘Terms on which the Bank of England buys Bar Gold’ (29 March 1930) 320

xi

The Monetary History of Gold Section III.: After the Gold Standard, 1931–1999 Macmillan Committee Report, 1931: Committee on Finance and Industry (June 1931)

321 329

Confidential Telegram from the Deputy Governor of the Bank of England, concerning the Decision of the United Kingdom to go off the Gold Standard (20 September 1931) 336 Philip Snowden’s Speech to the House of Commons (21 September 1931)337 Gold Standard (Amendment) Act, 1931, United Kingdom: ‘A Bill, to suspend the Operation of Sub-section (2) of Section One of the Gold Standard Act, 1925, and for Purposes connected therewith’ (21 September 1931) 344 Bank of England Report entitled ‘The Suspension of the Gold Standard in Great Britain and its Effect on the Countries of Europe’ (21 January 1932) 345 Resolution of the Board of Directors of the Bank for International Settlements relating to the Gold Standard (11 July 1932)

347

Presidential Proclamation (No. 2039) of Franklin D. Roosevelt prohibiting Gold and Silver Exports and Foreign Exchange Transactions (6 March 1933)

349

Recommendation of United States President Franklin D. Roosevelt to Congress for Legislation to control the Resumption of Banking (9 March 1933) 351 Presidential Proclamation (No. 2040) of Franklin D. Roosevelt extending the Prohibition of Gold and Silver Exports and Foreign Exchange Transactions (9 March 1933)

353

Executive Order (No. 6073) of United States President Franklin D. Roosevelt reopening the Banks but maintaining the Prohibition on Gold Exports and Foreign Exchange Transactions (10 March 1933) 354 Executive Order (No. 6102) of United States President Franklin D. Roosevelt prohibiting the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates, and requiring them to be delivered to the Federal Reserve Bank (5 April 1933) 356 Report of A. P. L. Gordon, with Moy, Davies, Smith, Vandervell & Co., 20 Copthall Avenue, London EC2, concerning the Revival of the AmericanExport Embargo on Gold, entitled ‘Gold, Dollars and Markets’, marked ‘For Clients and Correspondents only’ (19 April 1933) 359 xii

Contents Executive Order (No. 6111) of United States President Franklin D. Roosevelt concerning Controls on Gold Exports and Transactions in Foreign Exchange (20 April 1933) 361 Excerpt from United States President Franklin D. Roosevelt’s second ‘Fireside Chat’ of 1933: ‘What we have been doing and what we are planning to do’ (7 May 1933)

363

Emergency Farm Mortgage Act, 1933 (12 May 1933)

365

Executive Order (No. 6260) of United States President Franklin D. Roosevelt concerning Controls on Gold Exports and Transactions in Foreign Exchange (28 August 1933) 368 Recommendation of United States President Franklin D. Roosevelt to Congress for Legislation to improve the financial and monetary System (15 January 1934) 374 Gold Reserve Act of 1934: ‘An Act to protect the Currency System of the United States, to provide for the better Use of the monetary Gold Stock of the United States, and for other Purposes’ (30 January 1934) 378 Presidential Proclamation (No. 2072) of Franklin D. Roosevelt fixing the Gold Value, by Weight, of the United States Dollar, making the Dollar convertible to Gold at the new Price of $35.00 per Ounce (31 January 1934) 386 White House Statement on the Presidential Proclamation of Franklin D. Roosevelt fixing the Gold Value, by Weight, of the United States Dollar (31 January 1934) 389 Press Release communicating a Resolution of the Bank for International Settlements relative to the Restoration of the Gold Standard (14 May 1934) 392 Message of United States President Franklin D. Roosevelt to Congress on Silver Policy (22 May 1934) 393 Presidential Proclamation (No. 2092) of Franklin D. Roosevelt to facilitate the Coinage of Silver (9 August 1934)

396

Tripartite Agreement between the United States, France and the United Kingdom on international monetary Cooperation (25 September – 13 October 1936) 399 Swiss Federal Council Decree (27 September 1936)

404

Memorandum to the Governor of the Bank of England concerning the Devaluation of the Italian Lira by forty per cent (5 October 1936) 405 xiii

The Monetary History of Gold Report on the Devaluation of the Italian Lira, issued by the Overseas and Foreign Department (7 October 1936)

406

Bank of England Memorandum on the Devaluation of the French Franc (7 October 1936) 407 Reuters News Wire Report, from Belgrade, on the likely Adjustment of the Yugoslav Dinar (7 October 1936) 408 Declaration of the Swiss Government, through the Federal Finance and Customs Department, and the National Bank of Switzerland regarding the Purchase and Sale of Gold (28 October 1936) 409 Table of Currency Devaluations in the United States and Europe following the Devaluation of the Pound in 1931 (2 November 1936) 411 Reports of Machinery and Technical Transport Ltd., International Shipping and Forwarding Agents, ‘Ling House’, South Street, Finsbury Pavement, London EC2, to the Bank of England, Foreign Exchange Department, for the attention of Mr Bolton, with Attachments, concerning Movements in Gold (1937–9) 413 Letter of N. M. Rothschild & Sons, giving the Price of Gold at the Time of the Morning Fixing, to the Chief Cashier of the Bank of England, on Letterhead of the Royal Mint Refinery, New Court, St Swithin’s Lane, London EC4 (31 August 1939) 414 Bank of England Memorandum, consisting of a Report on the Distribution of Gold Reserves of Countries occupied by Germany to determine the Quantity that may have fallen into German Hands (26 June 1940) 415 Bank of England Memorandum, giving Estimates of the Amount of Gold from Occupied Countries that may have fallen into German Hands (26 June 1940) 416 Bank of England Memorandum, giving updated Estimates of French, Belgian and Polish Gold Holdings at the Time of the German Occupation (19 July 1940)

417

Articles of Agreement of the International Monetary Fund (22 July 1944)

419

Exchange Control Act, 1947, United Kingdom: ‘An Act to confer Powers, and impose Duties and Restrictions, in Relation to Gold, Currency, Payments, Securities, Debts, and the Import, Export, Transfer and Settlement of Property, and for Purposes connected with the Matters aforesaid’ (11 March 1947)

439

xiv

Contents Memoranda concerning new Gold Prices as a Consequence of the Devaluation of Sterling (19 September 1949)

442

Memorandum concerning the Case of Emile Katz, seen as a Contravention of the Statute stipulated in the Exchange Control Act of 1947 prohibiting the private Ownership of Gold (1 November 1949) 444 Report entitled ‘The London Gold Market’ (9 November 1953)

446

Press Release from H. M. Treasury, concerning the Reopening of the London Gold Market for the first Time since the Outbreak of the Second World War (19 March 1954)

448

Correspondence of R. A. O. Bridge, Bank of England, to Mr Joseph J. Moran, Vice President, Bank of Manhattan Co., 40 Wall Street, New York, concerning the Reopening of the London Gold Market (20 March 1954) 450 Excerpt from a Press Conference of French President Charles de Gaulle at the Palais de l’Élysée calling for the Return of a ‘Gold Exchange Standard’ (4 February 1965) 452 The London Gold Market and the Devaluation of Sterling (12 June 1965)

456

United Kingdom, Treasury: Meeting Notes, labelled ‘top secret’, including Considerations about the Effects of the planned Devaluation of the Pound Sterling on the London Gold Market (16 June 1965) 461 Statement by Secretary of the Treasury Henry H. Fowler, 30 January 1968, before the Senate Banking and Currency Committee, on Legislation to remove the Gold Cover (30 January 1968)

465

Memoranda on the Gold Pool by Walt Rostow, Special Assistant for National Security Affairs, to President Johnson (March 1968)

469

Statement by Secretary of the Treasury Henry H. Fowler and Chairman William M. Martin of the Federal Reserve Board (14 March 1968) 475 H.M. Treasury Press Statement on the London Gold Market (15 March 1968)

476

Washington Communique (17 March 1968)

477

Notice instructing Authorised Dealers in Gold not to transact in Gold before 1 April 1968 (18 March 1968) 479 Instructions to Authorised Dealers in Gold concerning the scheduled Reopening of the London Gold Market on 1 April 1968 (29 March 1968) 480 xv

The Monetary History of Gold Address by US President Nixon to the Nation outlining a New Economic Policy ‘The Challenge of Peace’ (15 August 1971)

481

Remarks by US President Richard Nixon announcing a Monetary Agreement following a Meeting of the Group of Ten (18 December 1971)

485

Smithsonian Agreement of the Group of Ten (December 1971)

487

Par Value Modification Act (31 March 1972)

496

Summary of Regulations on Gold currently in Force in European Countries (2 May 1972)

497

An Act to amend the Par Value Modification Act (21 September 1973)

503

The Second Amendment to the IMF Articles (30 April 1976)

504

The United States Gold Commission, 1982 (31 March 1982)

507

The Washington Agreement on Gold (26 September 1999)

521

Appendix: Second Central Bank Gold Agreement: Joint Statement on Gold (8 March 2004) 523 Index

525

xvi

ACKNOWLEDGEMENTS

This project originated many years ago as part of the World Gold Council’s efforts to raise awareness among journalists, scholars and the informed public of gold’s role as a monetary asset. The World Gold Council’s Public Policy Centre funded the research that went into this book, so it is with much gratitude that I can acknowledge their support, as this project would not otherwise have been undertaken. During the late 1990s, William Day, then a graduate student at the London School of Economics working at the University of Birmingham, collected many of the early documents in this series and his editorial hand can be seen especially in those of the first section. In 2001, when Dr Day moved on to other responsibilities in the Department of Coins and Medals at the Fitzwilliam Museum in Cambridge, Robert Pringle of the World Gold Council asked me to continue the project of collecting, collating and commenting on these papers. Dr Day generously passed along all his notes, copies and papers, which included dozens of additional documents that space constraints unfortunately have prevented me from including in this published version. Many people at the World Gold Council shared responsibility with Dr Day and me for this project since the mid-1990s. Robert Pringle, Jill Leyland, Gary Meade, Henry Harington all provided supervision at various points in time. Dick Ware made arrangements with several of his contacts at the IMF who facilitated the use of several of the IMF publications. Louise Jones, Christine Woodward and Grenita Vitta provided comprehensive computer and technical support for integrating an earlier version of these papers into the World Gold Council’s web pages (http://www.gold.org/value/reserve_asset/history/ index.html). Mark Pollard and Michael Middeke of Pickering & Chatto have also provided needed editorial advice. Of course, there are many people in a variety of archives and government institutions whose help also contributed to the successful collection of these documents. The British Library provided a luxurious environment for conducting research; I can only hope that my future research will enable me to return. Sarah Millard of the Bank of England Archive went beyond the call of duty in helping me locate papers and memoranda in the Bank’s collection. I xvii

The Monetary History of Gold also made extensive use of the United States Library of Congress, the House of Lords Record Office, and libraries at the London School of Economics, University College London, Clemson University and Harvard University. I am grateful to the staff at all of these institutions for their assistance. My personal thanks are due to John Picker and Whitney Espich for their friendship. Special thanks are owed to the members of my family, who have tolerated my prattling on about obscure documents in the history of gold. Finally, these acknowledgements would not be complete, nor would this book, without the love and encouragement of one family member in particular: my wife, Gabriela Gómez Cárcamo. Whatever joy she might find in having this book dedicated to her is nothing compared to the joy I experience every morning when I awake at her side. Mark Duckenfield

xviii

EDITORIAL NOTE

Every effort has been made to replicate the original lay-out of the document, while at the same time reconciling the original format with current editorial standards. Obvious misspellings in documents are indicated by ‘[sic]’, but contemporary spellings are reproduced and any inconsistencies in spellings within a document have been maintained. American spelling has been retained in US documents.

xix

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Section I.

The Rise of the Gold Standard, 1660–1819

1

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Section I. The Rise of the Gold Standard, 1660–1819

Both gold and silver coins circulated as legal tender in England during the seventeenth century. During much of the century, silver held the preferred position as it was more useful for small transactions than the scarcer yellow metal. By the early nineteenth century, a series of political and economic reforms had led to the emergence and consolidation of gold as the coin of the realm and silver’s displacement as anything other than a subsidiary English currency. The English Civil War and the beheading of Charles I marked the end of absolutist government in England. The Stuarts were eventually restored to power and monarchs remained politically powerful; however, the rise of parliamentary government in England and its role as a defender of private property rights and civil society against encroachment from the Crown could not be reversed. After the Glorious Revolution of 1688 removed a Stuart monarch for the second time in fifty years, England began to embark upon a path of constitutional change that served to entrench these rights more deeply in the country’s political and economic institutions. Parliamentary supremacy in matters of taxation and oversight of the Crown’s expenditure was established for the first time; the Crown’s coercive administrative apparatus was disbanded, and a politically independent judiciary was created. Each of these measures limited the arbitrary power of government and reinforced private property rights.1 A series of institutional reforms accompanied these political innovations. Most important was the creation of the Bank of England in 1694. The Bank was created to provide a secure funding source for Government loans in order to finance England’s war with France. It also provided a means of ensuring that the Crown, in contrast to the Stuart practice of ‘forced loans’ that were 1. Douglass C. North and Barry M. Weingast, ‘Constitutions and Commitment: the Evolution of Institutions Governing Public Choice in Seventeenth-Century England’, Journal of Economic History, 49:4 (1989), pp. 815–19.

3

The Monetary History of Gold rarely settled, paid interest on its existing obligations. This stabilised public finances, reducing the risk of default and monetary devaluation. Secure government finances in turn opened the way for the rapid creation and expansion of private capital markets.1 These circumstances of stable, but limited, government coupled with a rise of the commercial and financial sector provided the social basis for England’s stable monetary standard during the remainder of the eighteenth and nineteenth centuries. In contrast to much of continental Europe, the English system was based on gold rather than silver. Gold has many desirable physical characteristics such as malleability, ductility, inertness and (unlike silver and bronze) inability to tarnish or oxidise. Its scarcity makes it a useful store of value; however, its relative rarity reduced its utility as a currency, especially for transactions in small denominations. It was thus something of a historical accident that England moved from a bimetallic standard in the seventeenth century to a de facto gold standard in 1717. The silver coins that circulated in seventeenth-century England were subject to debasement through clipping and filing, problems that have always plagued silver currencies. Coins that circulated for dozens of years suffered wearing and it was not always easy for merchants and consumers to tell when the coins they received had been diminished through decades of usage or when their edges had been subtlety clipped off. By the 1690s, concerns about the physical devaluation of the currency led to an increasing anxiety that the government planned a real devaluation of the currency. The rate of silver shillings to gold guineas fell from its traditional rate of 22s. per guinea to around 30s in 1695. Under the Great Recoinage of 1696, all old silver coins were recalled from circulation, and new silver coins were reminted with milled edges to deter clipping and re-issued at the traditional standard of 22s. per guinea.2 Sir Isaac Newton, Master of the Royal Mint for 24 years (1699–1723), is often credited with having placed England on the gold standard with his valuation of gold in 1717. What is less understood is that Newton’s decision and gold’s subsequent rise to predominance in the English monetary system was one of the great unintended accidents of history. Newton’s intention was not to make gold the centre of monetary policy. Rather, he wanted to secure a supply of silver for its role as currency for most small-scale transactions. Compared with its availability in Europe, silver was relatively scarce in India and China, which resulted in a net outflow of silver from England. Ironically 1. North and Weingast, ‘Constitutions and Commitment’, pp. 819–21. 2. Lee Davison and Tim Keirn, ‘John Locke, Edward Clarke and the 1696 Guineas Legislation’, Parliamentary Affairs, 7:2 (1988), pp. 228–40.

4

The Rise of the Gold Standard, 1660–1819 for a man renowned for his work as a mathematician and physicist, Newton believed that his action, which did lower the price of gold guineas from 22s. to 21s., would make silver more attractive as a currency. However, Newton’s valuation of gold at £3 17s. 10½d. per troy ounce kept gold overvalued relative to silver, especially in comparison to the ratio then existing in the Far East. With the Royal Mint continuing to undervalue silver coins, it became worthwhile to melt down silver coins and sell them – usually abroad – for gold. Consequently, silver coins found few takers in England for the remainder of the eighteenth century. While the country was officially on a bimetallic standard, gold was the currency in practice.1 A political and military alliance with Portugal against Spain during most of the seventeenth century led to the rise of London as a clearinghouse for shipments of gold from Brazil, Portugal’s primary New World colony. During the nineteenth century, gold’s position was steadily enhanced and the informal domestic ‘rules’ that made up the gold standard were established through custom and practice. The principle of convertibility that is seen as fundamental to the use of gold as currency was not an absolute principle. During times of war, the commitment to exchange gold could, in extreme circumstances, be suspended in order to insulate the banking system from financial panics and to enable the government to finance its wartime obligations without the constraint imposed by a fixed domestic currency supply. During the war with France in 1798, unfounded rumours of a French invasion of the British Isles led to a run on the English banking system as people sought to convert their paper and silver assets into gold. The extent of the panic led to the government authorising the Bank of England to suspend the convertibility of its notes into gold. Over the remainder of the Napoleonic Wars (1797–1815), the Bank made few cash payments, relying instead upon its notes that were circulating in lieu of gold. As early as 1810, the Parliamentary Select Committee on the High Price of Bullion had blamed the inflated price of gold (in terms of paper Bank of England notes) on the excessive issue of Bank notes over the previous decade and urged a return to convertibility at the traditional rate. Government efforts to uphold the value of the paper pound were initiated which prohibited transactions between paper notes and gold at any rate other than the officially designated price. Such prohibitions provided an additional support mechanism for a gold standard regime when gold could be freely exchanged for paper 1. Angela Redish, ‘The Evolution of the Gold Standard in England’, Journal of Economic History, 50:4 (1990), pp. 790–1, 796; G. Findlay Shirras and J.H. Craig, ‘Sir Isaac Newton and the Currency’, The Economic Journal, Vol. LV, edited by R.F Harrod and Austin Robinson (New York: Macmillan and Company, 1945), pp. 233–6.

5

The Monetary History of Gold currencies, because it protected both the government and the owner of paper and gold currencies equally. However, using this legal mechanism in the absence of convertibility empowered only the government. Consequently, the paper pound continued to depreciate throughout the 1810s. After the Battle of Waterloo ended the Napoleonic Wars, a fierce debate – known as the Bullionist Controversy – raged over whether or not to redeem the notes in circulation and return the pound to convertibility. The Bullionists supported the view of returning the pound to gold at its traditional ratio in order to reduce inflation and restore economic life to its pre-war condition. The Anti-Bullionists preferred the continued use of paper currencies along the lines of traditional Scottish banking practices. In 1816, Parliament made gold – at the traditional rate – the sole de jure standard of value while silver was officially relegated to the position of a token currency. Thus, in addition to giving a political victory to the Bullionists, Parliament finally recognised the position that gold had achieved in the British economy over the course of the previous century. However, with so many of its notes in circulation, the Bank of England was reluctant to return to convertibility and it was not until 1821 that paper pounds could be fully converted into gold and the promises on Bank of England notes redeemed. At the end of the seventeenth century, gold and silver were roughly on a par in terms of their utility as money. By the nineteenth century, through a combination of economic trends, policy decisions and historical accident, gold had become the coin of the realm in the United Kingdom. The establishment and entrenchment of a domestic gold standard in Britain at this point in history had far reaching consequences for international monetary relations.

6

21 May 1660 Resolution of the House of Commons to prohibit the Exportation of Money and Bullion from England

The policies of early modern governments towards the regulation of trade in bullion oscillated between strict intervention and a more laissez-faire approach, depending upon the prevailing economic and political conditions. The maintenance of foreign trade nevertheless required governments to export either coin or bullion. Whether it was one or the other ultimately mattered little to merchants, who in the event of a ban on the export of coin would simply melt the coin into bullion for export. Source: House of Commons, Journals of the House of Commons (London: House of Commons, 1803), vol. 8, p. 39.

Resolved, That no Money or Bullion be exported out of this Realm, to any Parts beyond the Seas, without the Approbation of Parliament; and that it be referred to the Council of State to take care thereof; and, upon any Address made to them for Liberty in that Behalf, to report the Case to this House, for their Direction therein.

7

11 December 1660 Excerpt from a Report of His Majesty’s Council of Trade advocating to the King the Execution of Provisions enabling the free Exportation of Gold and Silver from England

This excerpt gives merely the introduction. Supporting arguments are enumerated in greater detail in an attachment of 6–7 pages. Source: J.R. McCulloch (ed.), Old and Scarce Tracts on Money (London: P.S. King & Son, 1933), pp. 145–53.

The balance of trade (by which we understand the proportion that the commodities exported have in value to the commodities imported) being the sole or principal cause of the Exportation or Importation of Bullion: If, upon the balance, money is to be exported, the strictest laws (as by the experience of all ages appeareth) cannot stop it. But if, upon the balance, money is to be imported, that same law that could not, in the other case, prevent the carrying of it out, hinders, in this, the bringing of it in; for the merchant will rather send his money to Livorne, Amsterdam, etc., (where he may remove it at pleasure) than bring it hither; whence he cannot export it in pursuance of any advantage in trade, without hazarding the loss of it. However, it evidently gives a greater interruption to the English Merchant, and keeping foreigners (upon the same account) from lodging their money here (as otherwise they would) this being a place so much more convenient than Amsterdam, does consequently lose the great benefit that would arise to your Majesty in your Mint and revenue, to the nobility and gentry in their estates, and to the merchant in his trade, by the plenty of gold and silver in your Majesty’s dominions. And though the prerogative your Majesty’s royal predecessors anciently had and exercised of the whole change, exchange, and rechange of Money, Bullion, etc., (which must needs have been invaded, if any other had the liberty of exporting Gold and Silver) was in those days a sufficient and principal (if not the only reason) for making the several statutes against the Exportation of 8

The Rise of the Gold Standard, 1660–1819 Money, etc., without the King’s licence; yet, that reason now ceasing, we most humbly propose to your Majesty, as our opinion, and advise (upon the weight of those other preceding reasons, of which your Majesty, by the annexed paper, may receive more full satisfaction) that your Majesty would be graciously pleased, for the better advancing of trade, (and for the general good of your Majesty’s subjects) to dispense with the present penalties upon the Exportation of Gold and Silver in foreign Coin or Bullion for some certain time, and by such public act, as (being without any trouble or charge to traders) may give both encouragement and assurance, unto merchant-strangers, as well as natives, in the importing of Gold and Silver, unless upon public notice, given a year before, your Majesty shall think fit to recall the same. All which we most humbly submit unto your Majesty’s most gracious will and pleasure.

9

20 December 1662 ‘An Act to prevent the Inconvenience arising by melting the Silver Coin of this Realm’

The Act was intended to introduce disincentives for melting the hammered silver coins of England and exporting them as bullion, which was already widespread, in order to protect the new milled money from melting and hoarding. Source: The Statutes of the Realm (London, 1819), vol. 5, p. 425. Cited as 14. Car. II, c. 31. See also Ming-Hsun Li, The Great Recoinage of 1696 to 1699 (London: Weidenfeld and Nicolson, 1963), p. 37.

Whereas by an Act made of the Ninth yeare of King Edward the Third, It is enacted that no sterling Halfe penny or Farthing shall be moulten to make Vessel or any other thing by Goldsmiths or any other upon pain of forfeiture of the moneys so molten; Whereas by one other Statute made in the Seaventeenth yeare of King Richard the Second, It was further enacted that no Groats or Halfe groats shell be moulten by any man to make Vessel or other thing thereof upon the same pain; And whereas divers persons do elude the said Statutes as wel [sic] as Goldsmiths as others by melting Silver Coyns of this Realm above the value of Groats to the great diminishing of the Silver Coyn of this Realm and the hindrance of the commerce of the same: Bee it therefore enacted by the Kings most Excellent Majestie by and with the Advice and Consent of the Lords Spiritual and Temporal, and the Commons, in this present Parliament assembled, and by Authority of the same, That no person or persons whatsoever shall after the Twentieth day of December One thousand six hundred sixty two wilfully melt or cause to be melted any of the Curent Silver money of this Realm upon pain not onely of forfeiture of the same but alsoe of the double value of any such Coyn so melted, the one halfe to His Majestie, His Heirs and Successors, the other halfe to the Informers whoe shal sue for the same upon Action of Debt, Bill, Plaint or Information in any of His Majesties Courts at Westminster in which no Essoign, Wager of Law or protection shall be allowed. And moreover, that the said person or persons 10

The Rise of the Gold Standard, 1660–1819 offending contrary to the Tenor of this Act (if he or they be a Freeman or Freemen or priviledged person or persons of any City or Corporation within this Kingdom of England) shall upon legal conviction for the same be forthwith disfranchised and made uncapable of exerciseing the Trade of a Goldsmith or any other Mistery by vertue of the Priviledges of the City or Corporation of which he or they are members. And if the said person or persons offending and convict [sic] as aforesaid shall not bee a Freeman or Freemen or priviledged person or persons of any City or Corporation as aforesaid, then hee or they shall suffer imprisonment without bail or mainprize for the space of six moneths next ensueing his or theire conviction as aforesaid.

11

19 May 1663 Excerpt from the Diary of Samuel Pepys

Pepys’s diary gives an account of the processes involved in the manufacture of coinage at the Royal Mint using the new ‘milled’ method. Theoretically, the methods employed at the Mint were secret, and the publication of any description of the methods was forbidden, even though other countries using similar methods made no restrictions on publication. Owing to the proscriptions against the publication of production methods in England, however, Pepys’ account is of especial interest. Source: Samuel Pepys, Diary and Correspondence of Samuel Pepys, F.R.S. (London: Swan Sonnenschein & Co., 1890), vol. 1, pp. 458–60. See also Samuel Pepys, The Diary of Samuel Pepys (London: G. Bell, 1928).

And thence with Sir John Minnes to the tower and by Mr Slingsby and Mr Howard [recte James Hoare], Controller of the Mint, we were shown the method of making this new money from the beginning to the end; which is so pretty that I did take notes of every part of it and set them down by themselfs for my remembrance hereafter. That being done, it was dinner-time, and so the Comptroller would have us dine with him and his company, the King giving them a dinner every day; and very merry, and good discourse about the business we have been upon; and after dinner went to the Essay-Office and saw there the manner of essaying of Gold and Silver, and how silver melted down with gold doth part again being put into aqua fartis, the silver turning into water [i.e., liquid] and the gold lying whole in the very form it was put in, mixed of gold and silver; which is a miracle – and to see no silver at all, but turned into water; which they can bring again into itself out of that water. And here I was made thoroughly to understand the business of the finenesse and coursenesse of metals, and have to put down my lessons with my other observations therein. At table, among other discourse, they told us of two cheats, the best I ever heard. One of the a labourer discovered to convey away the bits of silver cut for pence by swallowing them down into his belly, and so they could not find him, though of course they search all the labourers. But having reason to 12

The Rise of the Gold Standard, 1660–1819 doubt him, they did by threates and promises get him to confess, and did find 7l. of it in his house at one time. The other, of one that got a way of coining money as good as passable and large as the true money is, yet saved 50 per cent to himself; which was by getting moulds made to stamp groats like old groats, which is done so well (and I did beg two of them, which I keep for rarities) that there is not better in the world; and is as good, ney better, then those that commonly go; which was the only thing that they could find out to doubt them by, besides the number that the party doth go to put off, and then comming to the Controller of the Mint, he could not, I say, find any other thing to raise doubt upon, but only their being so truly round or near it; though I should never have doubted that thing neither. He was neither hanged nor burned [i.e., the usual punishments for counterfeiting, which was considered high treason], the cheat was thought so ingenious and being the first time they could ever trap him in it, and so little hurt to any man in it, the money being as good as commonly goes. […] The most observables in the making of money which I observed today is in the steps of their doing it. 1. Before they do anything, they essay the Bullion – which is done, if it be gold, by taking an equall weight of that and of Silver; of each a small weight, which they reckon to be six ounces or half a pound Troy; this they wrap up in thin leade. If it be Silver, they put such a quantity of that alone and wrap it up in lead; and then putting them into little earthen cupps made of Stuffe like tobacco pipes and put them into a burning hot Furnace; where after a while the whole body is melted and at last the lead in both is sunk into the body of the cup, which carries away all the copper or dross with it and left the pure gold and silver embodyed together, of that which hath both [been] put into the cup together, and the silver alone in those where it was put alone in the leaden case. And to part the silver and the leade in the first experiment, they put the mixed body into a glass of boyling aqua fortis, which separates them by spitting out the silver into such small parts that you cannot tell what it becomes; but turns into the very water and leaves the gold at the bottom clear of itself, with the silver wholly spewed out; and yet the gold in the form that it was double[d] together in when it was a mixed body of gold and silver – which is a great mystery; after all this is done, to get the silver together out of the water is as strange. But the nature of the Essay is thus. The piece of gold that goes into the Furnace, 12 ounces, if it comes out again, 11 ounces; and the piece of silver which goes in, 12, and comes out again 11 and 2 penny-weight, are just of the allay of the standard of England [i.e., 925/1000 pure silver and 75/1000 13

The Monetary History of Gold alloy]. If it comes out, either of them, either the gold above 11, as very fine will sometimes within very little of what it went in, or the silver about 11 and 2 pennyweight, as that also will sometimes come out 11 and 10 pennyweight or more, they are so much above the goodness of the standard; and so they know what proportion of worse gold or silver to put to such a quantity of the Bullion to bring to the exact standard. And on the contrary, [if] they comes out lighter, then such a weight is beneath the standard and so requires such a proportion of fine mettall to be put to the Bullion to bring it to standard. And this is the difference of good and bad, better and worse then the standard, and also the difference of standards, that of Sivill being the best and that of Mexico worse; and I think they said none but Sivill is better then ours. 2. They melt it into long plates; which, if the mould do take ayre, then that plate is not of equal heavynesse in every part of it, as it often falls out. 3. They draw these plates between rollers, to bring them to an even thickness all along and every plate of the same thickness. And it is very strange how the drawing it twice easily between the rowlers will make it as hot as fire, you cannot touch it. 4. They bring it to another pair of Rowlers, which they call adjousting – which brings it to a greater exactnesse in its thickness then the first could do. 5. They cut them into round pieces, which they do with the greatest ease, speed and exactness in the world. 6. They weigh these; and where they find any to be too heavy, they file them which they call Sizeing them; or light, they lay them by; which is very seldom but they are of a most exact weight. But however, in the melting, all parts by some accident not being close alike, now and then a difference will be. And this fyling being done, there shall not be any imaginable difference almost between the weight of 40 of these against another 40 chosen by chance out of all their heapes. 7. These round pieces having been cut out of the plates, which in passing the rollers are bent, they are sometimes a little crooked or swelling out or sinking in; and therefore they have a way of clapping a hundred or two together into an engine, which with a screw presses them so hard that they come out as flat as possible. 8. They blanch them. 9. They mark the letters on the edges, which is kept as the great secret by Blondeau (who was not in the way and so I did not speak with him today). 10. They mill them; that is, put on the marks on both sides at once, with great exactness and speed – and then the money is perfect. 14

The Rise of the Gold Standard, 1660–1819 The Mill is after this manner; one of the dyes, which hath one side of the piece cut, is fastened to a thing fixed below; and the other dye (and they tell me a payre of Dyes will last the marking of 10,000l. before it be worn out, they and all other their tools being made of hardened steel, and the Duchman [i.e., Roettier, probably John, the Mint graver] who makes them is an admirable artist, and hath so much by the pound for every pound that is coyned, to find a constant supply of dyes) to an engine above, which is moveable by a screw which is pulled by men; and then the man with his finger strikes off the piece and claps another on; and then the other men they pull again and that is marked, and then another and another, with great speed. They say that this is more charge to the King then the old way. But it is neater, freer from clipping or counterfeiting, the putting of words upon the edges being not to be done (though counterfeited) without an engine of that charge and noise that no counterfeit will be at or venture upon. And it imploys as many men as the other, and speedier. They now coyne between 16 and 24,000l. in a week. At dinner they did discourse very finely to us of the probability that there is a vast deal of money hid in the land, from this: That in King Cha[r]les’s time time there was near 10 millions of money coyned – besides what was then in being of King James’s and Queen Elizabeths, of which there is a good deal at this day in being. Next, that there was but 750,000l. coyned of the harp and Cross-mony [i.e., Commonwealth coins, so-called from the English cross and the Irish harp on the reverse], and of this there was 500,000l. brought in upon its being called in, and from very good arguments they find that there cannot be less of it in Ireland and Scotland then 100,000l.; so that there is but 150,000l. missing; and of that, suppose that there should be not above 50,000l. still remaining, either melted down, hid or lost or hoarded up in England, there will then be but 100,000l. left to be thought to have been transported [i.e., taken abroad]. Now, if 750,000l. in twelve yeares time lost but a 100,000l. in danger of being transported, then 10,000,000l. in 35 Years time will have lost but 3,888,880l. and odd pounds. And as there is 650,000l. remaining after 12 years’ time in England, so after 35 years’ time, which was within this two years, there ought in proportion to have been resting 6,111,120l. or thereabouts besides King James and Queen Elizabeth mony. Now, that most of this must be hid is evident as they reckon, because of the dearth of money immediately upon the calling-in of the State’s money, which 15

The Monetary History of Gold was 500,000 that came in; and yet there was not any money to be had in this City – which they say to their own observation and knowledge was so. And therefore, though I can say nothing in it myself, I do not dispute it.

16

1 August 1663 Excerpt from ‘An Act for the Encouragement of Trade’

The Act was introduced to Parliament by His Majesty’s Council of Trade perhaps two years earlier but enacted only on this date. The Act lifted restrictions on the exportation of foreign coins, gold and silver bullion. Source: The Statutes of the Realm (London, 1819), vol. 5, p. 451. Cited as 15. Car. II, c. 7. s. 9. See also Li, The Great Recoinage of 1696 to 1699, p. 39. IX. And forasmuch as severall considerable and advantagious Trades cannot be conveniently driven and carried on without the Species of Money or Bullion, and that it is found by Experience, that they are carried in greatest Abundance (as to a common Market) to such Places as give free Liberty for exporting the same; and the better to keep in and increase the current Coins of this Kingdom, Be it enacted, and it is hereby enacted, That from and after the first Day of August one thousand six hundred sixty and three, it shall and may be lawful to and for any Person or Persons whatsoever, to export out of any Port of England or Wales, in which there is a Customer or Collector, or out of the town of Berwick, all Sorts of Foreign Coin or Bullion of Gold or Silver, first making Entry thereof in such Custom-house respectively, without paying any Duty, Custom, Poundage or Fee for the same; and Law, Statute or Usage to the contrary notwithstanding.

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20 December 1666 ‘An Act for Encourageing of Coynage’

The Act was intended to reduce a variety of disincentives that were seen to discourage the public from bringing gold and silver to the Mint to be coined, primarily by eliminating seigniorage. Source: The Statutes of the Realm (London, 1819), vol. 5, pp. 598–600. Cited as 18 & 19 Cha. II, c. 5. See also Li, The Great Recoinage of 1696 to 1699, pp. 40–1; Rogers Ruding, Annals of the Coinage of Britain and its Dependencies (London: Nichols, Son and Bentley, 1819), vol. 3, p. 312–15.

Whereas it is obvious that the plenty of Current Coynes of Gold and Silver of this Kingdom is of great advantage to Trade and Commerce; For the Increase whereof, Your Majestie in Your Princely Wisedome and Care hath beene gratiously pleased to beare out of Your Revenue halfe the Charge of the Coynage of Silver money; For the preventing of which Charge to your Majestie, and the Encouragement of the bringing of Gold and Silver into the Realme, to be converted into the Current Money of this Your Majestyes Kingdome, Wee Your Majesteys Dutyfull and Loyall Subjects doe give and grant unto Your Majesty the Rates, Duties or Impositions following, and doe beseech Your Majestie that it may be enacted, and bee it enacted by the Kings most Excellent Majestie, by and with the Advice and Consent of the Lords Spirituall and Temporall and Commons in this present Parlyament assembled, and by the Authoritie of the same, That whatsoever person or persons, Native or Foreigner, Alien or Stranger, shall from and after the Twentyeth day of December One thousand six hundred sixty and six, bring any Forreigne Coyne, Plate or Bullion of Gold or Silver, in Masse, molten and allayed, or any sort of Manufacture of Gold or Silver, into His Majestyes Mint or Mints within the Kingdome of England, to be there melted downe and coyned into the current Coynes of this Kingdome, shall have the same there assayed, melted downe and coyned with all convenient speede without any Defalcation, Diminution or Charge for the Assaying, Coynage or Waste in Coynage; Soe as that for every pound Troy of Crowne or Standard Gold that shall be brought in and delivered by him or them to be 18

The Rise of the Gold Standard, 1660–1819 assayed, melted downe and coyned, as aforesaid, there shall be delivered out to him or them respectively, a pound Troy of the current Coynes of this Kingdome of Crowne or Standard Gold; And for every pound Troy of Sterling or Standard Silver that shall be brought in and delivered by him or them to be assayed, melted downe and coyned, as aforesaid, there shall be delivered out to him or them respectively, a pound Troy of the current Coynes of this Kingdome of Sterling or Standard Silver, and soe proportionably for a greater or lesser weight; and for every pound Troy of Gold or Silver that shall be brought in and delivered to be assayed, melted downe and coyned, as aforesaid, that shall be finer upon Assay the Crown Gold or Standard Silver, there be delivered for the same soe much more than a pound Troy as the same doth in Proportion amount to in fineness and value; And for every pound Troy of Gold or Silver that shall be brought in delivered to be assayed, melted downe and coyned, as aforesaid, that shall be coarser or baser upon Assay, or worse in value than Crowne Gold or Standard Silver, there shall be delivered for the same soe much lesse than a pound Troy as the same doth fall short in fineness or value and soe for a greater or lesser quantity. II. And it is hereby further enacted by the Authority aforesaid, That there shall be no Preference in point of Assaying or Coynage, but that all Gold and Silver brought in and delivered into the Mint, to be assayed and coyned, shall be assayed, coyned and delivered out to the respective Importers, according to the order and times of bring in and delivering the same into the Mint or Mints and not otherwise; Soe as he that shall first bring in and deliver any Gold or Silver to be coyned shall be taken and accounted the first Person to have the same assayed, coyned and delivered; And he or they that shall bring in and deliver any Gold or Silver next, to be accounted the second Person to have the same assayed, coyned and delivered and soe successively in course; And that the Gold and Silver brought in and coyned, as aforesaid, shall be in the same Order delivered to the respective bringers in thereof, their Executors, Administrators or Assigns successively, without Preference of one before the other, and not otherwise; […]. V. And for the further Encouragement and Assurance of such as shall bring Gold and Silver into His Majestyes said Mint or Mints to be coyned; Bee it enacted, And it is hereby enacted by the Authoritie aforesaid, That no Confiscation, Forfeiture, Seizure, Attachment, Stop or restraint whatsoever shall be made in the said Mint or Mints, of any Gold or Silver brought in to be coyned, for or by Reason of any Imbargo, Breach of the Peace, Letters of Mart or Reprisall, or Warr within any Forreigne Nation or upon any other accompt or pretence whatsoever; But that all Gold and Silver brought into any of His Majestyes Mint or Mints within the Kingdome of England to be coyned, shall truly and with all convenient speede be coyned and delivered out to the 19

The Monetary History of Gold respective bringer or bringers in thereof, their respective Executors, Administrators or Assigns, according to the Rules and Directions of the Act. XI. And lastly Bee it enacted, And it is hereby enacted by the Authoritie aforesaid, That this Act shall continue and be in force untill the twentyeth day of December which shall be in the yeare of our Lord One thousand six hundred seaventy one, and untill the end of the first Session of Parlyament then next following and noe longer.

20

12–13 June, 19–20 June, 10–12 October 1667 Excerpt from the Diary of Samuel Pepys

The excerpt deals with Pepys’s efforts to safeguard his gold as fears of a Dutch invasion were spreading through London during the Second Anglo-Dutch War of 1665–7. This and the following passages recount a scene that must have been replayed countless times throughout history as men and women of means scrambled to protect their most liquid assets in times of uncertainty. Pepys was dissatisfied with the manner in which his wife and father had interred his gold for safekeeping. Source: Pepys, Diary and Correspondence of Samuel Pepys, vol. 3, pp. 120–3, 134, 250–6. See also Pepys, The Diary of Samuel Pepys.

12–13 June 1667 […] the news is true, that the Dutch have broke the Chain and burned our ships, perticularly the Royall Charles; other perticulars I know not, but most sad to be sure. And the truth is, I do fear so much that the whole kingdom is undone, that I do this night resolve to study with my father and wife what to do with what little that I have in money by me, for I give all the rest that I have in the King’s hands for Tanger for lost. […] The manner of my advising with my father and wife this night was: I took him and my wife up to her chamber, and shut the door and there told them the sad state of the times; how we are like to be all undone – that I do fear some violence will be offered to this office, where all I have in the world is. And resolved upon sending it away – sometimes into the country, sometimes my father to lie in town and have the gold with him at Sarah Giles’s; and with that resolution went to bed – full of fear and fright; hardly slept all night. No sooner up but hear the sad news confirmed, of the Royall Charles being taken by them and now in fitting by them (which Pett should have carried up by our order, and deserves therefore to be hanged for not doing it) and burning several others, and that another fleet is come up into the Hope; upon which news the King and Duke of York have been below [i.e., downstream from 21

The Monetary History of Gold London Bridge] since 4 a-clock in the morning, to command the sinking of ships at Barking Creeke and other places, to stope their coming up higher; which put me into such a fear that I presently resolved of my father’s and wife’s going into the country; and at two hours’ warning they did go by the coach this day – with about 1300l. in gold in their night-bag; pray God give them good passage and good care to hide it when they come home, but my heart is full of fear. They gone, I continued in frights and fear what to do with the rest. W. Hewer hath been at the banquiers and hath got 500l. out of Backwell’s hands of his own money; but they are so called upon that they will be all broke, hundreds coming to them for money – and their answer is, ‘It is payable at twenty days; when the days are out, we will pay you;’ and those that are not so, they make tell over their money, and make their bags false on purpose to give cause to retell it and so spend time; I cannot have my 200 pieces of gold again for silver, all being bought up last night that were to be had – and sold for 24 and 25s. a-piece. So I must keep the silver by me, which sometimes I think to fling in the house of office – and then again, know not how I shall come by it if we be made to leave the office. Every minute some or other calls for this order or that order; and so I forced to be at the office most of the day about fireships which are to be suddenly fitted out; and it’s a most strange thing that we hear nothing from any of my Brethren at Chatham; so that we are wholly in the dark, various being the reports of what is done there – insomuch, that I sent Mr Clapham express thither to see how matters go. I did about noon resolve to send Mr Gibson away after my wife with another 1000 pieces, under colour of an express to Sir Jer: Smith, who is, as I hear, with some ships at Newcastle; which I really did send to him, and may possibly prove of good use to the King; for it is possible, in the hurry of business they may not think of it at Court, and the charge for the express is not considerable to the King. So though I entend Gibson no further then to Hunington, yet I direct him to send the packet forward. […] In the evening I sent for my cousin Sarah and her husband; who came and I did deliver them my chest of writings about Brampton, and my brother Tom’s papers and my Journalls, which I value much – and did send my two silver flagons to Kate Joyce’s: that so, being scattered what I have, something might be saved. I have also made a girdle, by which with some trouble I do carry about me 300l. in gold about my body, and that I may not be without something in case I should be surprized; for I think, in any nation but ours, people that appear (for we are not endeed so) so faulty as we would have their throats cut. In the evening comes Mr Pelling [i.e., probably Walter Pelling, apothecary] and several others to the office, and tell me that never were people so dejected as they are in the City all over at this day, and do talk most loudly, even treason; as, that we are bought and sold, that we are betrayed by the papists and others about the King – cry out that the Office of 22

The Rise of the Gold Standard, 1660–1819 the Ordinance hath been so backward as no powder to have been at Chatham nor Upner Castle till such a time, and the carriages all broken – that Legg is a papsit – that Upner, the old good castle built be Queen Elizabeth, should be lately slighted – that the ships at Chatham should not be carried up higher. They look upon us as lost; and remove their families and rich goods in the City and do think verily that the French, being come down with his army to Dunkirke, it is to invade us – and that we shall be invaded. […] Late at night comes Mr Hudson, the cooper, my neighbour, and tells me that he came from Chatham this evening at 5 a clock and saw this afternoon the Royall James, Oake, and London burnt by the enemy with their fireships; that two or three men-of-war came up with them, and made no more of Upner castle’s shooting then of a fly – that these ships lay below Upner Castle (but therein I conceive he is in an error) – that the Dutch are fitting out the Royall Charles – that we shot so far as from the yard thither, so that the shot did no good, for the bullets grazed on the water – that Upner played hard with their guns at first, but slowly afterward, either from the being beat off or their powder spent. But we hear that the fleet in the Hope is not come up any higher the last flood. And Sir W. Batten [i.e., Sir William Batten, Surveyor of the Navy] tells me that ships are provided to sink in the River about Woolwich, that will prevent their coming up higher if they should attempt it. I made my will also this day, and did give all I had equally between my father and wife – and left copies of it in each of Mr Hater [i.e., Tom Hayter, another of Pepys’s clerks at the Navy Office] and W. Hewer’s hands, who both witnesses the will; and so to supper and then to bed; and slept pretty, but yet often waking.

19–20 June 1667 […] I and my wife to talk; who did give me so bad an account of her and my father’s method in burying our gold, that made me mad – and she herself is not pleased with it, she believing that my sister knows of it. My father and she did it on Sunday when they were gone to church, in open daylight in the midst of the garden, where for aught they knew, many eyes might see them; which put me into such trouble, that I was almost mad about it, and presently cast about how to have it back again to secure it here, the times being a little better now; at least, at White-hall they seem as if they were – but one way or another, I am resolved to free them from the place if I can get them. Such was my trouble at this, that I fell out with my wife; that though new come to town, I did not sup with her nor speak to her tonight, but to bed and sleep. […] At night, my wife and I to walk and talk again about our gold, which I am not quiet in my mind to be safe; and therefore will think of some way to 23

The Monetary History of Gold remove it, it troubling me very much. So home with my wife to supper and to bed – miserable hot weather all night it was.

10–12 October 1667 […] my father and I with a dark lantern, it now being night, into the guarden with my wife and there went about the great work to dig up my gold. But Lord, what a tosse I was for some time in, that they could not justly tell where it was, that I begun heartily to sweat and be angry that they should not agree better upon the place, and at last to fear that it was gone; but by and by, poking with a spit, we found it, and then begun with a spudd to lift up the ground, but good God, to see how sillily they did it, not half a foot under ground and in sight of the world from a hundred places if anybody by accident were near-hand, and within sight of a neighbour’s window and their hearing also, being close by; only, my father says that he saw them all gone to church before he begun the work when he laid the money, but that doth not excuse it to me; but I was out of my wits almost, and the more from that upon lifting up the earth with the spud, I did discern that I scattered the pieces of gold round about the ground among the grass and loose earth; and taking up the Iron head-pieces wherein they were put, I perceive the earth was got among the gold and wet, so that the bags were all rotten, all the notes, that I could not tell what in the world to say to it, not knowing how to judge what was wanting or what had been lost by Gibson in his coming down, which, all put together, did make me mad; and at last was forced to take up the head-pieces, dirt and all, and as many of the scattered pieces as I could with the dirt discern by the candlelight, and carry them up into my brother’s chamber and there lock them up till I had eat a little supper; and then all people going to bed, W. Hewer and I did all alone, with several pales of water and basins, at last wash the dirt off the pieces and parted the pieces and the dirt, and then begun to tell;* [the asterisk is Pepys’s own] and by a note which I had of the value of the whole (in my pocket) do I find that there was short above 100 pieces, which did make me mad; and considering that the neighbour’s house was so near, that we could not suppose we could speak to one another in the garden at the place where the gold lay (especially by my father being deaf) but they must know what we had been doing on, I feared that they might in the night come and gather some pieces and prevent us the next morning; so W. Hewer and I out again about midnight (for it was now grown so late) and there by candlelight did make shift to gather 45 pieces more – and so in and to cleanse them, and by this time it was past 2 in the morning; and so to bed, with my mind pretty quiet to think that I have recovered so many. And then to bed, and I lay in the trundle-bed, the girl being gone to bed to my wife. 24

The Rise of the Gold Standard, 1660–1819 And I lay there in some disquiet all night, telling the clock till it was daylight; and then rose and called Mr Hewer, and he and I, with pails and a Sive, did lock ourselfs into the garden and there gather all the earth about the place into pails, and then Sive those pails in one of the summer-houses (just as they do for Dyamonds in other parts of the world); and there to our great content did with much trouble by 9 a-clock, and by that time we emptied several pails and could not find one, we did make the last night’s 45 up 79; so that we are come to about 20 or 30 of what I think the true number should be, and perhaps within less; and of them I may reasonably think that Mr Gibson might lose some, so that I am pretty well satisfied that my loss is not great and do bless God that it is so well; and do leave my father to make a second examination of the dirt – which he promises he will do; and poor man, is mightily troubled for this accident which is unusual; and so gives me some kind of content to remember how painful it is sometimes to keep money, as well as to get it, and how doubtful I was how to keep it all night and how to secure it in London. And so got all my gold put up in bags; and so having the last night wrote to my Lady Sandwich to lend me John Bowles to go along with me my Journy, not telling her the reason, but it was only to secure my gold, we to breakfast; and then about 10 a-clock took coach, my wife and I, and Willett and W. Hewer, and Murford and Bolwes (whom my Lady lent me), and my brother John on horseback; with these four I thought myself pretty safe. […] My gold, I put into a basket and set under one of the seats; and so my work every quarter of an hour was to look to see whether all was well, and did ride in great fear all the day; but it was a pleasant day and good company, and I mightily contented. Mr Sheply saw me beyond St. Neotts and there parted, and we straight to Stevenage, through Baldock lanes, which are already very bad. And at Stevenage we came well before night, and all safe; and there with great care I got the gold up to the chamber, my wife carrying one bag and the girl another and W. Hewer the rest in the basket, and set it all under a bed in our chamber; and then sat down to talk and were very pleasant, satisfying myself, among other things from Jo. Bowles, in some terms of Hunting and about deere, bucks, and does; and so anon to supper, and very merry we were and a good supper; and after supper to bed. Brecocke alive still, and the best Host I know almost. Up, and eat our breakfast and set out about 9 a-clock; and so to Barnett, where we stayed and baited (the weather very good all day and yesterday) and by 5 a-clock got home, where I find all well; and did bring my gold, to my heart’s content, very safe home, having not this day carried it in a basket but in our hands: the girl took care of one and my wife the other bag, and I the rest – and being afeared of the bottom of the coach, lest it should break; and therefore was at more ease in my mind then I was yesterday. 25

1672 [undated] ‘An Act for continuing a former Act concerning Coynage’

In recognition of the great benefit yielded to the country by ‘An Act for Encouragement of Coynage’, 1666, this Act, the introductory section of which is printed below, extended the earlier Act for an additional seven years. Source: The Statutes of the Realm, vol. 5, p. 794. Cited as 25. Cha. II., c. 8 s. 1.

Forasmuch as great advantage hath accrewed to this Kingdome by one Act of this present Parlyament passed in the eighteenth year of your Majestyes Raigne entituled An Act for Encouragement of Coynage, for that very great quantities of Gold and Silver have beene brought into this Realme, and converted into the current Coynes thereof by reason of the encouragement given thereto by the said Act; And whereas the said Act was to continue untill the twentyeth day of December in the yeare of our Lord One thousand six hundred seaventy and one, and untill the end of the first Session of Parlyament then next following and now longer, soe as that unlesse the said Act be now renewed, the encouragement given thereby to Coynage will cease, and this Kingdome be deprived for the future of soe great a good as it hath thereby for these years last past enjoyed; Wee therefore your Majestyes Dutyfull and Loyall Subjects doe humbly pray that it may be enacted and bee it enacted by the Kings most excellent Majestie by and with the advice and consent of the Lords Spirituall and Temporall and Commons now in Parlyament assembled and by the authoritie of the same; That the said Act shall continue and be in force for the space of seaven years to commence from and after the determination of this present Session of this Parlyament, and untill the end of the first Session of Parlyament then next following and noe longer.

26

1674 [undated] Statement issued by the English Government in Response to Reports about large Amounts of Bullion exported from England by the East India Company

From the 1660s, the depreciation of silver in India from the traditional ratio of 1:11 between gold and silver to a ratio of 1:17 in 1674 drew increasing amounts of gold to the subcontinent. By 1682, the ratio had stabilised around 1:14, with the result that much smaller, but still considerable, quantities of gold were exported from England by the Company. After 1685, the amount of gold exported to India diminished significantly. Suffice it to say that the aggregation of all bullion in this statement obscures the fact that during the early 1670s considerable quantities of the exported bullion were in gold. Source: Ethel Bruce Sainsbury, A Calendar of the Court Minutes, etc., of the East India Company, 1674–1676 (Oxford: The Clarendon Press, 1934), p. 134.

In answer to exaggerated reports of the exportation of bullion by the East India Company, and of permission granted by them to others to send in their ships, and of all bullion (gold, silver, and pieces of eight) shipt by them from 1667– 1668, to the present year 1674. 1667–1668 1668–1669 1669–1670 1670–1671 1671–1672 1672–1673 1673–1674

l. 128,605 162,394 187,458 186,149 186,420 131,300 182,983

s. 17 9 3 10 8 5 0

d. 5 10 8 11 3 11 6

counting the real of 8 at 5s. In lieu thereof and of several manufacturers sent out by the Company, they pay about 35,000l. a year for customs. They have built in that time and are building 24 ships from 350 to 600 tons burden, and have paid for freight and wages about 100,000l. per annum, and have furnished the three kingdoms 27

The Monetary History of Gold with all sorts of East India commodities, except spices, which would otherwise have been supplied by other nations at far greater rates. They have besides exported East India goods to other countries worth at a moderate estimate double the value of what they have exported in bullion, and the proceeds of a great part thereof is returned in gold and silver. The Company, finding it not convenient for themselves to trade in diamonds, bezoar stones, ambergis, musk, pearls, and other fine goods, have given others leave to trade therein, paying only a small acknowledgement to the Company for freight.

28

1676 [undated] ‘The Mystery of the new fashioned Goldsmiths or Bankers: their Rise, Growth, State, and Decay, discovered in a Merchant’s Letter to a Country Gent who desired to bind his Son Apprentice to a Goldsmith’

This anonymous pamphlet is often cited as evidence for the transition, between about 1640 and 1670, of goldsmiths from trade in plate to private banking, and to support the argument that banking in England evolved from the goldsmith trade. Many prominent English banks indeed traced their origins back to goldsmiths, though economic historians caution against such a simplistic explanation. Source: Anonymous, ‘The Goldsmith Bankers’, in: B. L. Anderson and C. L. Cottrell (eds), Money and Banking in England, 1694–1914 (London: David & Charles, 1974), pp. 159–65.

Sir, Since you are pleased to demand my advice in the disposal of your Son to the Goldsmiths Trade, and my opinion of the Trade itself; I must trouble you more than I was willing to set down what I have observed of the Goldsmiths since I have Traded, and the steps of their Rise and Progress, and leave the judgement of the whole to your Self; tis but fit that a Son should owe the good choice of his imployement and way to his fortunes to the prudence and love of his Father. If I could now discourse you, I ought to be satisfied whether you have thoughts to put your Son to a Goldsmith of the Old or New Fashion, those of the profession having of late years wholly changed their way of Trading. In my time their whole imployment was to make and sell Plate, to buy forreign Coyns and Gold and Silver imported to melt and cull them, and cause some to be coyned at the Mint, and with the rest to furnish the Refiners, Plate-makers, and Merchants, as they found the price of gold and silver to vary, and as the Merchants had occasion for Forreign Coyns. But about Thirty years since, the Civil Wars giving opportunity to Apprentices to leave their Masters at will, and the old way having been for Merchants to trust their Cash in one of their Servants custody, many such Cashiers left their Masters in the lurch and went to the Army, and Merchants knew not 29

The Monetary History of Gold how to confide in their Apprentices; then did some Merchants begin to put their Cash into Goldsmiths hands to receive and pay for them, (thinking it more secure) and the trade of Plate being then but little worth, most of the Nobility and Gentry, and others melting down their old Plate rather than buying new, and few daring to use or own Plate, the Goldsmiths sought to be Merchants Cash-Keepers to receive and pay for nothing, few observing or conjecturing their profit they had for their pains. It happened about that time that the then Parliament had coyned out of Plate, and otherwise seven Millions in Half-Crowns, and no Mills being then used in the Mint, the Money was of a very unequal weight, sometimes two pence or three pence in an ounce difference, and the French and others then changing the value of their Coins often, which made silver and gold of much greater value abroad than at our English Mint: The Goldsmiths found a new Mischeivous trade to send all the money trusted in their hands into their Cocklofts, where they had Scales and various Weights adapted for their pourpose, and servants constantly weighed every half-crown (at least) and sorted them to melt for Two pence or three pence, or sometimes less gain by the ounce, and sometimes their advantage greater by the accidents of the rise or fall of the exchange, those heaviest Coins were sent away in specie, several French men and other Merchants making it their whole and only business to transport the gold and silver so culled, either melted down or in specie; and from hence the Goldsmiths set up another new Trade of buying old English gold coin at a rate much above its Lawful coyned value, buying and selling it at five, seven, eight and ten pounds in the hundred more than it was coyned for, still sending it away so fast, or supplying those with it whose business was to Transport it, that by a modest computation eight parts of ten of the coyn’d Gold was suddenly consumed, and two shillings a piece was commonly given for gold, when a penny a piece was often given before to exchange gold into silver; the Seven Millions also of silver new Coyned was apparently reduced to less than one Million, and the people so abused in their money, that there was little Coin passed in trade but overworn, washed, and clipt, to the great vexation and loss of the Traders. These unlawful practices and profits of the Goldsmiths, made them greedy to ingross all the Cash they could, and to combine with all mens servants who continued to keep any Cash, to bring their moneys to them to be culled, and to remain with them at four pence the day interest per centum without the Master privity: And having thus got Money into their hand, they presumed upon some to come as fast as others was paid away; and upon that confidence of a running Cash (as they call it) they begun to accommodate men with moneys for Weeks and Months upon extraordinary gratuities, and supply all necessitous Merchants that over traded their Stock, with present Money for 30

The Rise of the Gold Standard, 1660–1819 their Bills of Exchange, discounting sometimes double, perhaps treble interest for the time as they found the Merchant more or less pinched. Profit arising by this Trade, some of them who had the highest Credit, undertook to receive Gentlemens Rents as they were returned to Town, and indeed any Man’s money, and to allow them some interest for it though it lay for a month only, or less, the Owners calling for it by a hundred or fifty pounds at a time as their occasions and expenses wanted it; this new practice giving hopes to everybody to make profit of their money until the hour they spent it, and the conveniency as they thought, to command their money when they pleased, which they could not do when lent at interest upon personal or reall Security; These hopes I say, drew a great Cash into these new Goldsmiths hands, and some of them stuck to their old Trade, but every of them that had friends and credit, aspired to this new Mystery to become Bankers or Casheers, and when Cromwell usurped the Government, the greatest of them began to deal with him to supply his wants of Money upon great Advantages especially after they had bought these Dollars whereof he robb’d the Spaniards to about the value of £300,000. After the King’s return he wanting money, some of these Bankers undertook to lend him not their own but other mens money, taking barefaced of Him ten pounds for the hundred, and by private contracts many Bills, Orders, Tallies, and Debts of the King’s, above twenty, and sometimes thirty in the hundred, to the great dishonor of the Government. This Prodigious unlawful Gain induced all of them that could be credited with moneys at interest to become lenders to the King to anticipate all the Revenue, to take every Grant of the Parliament into pawn as soon as it was given, I had almost said, before the Act was passed for it, and to outvie each other in buying and taking to pawn, Bills, Orders, and Tallies, in effect all the King’s revenue passed into their hands, and if Solomon be in the right, that the Borrower is a Slave to the Lender, the King and Kingdom became Slaves to these Bankers, and Kingdom gave no small share of their Taxes to them, paying double and treble Interest, as if they had not been able to raise Money for the publick Service at the times it was requisite. But the number of these Bankers increased so fast, and the money at Interest come so much into their hands, that the King and His Farmers, and all Tallies of Anticipation and Orders, could not secure all the money they had to lend. Hereupon they sought out according to the several natural wits and capacities, how to dispose of money for more than lawful Intrest, either upon Pawns or Bottom, Reason or unreasonable discounts of Intrest for Bills, or upon notorious usurious Contracts, or upon personal Securities from Heirs whose Estates are in expectancy, or by sudden advance of money to Projectors, who drawn into Projects many Responsible Men to the ruin of their Families; 31

The Monetary History of Gold These Goldsmiths however getting 10l. or 15l. per Centum, and sometimes more, only for the present advance of the money, besides the future Intrest, These and a hundred other practices they have used and do still continue in contempt of Law and Justice, whereof they are so conscious to themselves, that most of them do once a year (at least) sue out their general Pardon to avoid the penalty of those wholsom Laws made to prevent such Frauds, Oppressions, contempt of Government, and mischeives to the Publick as they are dayly guilty of: Tis also suspected that their original Trade of culling the heavy Money is not deserted by some of them; also how come all clipt and washed money to pass so currant at their Shops, and so little appearance in payments of all the new coyned Money since the King’s return, so many £100,000’s of the Parliaments Coin, besides Bullion imported having been new coyned, and how comes Guinies also to be bought and sold by them so much above the Coynage rate, that upon their account only, and by their means, they pass currant in payments for more than they are really worth from some of their Shops: I am sure some Merchants are supplyed with Gold and Silver English Coyn, to transport upon the advantage of the exchange, or making their present Bargains in France and elsewhere, for importing Prohibited Goods. Sir, I Have given you my Remarques upon the Rise and growth of these new kind of Goldsmiths, and I take them to have been in their highest Ascendant or States about the time that our Ships were burnt at Chatham by the Dutch: that cold Storm of the Peoples fears that their money was not safe in the Bankers hands blighted them, and since being in their declension, the Famous stop upon the Exchequer almost blasted their very root, men being unwilling to trust money in their hands to lend to his Majesty, so long as they hear the deplorable Cryes of the Widdow and Fatherless, whose money they say at Feasts, they lent the King, and cannot repay them, no nor their Intrest to nuy them Bread. Now admitting that all the Creditors of the Bankers can no more think it safe that their money should be lent to the King since Tallies, Orders, and the Great Seal itself, are found to be no security, I cannot imagine how Bread should be got by their trade of borrowing money upon lawful Intrest to lend upon unlawful to private persons, though they can silence their consciences and forget Christianity, and neither regard their neighbours welfare, nor the good of the whole Kingdom, but seek by Usurious unlawful Bargains, and oppressive Exactions from the needy and men in streights, and by hook and by crook to make most of their Cash. I dare take it for granted that the men now of that Trade are not men of greater natural Abilities nor acquired parts, than other Tradesmen of their age and degree, nor are they better instructed than others to imploy greater Stocks 32

The Rise of the Gold Standard, 1660–1819 in an advantageous Trade, nor have they greater Stocks of their own to hazzard to remote places, from whence most profit may be hoped for; Neither have these men greater skill in Law than other Citizens, to judg of Securities to be taken for Money, nor have they more knowledge of Men to guess at the value of their Bonds; how then should they be able to make more Intrest of money than other Traders; yet the most profit that may satisfy other Traders, cannot be sufficient for them to keep open their Shops; they must have a great dead stock of Cash to answer all Payments, and be always ready occasionally to advance great Summs; their Servants and Shops must be maintained for no use but Payments and Receipts, and deducting dead Stock and Charges, if they do not take nine per Cent. intrest for what they Lend and dispose of, they cannot make one of one, much less subsist. Besides there must be allowance for Charges to defend themselves against Informers for their usurious Contracts, and procuring frequent Pardons, and for hazard of loss of their Money lent upon unlawful Intrest, every borrower having it in his pwer to plead their usury against them in lue of their Debts. All these things, and many more being duly considered, I suppose people will suddenly come to their wits, and begin to examine why a Goldsmith-banker should be better Security than another man, or fitter to be trusted for ten times more than he is worth: They give only personal Security, and many times their Notes for £500, £1000 or more, when they owe before they give that Note, twenty times the value of their own Estates, and yet these free Lenders will scarce be satisfied with two or three Mens Bonds £1000 that are known to be worth £5000 a Man; doubtless I say, People will think at last that a Banker ought to give as good Security for money he borrows as another man, especially since he runs the greatest hazards in his disposing of Money for excessive gain or intrest. I leave it then to your self to judg whether Banking be like to continue half your Son’s Apprenticeship, and whether all the Arts that they can teach him can be worth one of the £200 you design to give with him; I presume upon your Pardon for my plainness and tediousness; Yet I am prompted to say something more in point of Conscience, doubting whether it be Lawful to exercise any Trade in a constant avowed breach of the Laws of the Kingdom, as all Bankers do, these Laws being made for the good of the Society, to which the Scripture commands obedience for Conscience sake, where they are met contrary to the Laws of God. Perhaps it is worth the inquiry upon that account, whether any man that hath exercised the Mystery of Banking, hath living or dying, gone off the stage with a clear good Estate, all his Creditors being paid, fully paid. But I judg no Man. I submit these thoughts and my Self to Your Prudent Censure, and remain, Sir, Your Humble Servant J. R. 33

9 April 1690 Note of a Petition from London Goldsmiths to the House of Commons, complaining that the Exportation of large Quantities of Silver from England into France was placing an undue Burden upon them

The higher price of silver in France created incentives in England for hoarding milled silver coins, clipping the older hammered silver coins, and melting the clippings for export. According to one Mint worker at the time, the loss of silver through clipping increased from 12 per cent in 1685 to 30 per cent in 1692 to nearly 50 per cent in 1695, by which the price of guineas and both gold and silver bullion had begun to rise dramatically. Source: House of Commons, Journals of the House of Commons, vol. 10, p. 372. See also Li, The Great Recoinage of 1696 to 1699, p. 55.

A Petition of divers working Goldsmiths in and about the City of London was read; setting forth, That the Petitioners, in the Course of their Trade, observing a great Scarcity of Silver, have, upon their Search, found, at the Custom House, That, since the First of October last past, Entries have been made of Two hundred Eighty-six thousand One hundred and Twelve Ounces of Silver or Bullion, and Eighty-nine thousand Nine hundred Forty-and-nine Dollars, and Pieces of Eight, by divers private Persons, for Exportation; and doubt not but that it will appear, not only that the East India Company for many Years, but also divers Jews and Merchants, have of late bought up great Quantities of Silver to carry out of this Kingdom; and given three-half-pence per Ounce above the Value: Which hath encouraged the Melting down of much Plate and milled Monies; whereby, for these Six Months past, not only the Petitioners in their Trade, but the Mint itself, hath been stopt from coining: and praying the Consideration of the House in the Premises. Resolved, That the said Petition be referred to a Committee, viz. Mr Foley, Mr Machell, Sir John Knight, Sir Rich. Reynolds, Sir Sam. Bernadiston, Sir Levin Bennet, Mr Thornhaugh, Sir Wm. Ellis, Mr Slater, Colonel Birch, Lord Falkland, Mr Palmes, Mr Perry, Mr Hutchinson, Mr Buscowen, Mr Kenyon, Mr Wilmot, Mr 34

The Rise of the Gold Standard, 1660–1819 Fuller, Sir Cha. Windham, Sir Edw. Philipps, Mr Francklyn, Mr Glemham, Mr Burdet, Mr Arnold, Sir Walter Young, Sir Jonath. Jennings, Mr Grey, Mr Pelham, Sir Ralph Dutton, Mr England, Sir Tho. Fowles, Mr Rider: Who are to consider of the said Petition; and report their Opinion thereupon to the House: And they are to meet this Afternoon at Three of the Clock, in the Speaker’s Chamber.

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8 May 1690 House of Commons Committee Report issued in Response to the Petition of the previous Month from the Working Goldsmiths of London concerning the Exportation of large Quantities of Silver from England to France and the undue Burden that this was placing upon Working Goldsmiths

Although the matter was left unresolved, the Committee found that the allegations put forward by the goldsmiths were justified and the issue was held over for further consideration. Source: House of Commons, Journals of the House of Commons, vol. 10, p. 408. See also Li, The Great Recoinage of 1696 to 1699, pp. 55–6, in which the Report is erroneously dated to the previous day.

Sir Rich. Reynell reports from the Committee to whom the Petition of divers working Goldsmiths in and about the City of London was referred, That they had considered the Matters to them referred; and had directed a special Report to be made of the whole Matter to the House: The which he read in his Place; and afterwards, delivered the same in at the clerk’s Table: where the same was read; and is as followeth: That it appears, by a Certificate from the Custom-house, dated Seventeenth April last, That great Quantities of Silver have been of late exported; whereof we had a particular Account for the last Five Years: That above Seven Parts of Eight had been shipped off by the Jews, who do any thing for their Profit. The reason was plain; that the French King of late, finding his Money very scarce, had raised his coin Ten Pounds per Cent.: Which was an Encouragement to send Silver to fill his Coffers: Which the Jews, for their Profit, exported daily in very great Quantities; That on Monday last, they had shipped off about Sixty thousand Ounces by the Name of Foreign Silver; and great Parcels more were ready to be shipped: Which did make it scarce and dear, to the utter Ruin of the Working Goldsmiths.

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The Rise of the Gold Standard, 1660–1819 That there were also English, as well as Jews, who, for their Advantages, would doubtless melt down our Crown Pieces, etc. and sell for Foreign Silver, to the Undoing of the whole Nation for want of Money, unless a present Remedy were found to prevent Exportation of any Silver or Gold. That the Committee held also certificates from the Officers of the Mint, for divers Years; and do find, that, of late, very small Quantities have been coined. That it was offered, that the Profit of melting down one thousand Pounds of milled Money for Exportation, was Twenty-five Pounds ready Money, and upwards. That Silver was coined at the Mint at Five Shillings and two pence per Ounce; but, at the time of Exportation, was generally sold at Five Shillings and Three-pence Halfpeny per Ounce: Which gave occasion of its being melted down, and transported as Foreign Silver. That Divers Proposals were suggested; 1. A Total Prohibition: 2. A qualified Prohibition for certain Times, or an Imposition for Exportation for Silver: 3. The enhancing our own Money. So that, though the Committee found the Complaint of the Petitions very just, and the Incoveniences for the Kingdom very great, they could not agree of a Way for the preventing the same: But were humbly of Opinion, That it was worthy of the Consideration of the House. Resolved, That the said Report be re-committed to the same Committee, upon the Debate of the House: And that they do thereupon prepare a Bill or Bills, as they shall see Cause; and present the same to the House: And that, in order thereunto, the Committee do sit de die in diem; and have Pwer to send for Persons, Papers, and Records: And that the Officers of the Mint do attend the said Committee: And that Mr Neale, Mr Norreis, Sir John Bancks, Mr Thornhaugh, Mr Christopher Musgrave, Mr Cognisby, Colonel Birch, Mr Christy, Sir Peter Coriton, Sir Jerv. Elwes, Sir Jos. Tredenham, Mr Evans, Mr Slater, Mr Tho. Foley, Mr Hen. Herbert, and all the Members of the House that are Merchants. …: And they are to meet this Afternoon at Three of the Clock.

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6 December 1690 ‘Observations on the Bill against the Exportation of Gold and Silver, and melting down the Coin of the Realm’, delivered at the Bar of the House of Lords by a Group of prominent London Merchants, led by James Houblon, MP, who authored the Paper, and including, among Others, his Son Sir John Houblon, who later became the first Governor of the Bank of England

Despite a counter-petition lodged by the working goldsmiths, the merchants’ petition against the bill was evidently successful in blocking its passage, at least in the short term, as nothing more was heard of the bill after 11 December 1690. The brief paper is interesting because its concluding remarks about the recent recoinage in Portugal foreshadow the as yet forthcoming Great Recoinage in England. Source: Royal Commission on Historical Manuscripts, Manuscripts of the House of Lords, 1690–1691 (London: HMSO, 1892), cmnd. 6822, no. 353, pp. 205–7. See also ibid., no. 330, pp. 179–83.

The Bill designs to raise the standard of silver from 3l. 2s. to 3l. 5s. per lb. weight, whereby the 5s. piece thereby intended to be coined will be about threepence less in silver than the former 5s. piece. The raising of the 5s. or other species of silver coin will not prevent the exportation of silver or the melting down of the new coined species of money, though it has less of silver in it by 5 per cent. For, as the Mint before yielded about 5s. 2d. per oz., with this alteration it will yield 5s. 5d. per oz., and if silver be in demand, it will rise above what the Mint will give, as it has done for these two years last past, standard silver having been sold for, and being now worth, 5s. 4d. per oz., so that there could be no coining any silver but at a 3 per cent. loss. It is evident that as soon as this law shall be made, standard silver will rise to 5s. 7d. per oz., which will be twopence per oz. more than the Mint will give. By consequence, little or none of the new intended species will be coined; and, if so, there would be twopence per oz. profit to melt it down again into bullion for the alteration of the exchange will soon cause this advantage on the bullion. Now 38

The Rise of the Gold Standard, 1660–1819 the true reason why silver is risen in price in England is from the interruption of our trade and commerce during the wars, for in time of peace it has been manifest that the trade and commerce of England have furnished us not only with necessarries and superfluities from all parts of the world, but also an overplus, which has been brought home in gold and silver, to the great enriching of this kingdom. And now it happens, by the interruption of the general trade, that from Flanders, Holland, Hamburg, and the East Country, where we have more frequent convoys, we import greater quantities of merchandise and naval stores than formerly, and by reason of the wars in Germany, Flanders, etc. they take off less of our manufactory and other goods than heretofore; for which reason, and for that also there has been an occasion to pay public moneys by exchange or otherwise in those parts, we become so much indebted to them that what our exports cannot answer in goods must be answered in bullion, and that has been the reason why ill men, for a gain of 3 to 4 p.c., have melted down our present 5s. and 2s. 6d. pieces and plate, and sent it abroad; And the same cause continuing, it is probable they may continue the same practice, notwithstanding any severe law to the contrary. In Spain about three years since, they altered their coin, and have coined new pieces of eight, of 20 p.c. less in value, and in Portugal, since the year 1650, at three several times they have altered their Crusado or Crown from 4s. 4d. value to 2s. 5d., yet so great a diminution (which was done to keep their money within those Kingdoms) has not in the least prevented it from going out, but is still exported from both the said Kingdoms, notwithstanding their severe laws of death and confiscation of estate upon that account. The ill consequence of the alteration of the value of the coin will be as follows: – (1.) A present stop in payment of all the former milled money and of all the weighty old money, so that none but clipt money will pass in payment, which will not only interrupt trade and commerce, but obstruct the loans to their Majesties and alter the prices of exchange. (2.) It will be a manifest loss to all who have money owing them upon bonds or other debts, for if it be supposed there is in this Kingdom six millions of silver coin, and that one half thereof be weighty, then upon that three millions there will be 150,000l. gain to them that shall melt it down. (3.) It will be a loss on all debts, rents, annuities, pensions, etc. of 5 p.c., which will amount to an incredible sum. (4.) It will be a loss of 5 p.c. on all their Majesties’ Revenue, Custom, Excise, etc. (5.) All foreign commodities will rise in value as the money is fallen, for call a piece of money by what name or denomination you will, yet it is the intrinsic value of the species of money that is the measure and rule of all commerce throughout the world, and 4s. 9d. will be but 4s. 9d., though you call it 5s. (6.) As the silver is raised 5 p.c., so guineas will rise in proportion, and these alterations will put a profit into the hands of all the goldsmiths, refiners, and melters of silver and others, who have a quantity 39

The Monetary History of Gold of gold and weighty coin by them, but will be a manifest prejudice to the King, and all the rest of his subjects, who have rents or money owing to them. – And if it shall be objected that clipt now passes as well as weighty money, it is to be noted that the said clipt money is not above one half of the current money; and the clipt money is only current upon public faith, because it is now received in all public payments, but all contracts, bargains, and sales are made upon the intrinsic value of the weighty money, especially with foreigners, of which when there shall come to be a want, there will be a full stop of all trade of buying and selling, as it lately happened in Portugal, where the King was forced to call in all the money, it being all clipt, and promised to bear the loss himself, till afterwards, finding the loss too great, he coined the new money 20 p.c. less in weight, and so delivered it out to his subjects, the owners of the said clipt money, whereby the loss fell upon them.

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30 December 1691 Excerpt from the Parliamentary Diary of Narcissus Luttrell on the Debate in the House of Commons over a Bill for discouraging the Exportation of Bullion.

The diary entry is interesting because it briefly summarises, albeit not very clearly, some of the arguments put forward by merchants against restrictions on the exportation of bullion. Source: Henry Horwitz (ed.), The Parliamentary Diary of Narcissus Luttrell, 16911693 (Oxford: Clarendon Press, 1972), pp. 96–7, esp. p. 96. See also House of Commons, Journals of the House of Commons, vol. 10, p. 603.

The bill for discouraging the exportation of bullion, etc. was read the second time and committed to a Committee of the Whole House. Some (especially the merchants) spoke against this bill, who said it would not do the service expected for that the lowering the weight of the money would not help it for that money would take its value as the standard in foreign parts. And though great sums had been melted down, yet making the money lighter would not remedy it, because as much as you take off from the coined money so much more would bullion advance per ounce, for it is foreign exchange that governs it. […]

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1692 [undated] Sir Dudley North’s ‘Discourse of Coyned Money’ and ‘Postscript’, from the same Author’s Discourses upon Trade The discourse was published in 1692, though the title page shows a publication date of 1691. North was a prominent London financier, political economist, and Parliamentarian, and these writings constitute part of his contribution to the pamphlet literature on England’s monetary problems of the period. Already in 1683, North had penned a brief representation to lay before Parliament on the ill effects of the circulation of lightweight silver money in England at the same value as money of full weight. Source: Dudley North, Discourses upon Trade (Edinburgh: James Ballantyne & Co, 1822). Richard Grassby, The English Gentleman in Trade: the Life and Works of Sir Dudley North, 1641-1691 (Oxford: Clarendon Press, 1994), pp. 295–303. For North’s 1683 representation, see ibid., pp. 304–5.

Discourse of Coyned Money In the former Discourse [concerning the abatement of interest], it hath been already made appear, that Gold and Silver for their scarcity, have obtained in small quantities, to equal in value far greater quantities of other Metals, etc., And farther, from their easie Removal, and convenient Custody, have also obtained to be the common Measure in the World between Man and Man in their dealings, as well for Land, Houses, etc., as for Goods and other Necessaries. For the greater Improvement of this convenience, and to remove some Dificulties, which would be very troublesome, about knowing quantities and qualities in common and ordinary dealing: Princes and States have made it a matter of Publick concern, to ascertain the Allay, and to determine the Weights, viz. the quantities of certain Pieces, which we call Coyn, or Money; and such being distinguish’d by Stamps, and Inscriptions, it is made difficult, and highly Penal to Counterfeit them.

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The Rise of the Gold Standard, 1660–1819 By this means the Trade of the World is made easie, and all the numerous species of several Commodities have a common Measure. Besides the Gold and Silver being thus coyned into Money, and so become more useful for Commerce than in the Log or Block, hath in all places, except in England since the free Coynage, reasonably obtained a greater value than it had before: and that not only above the real charge of making it so, but is become a State-Revenue (except as before) tho’ not very great. Whereas if Silver coyned and uncoyned bore the same rate, as it doth with us in England, where it is coyned at the Charge of the Publick, it will be lyable frequently to be melted down, as I shall shew anon. Money being thus the Common Measure of Buying and Selling, every body who hath any thing to sell, and cannot procure Chapmen for it, is presently apt to think, that want of Money in the Kingdom, or Country is the cause why his Goods do not go off; and so, want of Money, is the common Cry; which is a great mistake, as shall be shewn. I grant all stop in Trade proceeds from some cause; but it is not from the want of specifick Money, there being other Reasons for it; as will appear by the following Discourse. No Man is richer for having his Estate all in Money, Plate, etc., lying by him, but on the contrary, he is for that reason the poorer. That man is richest, whose Estate is in a growing condition, either in Land at Farm, Money at Interest, or Goods in Trade: If any man, out of an humour, should turn all his Estate into Money, and keep it dead, he would soon be sensible of Poverty growing upon him, whilst he is eating out of the quick stock. But to examine the matter closer, what do these People want, who cry out for Money? I will begin with the Beggar; he wants, and importunes for Money: what would he do with it if he had it [but] buy Bread, etc. Then in truth it is not Money, but Bread, and other Necessaries for Life that he wants. Well then, the Farmer complains, for the want of Money; surely it is not for the Beggar’s Reason, to sustain Life, or pay Debts; but he thinks that were more Money in the Country, he should have a Price for his Goods. Then it seems Money is not his want, but a Price for his Corn, and Cattel, which he would sell, but cannot. If it be askt, if the want of Money be not, what then is the reason, why he cannot get a price? I answer, it must proceed from one of these three Causes. 1. Either there is too much Corn and Cattel in the Country, so that most who come to Market have need of selling, as he hath, and few of buying. Or, 2, There wants the usual vent abroad, by Transportation, as in time of War, when Trade is unsafe, or not permitted. Or, 3, The Comsumption fails, as when men by reason of Poverty, do not spend so much in their Houses as formerly they did; wherefore it is not the increase of specifick Money, which would at all advance the Farmers Goods, but the removal of any of these three Causes, which do truly keep down the Market. 43

The Monetary History of Gold The Merchant and Shop-keeper want Money in the same manner, that is, they want a Vent for the Goods they deal in, by reason like the Markets fail, as they will always upon any cause, like what I have hinted. Now to consider what is the true source of Riches, or in the common Phrase, plenty of Money, we must look a little back, into the nature and steps of Trade. Commerce and Trade, as hath been said, first springs from the Labour of Man, but as the Stock increases, it dilates more and more. If you supppose a Country to have nothing in it but the Land it self, and the Inhabitants; it is plain that at first, the People have only the Fruits of the Earth, and Metals raised from the Bowels of it, to Trade withal, either by carrying out into Foreign Parts, or by selling to such as will come to buy of them, whereby they may be supplyed with the Goods of other Countries wanted there. In process of time, if the People apply themselves industriously, they will not only be supplied, but advance to a great overplus of Forreign Goods, which improv’d, will enlarge their Trade. Thus the English Nation will sell unto the French, Spaniards, Turk, etc., not only the product of their own Country, as cloath, Tin, Lead, etc., but also what they purchase of others, as Sugar, Pepper, Callicoes, etc., still buying where Goods are produc’d, and cheap, and transporting them to Places where they are wanted, making great advantage thereby. In this course of Trade, Gold and Silver are in no sort different from other Commodities, but are taken from them who have Plenty, and carried to them who want, or desire them, with as good profit as other Merchandizes. So that an active prudent Nation groweth rich, and the sluggish Drones grow poor; and there cannot be any Policy other than this, which being introduc’d and practis’d, shall avail to increase Trade and Riches. But this Proposition, as single and plain as it is, is seldom so well understood, as to pass with the generality of Mankind; but they think by force of Laws, to retain in their Country all the Gold and Silver which Trade brings in; and thereby expect to grow rich immediately: All which is a profound Fallacy, and hath been a Remora, whereby the growing Wealth of many Countries have been obstructed. The Case will more plainly appear, if it be put of a single Merchant, or if you please to come nearer the point, of a City or County only. Let a Law be made, and what is more, be observ’d, that no Man whatsoever shall carry any Money out of a particular Town, County, or Division, with liberty to carry Goods of any sort: so that all the Money which every one brings with him, must be left behind, and none be carried out. The consequence of this would be, that such Town, or County were cut off from the rest of the Nation; and no Man would dare to come to Market with his Money there; because he must buy, whether he likes, or not: and on the 44

The Rise of the Gold Standard, 1660–1819 other side, the People of that place could not go to other Markets as Buyers, but only as Sellers, being not permitted to carry any Money out with them. Now would not such a Constitution as this, soon bring a Town or County to a miserable Condition, with respect to their Neighbours, who have free Commerce, whereby the Industrious gain from the slothful and luxurious part of Mankind? The Case is the same, if you extend your thought from a particular Nation, and the several Divisions, and Cities, with the Inhabitants in them, to the whole World, and the several Nations, and Governments in it. And a Nation restrained in its Trade, of which Gold and Silver is a principal, if not an essential Branch, would suffer, and grow poor, as a particular place within a Country, as I have discoursed. A Nation in the World, as to Trade, is in all respects like a City in a Kingdom, or Family in a City. Now since the Increase of Trade is to be exteem’d the only cause that Wealth and Money increase, I will add some farther Considerations upon that subject. The main spur to Trade, or rather to Industry and Ingenuity, is the exorbitant Appetites of Men, which they will take pains to gratifie, and so be disposed to work, when nothing else will incline them to it; for did Men content themselves with bare Necessaries, we should have a poor World. The Glutton works hard to purchase Delicacies, wherewith to gorge himself; the Gamerster, for Money to venture at Play; the Miser, to hoard; and so others. Now in their pursuit of those Appetites, other Men less exorbitant are benefitted; and tho’ it may be thought few profit by the Miser, yet it will be found otherwise, if we consider, that besides the humour of every Generation, to dissipate what another had collected, there is benefit from the very Person of a covetous Man; for if he labours with his own hands, his Labour is very beneficial to them who imploy him; if he doth not work, but profit by the Work of others, then those he sets on work have benefit by their being employed. Countries which have sumptuary Laws, are generally poor; for when Men by those Laws are confin’d to narrower Expence than otherwise they would be, they are at the same time discouraged from the Industry and Ingenuity which they would have imployed in obtaining wherewithal to support them, in the full latitude of Expence they desire. It is possible Families may be supported by such means, but then the growth of Wealth in the Nation is hindered; for that never thrives better, then when Riches are tost from hand to hand. The meaner sort seeing their Fellows become rich, and great, are spurr’d up to imitate their Industry. A Tradesman sees his Neighbour keep a Coach, presently all his Endeavours is at work to do the like, and many times is beggered by it; however the extraordinary Application he made, to support his Vanity, 45

The Monetary History of Gold was beneficial to the Publick, tho’ not enough to answer his false Measures as to himself. It will be objected, That the Home Trade signifies nothing to the enriching a Nation, and that the increase of Wealth comes out of Forreign Trade. I answer, That what is commonly understood by Wealth, viz. Plenty, Bravery, Gallantry, etc., cannot be maintained without Forreign Trade. Nor in truth, can Forreign Trade subsist without the Home Trade, both being connected together. I have toucht upon these matters concerning Trade, and Riches in general,because I conceive a true Notion of them, will correct many common Errors, and more especially conduce to the Proposition I chiefly aim to prove; which is, that Gold and Silver, and, out of them, Money are nothing but the Weights and Measures, by which Traffick is more conveniently carried on, then could be done without them: and also a proper Fund for a surplusage of Stock to be deposited in. In confirmation of this, we may take Notice, That Nations which are very poor, have scarce any Money, and in the beginnings of Trade have often made use of something else; as Sueden hath used Copper, and the Plantations, Sugar and Tobacco, but not without great Inconveniences; and still as Wealth hath increas’d, Gold and Silver hath been introduc’d, and drove out the others, as now almost in the Plantations it hath done. It is not necessary absolutely to have a Mint for the making Money plenty, tho’ it be very expedient; and a just benefit is lost by the want of it, where there is none; for it hath been observed, that where no Mints were, Trade hath not wanted a full supply of Money; because if it be wanted, the Coyn of other Princes will become currant, as in Ireland, and the Plantations; so also in Turkey, where the Money of the Country is so minute, that it is inconvenient for great Payments; and therefore the Turkish Dominions are supplied by almost all the Coyns of Christendom, the same being currant there. But a country which useth Forreign Coyns, hath great disadvantage from it; because they pay strangers, for what, had they a Mint of their own, they might make themselves. For Coyned Money, as was said, is more worth than Uncoyned Silver of the same weight and allay; that is, you may buy more Uncoyned Silver, of the same fineness with the Money than the Money weighs; which advantage the Stranger hath for the Coynage. If it be said, That the contrary sometimes happens, and coyned Money shall be current for less than Bullion shall sell for. I answer, That where-ever this happens, the Coyned Money being undervalued, shall be melted down into Bullion, for the immediate Gain that it had from it.

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The Rise of the Gold Standard, 1660–1819 Thus it appears, that if you have no Mint whereby to increase your Money, yet if you are a rich People, and have Trade, you cannot want Specifick Coyn, to serve your occasions in dealing. The next thing to be shewed is, That if your Trade pours in never so much Money upon you, you have no more advantage by the being of it Money, than you should have were it in Logs, or Blocks; save only that Money is much better for Transportation than Logs are. For when Money grows up to a greater quantity than Commerce requires, it comes to be of no greater value, than uncoyned Silver, and will occasionally be melted down again. Then let not the care of Specifick Money torment us so much; for a People that are rich cannot want it, and if they make none, they will be supplied with the Coyn of other Nations; and if never so much be brought from abroad or never so much coyned at home, all that is more than what the Commerce of the Nation requires, is but Bullion, and will be treated as such; and coyned Money, like wrought Plate at Second hand, shall sell but for the Intrinsick. I call to witness the vast Sums that have been coyned in England, since the free Coynage was set up; What is become of it all? No body believes it to be in the Nation, and it cannot well be all transported, the Penalties for so doing being so great. The case is plain, it being exported, as I verily believe little of it is, the Melting-Pot devours all. The rather, because that Practice is so easie, profitable, and safe from all possibility of being detected, as every one knows it is. And I know no intelligent Man who doubts, but the New Money goes this way. Silver and Gold, like other commodities, have their ebbings and flowings: Upon the arrival of Quantities from Spain, the Mint commonly gives the best price; that is, coyned Silver, for uncoyned Silver, weight for weight. Wherefore is it carried into the Tower, and coyned? Not long after there will come a demand for Bullion, to be Exported again: If there is none, but all happens to be in Coyn, What then? Melt if down again; there’s no loss in it, for the Coyning cost the Owners nothing. Thus the Nation hath been abused, and made to pay for the twisting of straw, for Asses to eat. If the Merchant were made to pay the price of the Coynage, he would not have sent his Silver to the Tower without Consideration; and coyned Money would always keep a value above uncoyned Silver: which is now so far from being the case, that many times it is considerably under, and generally the King of Spain’s Coyn here is worth One penny per Ounce more than our New Money. This Nation, for many Years last past, hath groaned, and still groans under the abuse of clipt Money, which with respect to their Wisdom, is a great Mis47

The Monetary History of Gold take; and the Irish whom we ridicule so much, when in Peace, would not be so gulled, but weighed their (Pieces of Eight) Cobbs, as they call them, Piece by Piece; this Errour springs from the same source with the rest, and needs no other Cure than will soon result from Non-currency. Whereof I shall set down my thoughts. There is great fear, that if clipt Money be not taken, there will be no Money at all. I am certain, that so long as clipt Money is taken, there will be little other: And is it not strange, that scarce any Nation, or People in the whole World, take diminisht Money by Tale, but the English? What is the reason that a New Half-crown-piece, if it hath the least snip taken from the edge, will not pass; whereas an Old Half-crown clipt to the very quick, and not intrinsically worth Eighteen Pence, shall be currant? I know no reason, why a Man should take the one, more than the other; I am sure, that if New Money should pass clipt, there would soon be enough served so. And I do not in the least doubt, unless the currency of clipt Money be stopt, it will not be very long before every individual piece of the Old Coynes be clipt. And if this be not remedied, for fear of the Evil now, how will it be born hereafter, when it will be worse? Surely at length it will become insupportable, and remedy itself as Groats have done; but let them look out, in whose time it shall happen; we are all shoving the Evil-Day as far off as may be, but it will certainly come at last. I do not think the great Evil is so hard to be remedied, nor so chargeable as some have judged; but if rightly managed, it may be done with no intolerable loss, some there will be, and considerable; but when I reflect where it will fall, I cannot think it grievous. The general Opinion is, That it cannot be done otherwise, then by calling in of all the Old Money, and changing of it, for doing which the whole Nation must contribute by a general Tax; but I do not approve of this way, for several Reasons. For it will be a matter of great trouble, and will require many hands to execute, who will expect, and deserve good pay; which will add to the Evil, and increase the Charge of the Work; and the Trust of it, is also very great, and may be vastly abused. Now before I give any Opinion for the doing this thing, let some estimate be made of the loss, wherein I will not undertake to compute the Total, but only how the same may fall out in One Hundred Pound: There may be found in it Ten Pound of good New Money, then rests Ninety Pound; and of that I will suppose half to be clipt Money, and half good; so there will be but Five and Forty, in One Hundred Pounds, whereupon there will be any loss; and that will not surely be above a Third part: so I allow 15l. per cent for the loss by clipt 48

The Rise of the Gold Standard, 1660–1819 Money, which is with the most, and in such Computes, it is safest to err on that side. Now in case it should be thought fit, that the King should in all the Receipts of the Publick Revenue, forbid the taking of clipt Coyn, unless the Subject were content to pay it by weight at 5s. 2d. per Ounce, every Piece being cut in Two, (which must be expecially and effetually secured to be done) I grant it would be a great surprize, but no great cause of Complaint when nothing is required, but that the Publick Revenue may be paid in lawful English Money. And those who are to make Payments, must either find good Money, or clip in two their cropt Money, and part with it on such terms; by this example it would likewise be found, that in a short time, all Men would refuse clipt Money in common Payment. Now let us consider, where the loss would light, which I have estimated to be about 15 per cent. We are apt to make Over-estimates of the Quantities of current Money; for we see it often, and know it not again; and are not willing to consider how very a little time it stays in a place; and altho’ every one desires to have it, yet none, or very few care for keeping it but they are forthwith contriving to dispose it; knowing that from all the Money that lies dead, no benefit is to be expected, but it is a certain loss. The Merchant and Gentleman keep their Money for the most part, with Goldsmiths, and Scriveners; and they, instead of having Ten Thousand Pounds in Cash by them, as their Accounts shew they should have, of other Mens ready Money, to be paid at sight, have seldom One Thousand in Specie; but depend upon a course of Trade, whereby Money comes in as fast as it is taken out: Wherefore I conclude, that the Specifick Money of this Nation is far less than the common Opinion makes. Now suppose all the loss by clipt Money should happen and fall where the Cash is, it would be severe in very few Places. It could do no great harm to Hoards of Money; because those who intend to keep Money, will be sure to lay up that which is good. It would not signifie much to the poor Man for he many times hath none; and for the most part, if he hath any, it is very little, seldome Five Shillings at a time. The Farmer is supposed to pay his Landlord, as fast as he gets Money; so it is not likely he should be catcht with much: Wherefore it will light chiefly upon Trading Men, who may sometimes be found with Hundreds by them; and frequently not with many Pounds. Those who happen to have such great Cashes at such time would sustain loss. In short, clipt Money is an Evil, that the longer it is born with, the harder will the Cure be. And if the Loss therein be lain on the Publick, (as Common Project is) the Inconveniences are (as hath been shewed) very great; but in the 49

The Monetary History of Gold other way of Cure it is not such a terrible Grievance, as most men have imagined it would be. So to conclude, when the Reasons, which have been hastily and confusedly set down, are duly considered, I doubt not but we shall joyn in one uniform Sentiment: That Laws to hamper Trade whether Forreign, or Domestick, relating to Money, or other Merchandizes, are not Ingredients to make a People Rich, and abounding in Money, and Stock. But if Peace be procured, easie Justice maintained, the Navigation not clogg’d, the Industrious encouraged, by indulging them in the participation of Honours, and Imployment in the Government, according to their Wealth and Characters, the Stock of the Nation will increase, and consequently Gold and Silver abound, Interest be easie, and Money cannot be wanting.

Postscript Upon farther Consideration of the Foregoing Matters, I think fit to add the following Notes. When a Nation is grown Rich, Gold, Silver, Jewels, and every thing useful, or desirable, (as I have already said) will be plentiful; and the Fruits of the Earth will purchase more of them, than before, when People were poorer: As a fat Oxe in former Ages, was not sold for more Shillings, than now Pounds. The like takes place in Labourers Wages, and every thing whatever; which confirms the Universal Maxim I have built upon, viz. That Plenty of any thing makes it cheap. Therefore Gold and Silver being now plentiful, a Man hath much more of it for his labour, for his Corn, for his Cattle, etc., then could be had Five Hundred Years ago, when, as must be owed, there was not near so much by many parts as now. Notwithstanding this, I find many, who seem willing to allow, that this Nation at present, abounds with Gold and Silver, in Plate and Bullion; but are yet of Opinion, That coyned Money is wanted to carry on the Trade, and that were there more Specifick Money, Trade would increase, and we should have better Markets for every thing. That this is a great Error, I think the foregoing Paper makes out: but to clear it a little farther, let it be considered, that Money is a Manufacture of Bullion wrought in the Mint. Now if the Materials are ready, and the Workmen also, ’tis absurd to say, the Manufacture is wanted. For instance: Have you Corn, and do you want Meal? Carry the Corn to the Mill, and grind it. Yes; but I want Meal, because others will not carry their 50

The Rise of the Gold Standard, 1660–1819 Corn; and I have none: say you so; then buy Corn of them, and carry it to the Mill your self. This is exactly the case of Money. A very rich Man hath much Plate, for Honour and Show; whereupon a poorer Man thinks, if it were coyned into Money, the Publick, and his self among the rest, would be the better for it; but he is utterly mistaken; unless at the same time you oblige the rich Man to squander his new coyn’d Money away. For if he lays it up, I am sure the matter is not mended: if he commutes it for Diamonds, Pearls, etc., the Case is still the same; it is but changed from one hand to another; and it may be the Money is dispatcht to the Indies to pay for those Jewels: then if he buys Land, it is no more than changing the hand, and regarding all Persons, except the Dealers only, the Case is still the same. Money will always have an Owner, and never goeth a Beggar for Entertainment, but must be purchast for valuable consideration in solido. If the use of Plate were prohibited, then it were a sumptuary Law, and, as such, would be a vast hindrance to the Riches and Trade of the Nation: for now seeing every Man hath Plate in his House, the Nation is possest of a solid Fund, consisting in those Mettals, which all the world desire, and would willingly draw from us; and this in far greater measure than would be, if Men were not allowed that liberty. For the poor Tradesman, out of an ambition to have a Piece of Plate upon his Cupboard, works harder to purchase it, than he would do if that humour were restrain’d as I have said elsewhere. There is required for carrying on the Trade of the Nation, a determinate Sum of Specifick Money, which varies, and is sometimes more, sometimes less, as the Circumstances we are in requires. War time calls for more Money than time of Peace, because every one desires to keep some by him, to use upon Emergiences; not thinking it prudent to rely upon Moneys currant in dealing, as they do in times of Peace, when Payments are more certain. This ebbing and flowing of Money, supplies and accommodates itself, without any aid of Politicians. For when Money grows scarce, and begins to be hoarded, then forthwith the Mint works, till the occasion be filled up again. And on the other side, when Peace brings out the Hoards, and Money abounds, the Mint not only ceaseth, but the overplus of Money will be presently melted down, either to supply the Home Trade, or for Transportation. Thus the Buckets work alternately, when Money is scarce, Bullion is coyn’d; when Bullion is scarce, Money is melted. I do not allow that both should be scarce at one and the same time; for that is a state of Poverty, and will not be, till we are exhausted, which is besides my subject. Some have fancied, that if by a Law the Ounce of Silver were restrained to 5s. value, all dealings, and at the Tower the same were coyned into 5s. 4d. or 5s. 6d. per Ounce, all the Plate in England would soon be coyned. The answer to this, in short is: That the Principle they build upon is impossible. How can 51

The Monetary History of Gold any Law hinder me from giving another Man, what I please for his Goods? The Law may be evaded a thousand ways. As be it so: I must not give, nor he receive above 5s. per Ounce for Silver; I may give him 5s. and present him with 4d. or 6d. more; I may give him Goods in barter, at such, or greater profit; and so by other contrivances, ad Infinitum. But put the case it took effect, and by that means all the Silver in England were coyned into Money; What then? Would any one spend more in Cloaths, Equipages, Housekeeping, etc., then is done? I believe not; but rather the contrary: For the Gentry and Commonalty being nipt in their delight of seeing Plate, etc., in their Houses, would in all probability be dampt in all other Expences: Wherefore if this could be done, as I affirm it cannot, yet instead of procuring the desired effect, it would bring on all the Mischiefs of a sumptuary Law. Whenever the Money is made lighter, or baser in allay, (which is the same thing) the effect is, that immediately the price of Bullion answers. So that in reality you change the Name, but not the thing: and whatever the difference is, the Tenant and Debtor hath it in his favor; for Rent and Debts will be paid less, by just so much as the intrinsick value is less, then what was to be paid before. For example: One who before received for Rent or Debt, 3l. 2s. could with it buy twelve Ounces, or a Pound of Sterling Silver; but if the Crown-piece be worse in value than now it is, by 3d. I do averr, you shall not be able to buy a Pound of such Silver under 3l. 5s. but either directly, or indirectly it shall cost so much. But then it is said, we will buy an Ounce for 5s. because ’tis the Price set by the Parliament, and no body shall dare to sell for more. I answer, If they cannot sell it for more, they may coyn it; And then what Fool will sell and Ounce of Silver for 5s. when he may coyn it into 5s. 5d.? Thus we may labour to hedge in the Cuckow, but in vain; for no People ever yet grew rich by Policies; but it is Peace, Industry, and Freedom that brings Trade and Wealth, and nothing else.

52

25 April 1694 Bank of England Charter

The Charter is included among the provisions of ‘An Act for granting their Majesties several Rates and Duties upon Tunnage of Ships and Vessels, and upon Beer, Ale, and other Liquors, for securing certain Recompenses and Advantages in the said Act mentioned to such persons as shall voluntarily advance the Sum of Fifteen hundred thousand Pounds, towards carrying on the War against France’, which is commonly referred to as the Tonnage Act. The Bill passed through both Houses of Parliament on the 25th of April and it received Royal assent on the 27th of July. Only a small portion of the lengthy Act is reproduced here. Source: The Statutes of the Realm, vol. 6, pp. 483–95, esp. pp. 483–4, 488, 490. Cited as 5 & 6. W. & M., c. 20, sec. 1, 19, 27. See also A. E. Bland, P. A. Brown, and R. H. Tawney (eds), English Economic History: Select Documents (London: Bell, 1915), pp. 677–8; Ian Shrigley (ed.), The Price of Gold (London: King, 1935), p. 1. For the passage of the bill through both Houses of Parliament, see House of Commons, Journals of the House of Commons, vol. 11, p. 170; House of Lords, Journals of the House of Lords (London: House of Lords, 1836), vol. 15, pp. 424–6.

Wee your Majesties most dutifull and loyall Subjects the Commons assembled in Parliament for the further Supply of your Majesties extraordinary Occasions for and towards the necessary Defence of your Realmes, doe humbly present your Majesties with the further Gift of the Impositions, Rates and Duties herein after mentioned; And soe beseech your Majesties that it may be encated, and be it enacted by the King and Queenes most excellent Majesties, by and with the advice and consent of the Lords Spirituall and Temporall and Commons in this present Parliament assembled and by the authority of the same, that for and dureing the terme of Four yeares, commencing from the First day of June in the yeare of our Lord One thousand six hundred ninety and four, there shall be throughout the Kingdome of England, Dominion of Wales and Towne of Berwicke upon Tweede raised, levied, collected and paid unto and for the use of theire Majesties, theire Heires and Successors for and upon the Tunnage of all Shipps and Vessells wherein att any time or times and 53

The Monetary History of Gold for every time dureing the said terme Four yeares there shall be imported any Goods or Merchandizes into this Kingdome of England, Dominion of Wales or Towne of Berwicke upon Tweede from any Parts, Places or Countryes hereafter mentioned or wherein dureing the said terme there shall be carried coastwise from any Port, Member or Creeke in the Kingdome of England, Dominion of Wales or Towne of Berwicke upon Tweede unto any other Port, Creeke or Member within the same Kingdome, Dominion, Port or Towne the severall and respective Rates, Impositions, Dutyes and summes of money herein after mentioned (that is to say). For every Tun of the Burthen or contents of any Shipp or Vessell importing Goods, Wares or Merchandizes from the East Indies or any parts southward of Cabo bona Speranza, the summe of Thirty shillings: For every Tun of the burthen or contents of any Shipp or Vessell importing Goods, Wares or Merchandizes from any Ports or Places in Italy or Turkey, the summe of Fifteene shillings: For every Tun of the burthen or contents of any Shipp or Vessell importing Goods, Wares or Merchandizes from any Ports or Places in Portugall or Spaine, the summe of Ten shillings: For every Tun of the burthen or contents of any Shipp or Vessell importing Goods, Wares or Merchandizes from any the Plantations, Lands or Places in the West Indies, the summe of Ten shillings: For every Tun of the burthen or contents of any Shipp or Vessell importing Goods, Wares or Merchandizes from Holland or any the United Provinces or from the Netherlands or Flanders, the summe of three shillings: For every Tun of the burthen or contents of any Shipp or Vessell importing Goods, Wares or Merchandizes from Norway, Hamborough or the Balticke Sea or from any the Eastland Countries or from any Ports or Places North of Holland, the summe of Five shillings: For every Tun of the burthen or contents of any Shipp or Vessell importing Goods, Wares or Merchandizes from any Ireland or Scotland, the summe of Two shillings: For every Tun of the burthen or contents of any Shipp or Vessell importing Goods, Wares or Merchandizes from any Port or Place in the Mediterranean Sea (not otherwise charged in this Act), the summe of Fifteene shillings: For every Tun of the burthen or contents of any Shipp or Vessell importing Goods, Wares or Merchandizes from the parts of coast of Guinea or Africa without the Streights, the summe of Twenty shillings: For every Tun of the burthen or contents of any Shipp or Vessell importing Goods, Wares or Merchandizes from Hudson Bay or any place within the limitts of that Companies Charter, the summe of Twenty shillings: 54

The Rise of the Gold Standard, 1660–1819 For every Tun of the burthen or contents of any Shipp or Vessell importing Goods, Wares or Merchandizes from the Canaries, Madera’s or any the Westerne Islands, the summe of Ten shillings: For every Tun of the burthen or contents of any Shipp or Vessell used or imployed in the Coasting Trade from Port to Port in England, Wales or Berwicke upon Tweede, the summe of Six pence: […] XIX.

And be it further enacted, That it shall and may be lawfull to and for theire Majesties, by Letters Patents under the Greate Seale of England, to limitt, directe and appointe, how and in what manner and proportions, and under what rules and directions, the said summe of Twelve hundred thousand pounds, parte of the said summe of Fifteene hundred thousand pounds, and the said yearely summe of One hundred and thousand pounds, parte of the said yearely summe of One hundred and forty thousand pounds, and every or any parte or proportion thereof, may be assigneable or transferrable, assigned or transferred, to such person or persons, only as shall freely and voluntarily accepte of the same, and not otherwise; and to incorporate all and every such Subscribers and Contributors, theire Heires, Successors, or Assignes, to be one Body Corporate and Politick, by the name of The Governor and Company of the Bank of England, and, by the same name of The Governor and Company of the Banke of England, to have perpetuall succession, and a Common Seale, and that they and theire Successors, by the name aforesaid, shall be able and capable in Lawe to have, purchase, receive, possesse, enjoye and retaine to them and theire Successors Lands, Rents, Tenements and Hereditaments of what kinde, nature or quality soever; And alsoe to sell, grant, demise, alien or dispose of the same; And by the same name to sue and implead, and be sued and impleaded, answere and be answered, in Courts of Record, or any other Place whatsoever, and to doe and execute all and singuler other matters and things by the name aforesaid, that to them shall or may appertaine to doe; subjecte neverthelesse to the proviso and condition of Redemption herein after mentioned: […] XXVII. Provided that nothing herein conteined shall any wayes be construed to hinder the said Corporacion [i.e., the Bank of England] from dealing in Bills of Exchange, or in buying or selling Bullion, Gold or Silver, or in selling any goods, wares or merchandize whatsoever, which shall be really and bona fide be left or deposited with the said Corporacion for money lent and advanced thereon, and which shall not be redeemed att the time agreed on, or within three moneths after, or from selling such Goods as shall or may be the produce of Lands purchased by the said Corporacion.

55

8 January 1695 Report to the House of Commons from the Committee appointed to consider Proposals for stemming both the Clipping of the Silver Coinage of England and the Exportation of Silver

Source: House of Commons, Journals of the House of Commons, vol. 11, pp. 265– 71, esp. pp. 265–6. See also Li, The Great Recoinage of 1696 to 1699, p. 111.

Mr Scobell reported from the Committee appointed to receive proposals how to prevent the clipping of the Coin of this Kingdom for the future; and the Exportation of Silver; and to report the same to the House; That the Committee had received several Proposals accordingly; and had agreed upon several Resolutions; which they had directed him to report to the House: And he read the same in his Place; and afterwards delivered the same in at the Clerk’s Table: Where the same were read; and are as follows; viz. 1. Resolved, That it is the Opinion of the Committee, That the best way to prevent clipping the Silver Coin of this Kingdom for the future is, to new-coin the same into milled Money. 2. Resolved, That it is the Opinion of the Committee, That Ten hundred thousand Pounds is a sufficient Sum to make good the Deficiency of the present clipped Coin of this Kingdom. 3. Resolved, That it is the Opinion of the Committee, That the Crown and Halfcrown, hereafter to be coined, shall be of the present Weight and Fineness. 4. Resolved, That it is the Opinion of the Committee, That the Crown piece shall go at Five Shillings Sixpence; and the Halfcrown shall go at Two Shillings Ninepence. 5. Resolved, That it is the Opinion of the Committee, That the present milled Crown piece shall go for 5s. 6d.; and the Halfcrown for Two Shillings Ninepence. 6. Resolved, That it is the Opinion of the Committee, That all Money, to be coined under the Denomination of the Halfcrown, shall have a Remedy of Sixpence in the Ounce. 56

The Rise of the Gold Standard, 1660–1819 7. Resolved, That it is the Opinion of the Committee, That for as much of the present Coin, as any Person brings into the Mint, he shall have Weight for Weight, and the Overplus by a Bill or Ticket at ___ per Cent. on a Fund, to be appropriated for that Purpose. 8. Resolved, That it is the Opinion of the Committee, That the present Laws against clipping be enforced by some Additions. 9. Resolved, That it is the Opinion of the Committee, That all Person whose Prosessions [sic] require such-like Tools or Engines, as may be made use of for coining or clipping be obliged to register their Names, and Places of Abode; and that it be penal on such as neglect to do the same. 10. Resolved, That it is the Opinion of the Committee, That it be penal on all such Persons on whom Clippings are found. 11. Resolved, That it is the Opinion of the Committee, That it be penal on all such Persons as give more for any Silver Coin than it ought to go for by Law. 12. Resolved, That it is the Opinion of the Committee, That no Presses, such as are used for coining, be in any other Place than his Majesty’s Mint. 13. Resolved, That it is the Opinion of the Committee, That it be penal on all such Persons as shall import any clipped or counterfeit Money. 14. Resolved, That it is the Opinion of the Committee, That it be penal on any Person to export English Bullion; and the Proof to lie upon the Exporter. Resolved, That it is the Opinion of the Committee, That it be penal on any Person to counterfeit any foreign Mark upon Bullion. Resolved, That this House will, upon Saturday Morning next, take the said Report into Consideration.

57

3 July 1695 ‘Representation to the Lords Justices from the Treasury Lords on the Price of Guineas’, reporting that the high Price of Guineas in England has encouraged the Importation of large Quantities of Gold from abroad to the Loss of the Nation

Source: William A. Shaw (ed.), Calendar of Treasury Books, January 1693 to March 1696 (London: HMSO, 1935), vol. 10, pt. 3, pp. 1144–7.

By the Indenture of the Mint now in force the Master and Worker covenant to make a 20s. piece of Crown gold to run for 20s. sterling, 44½ to the lb. Troy and every lb. Troy of such gold moneys to be in value 44l. 10s. 0d. and in fineness at the Trial of the Pyx to be 22 carats fine gold and two of allay, which standard for the Crown gold is ordained by the said indenture and the pieces of gold coined in pursuance thereof are usually called guineas. Nevertheless, a guinea at this day passes in any payment for 29s. 6d. and if be for provisions and goods bought it goes for 30s. in London; and in the several counties of England (according to information) it passes at several different rates, generally higher than the price in London. Gold of the said standard sold very lately for 5s. 6d. [sic for 5l. 6s. 0d.] an ounce, which is 63l. 12s. 0d. the pound Troy and it is said to be now something higher and the gold of a guinea (being in weight 5dwt. 94/10 grains, supposing the gold is to be but 106s. per ounce) amounts to 28s. and 7d. The balance of trade hath produced so great a difference in the exchange or remittances of money that it is become necessary to export either gold or silver to answer bills in foreign parts and this time the exportation runs wholly upon the silver, it being the present practice (which is managed chiefly by foreign merchants) to import vast quantities of gold into England by which they have gained 20 or 15 per cent. profit more or less according to the differences of its value here and abroad, and to export for it silver which they buy in England at 6s. 2d. for every ounce of English standard and sell in their own country at a much lower price without being losers by the silver itself, because the differ58

The Rise of the Gold Standard, 1660–1819 ence of its price is recompensed by having it abroad to answer bills of exchange in which our loss abovementioned is profit to them. If the balance of trade has been one cause why gold and silver have both risen in England, then it may be considered why the value has not been equally advanced, it being evident that gold is risen almost a third part, to wit from 21s. 6d. to 30s., whereas silver is not raised above a sixth part, to wit from 5s. 2d. to 6s. 2d. or thereabouts. The disproportion seems to arise from two causes; the one is the badness of the silver coin, which is so clipt that the bags brought to the Exchequer for revenue taxes or loans commonly want about one half of their due weight. The 100l. which should weigh 32lb. 3oz. Troy (and something more) commonly weighs 16 or 18 pound more or less including in the same many mixt pieces of base metal: and from this diminution and baseness of the silver coin it is come to pass that the same, especially the half crown, doth not pass from man to man without great difficulty, and many times and in many places is wholly refused by persons who choose to take guineas at an exorbitant rate rather than trust to their own skill in distinguishing good silver from bad or meddling with that which perhaps will not pass from them again. The other cause of the said dispropotion may be a vile practice, which is vulgarly (though perhaps improperly) called stock jobbing of guineas, that is where one gives a premium or reward to another to have the refusal of a number of guineas at a limited price and within a limited time: which practice in the case of guineas, as it doth usually in the case of joynt stock, serves to put a ficticious, imaginary or too high a valuation by which many of the King’s subjects have been and are cheated, and the public (as to guineas at least) is endamaged in so high a degree that it may well be worthy consideration of authority to put a stop thereunto. It remains now to be considered whether the Officers of the Exchequer and the Public Receivers [of taxes] should take or refuse guineas at the price for which they are now current. The gentlemen of the Bank who are now under a contract for returning the King’s moneys [by exchanges from the Provinces to London] and others do desire that guineas may be refused at the Exchequer and by the King’s Receivers as the only expedient to bring down their price, insisting that greater prices are still given here by foreigners for bullion and silver in order to its exportation for Holland and other places, which as they say will prove a greater and more general mischief than that of clipped money: that this extravagant price for gold is all given to foreigners who export silver for returns, to our double loss: that notwithstanding the late Act, melted or English silver is exported, it being risen to above 6s. per oz.; whereas it was sold since the proroguing of Parliament for 5s. 5d. the ounce and scarce any was to be had in London: that if this pernicious trade continues it will (besides the 59

The Monetary History of Gold mischief abovesaid) utterly disable them to pay the Army, in regard these gold traders not only export silver, but also ruin the exchange by taking up all the money they can here to pay for their gold and [also] all the bills of exchange which they can procure in England [as] in return of those vast quantities of gold [which] they import from all parts of Europe: and that the King will lose the benefit designed by the late Act [6 and 7 Wm. III, c. 17, § 13] in the 700,000 ounces which were to be exported if little or no silver is to be had in London, at least not without an exorbitant price. On the other side it is alleged that if the Tellers in the Exchequer and the receivers of the King’s revenue and taxes (whilst they find duly occasion to turn back counterfeit halfcrowns and shillings which are brought to them in great numbers by collectors and others who perhaps receive them from people through ignorance or for want of skill and are frequently prejudiced if not undone thereby) should continue to refuse guineas at the present current price it will in all places defer the bringing in of the said taxes and revenues; that in some places it may occasion the total loss of the King’s money and that great complaints have been made by the Receivers to the Agents for Taxes ‘whereof extracts are hereto annexed:’ in [all] which there seems to be something of weight. It ought to be observed that if the King’s Receivers be permitted to take guineas at a stated price (for instance at 30s. apiece) it is likely that they may by selling at a higher price (for instance 31s. for there will always be some difference in the putting of guineas) acquire to themselves an unjust profit, which perhaps some of them may have in prospect. And it is very likely that if a stated value should once be put upon those pieces of gold to govern the public receipts intaking the same they will nevertheless still be rising something higher, so that there may be a continual occasion of renewing or altering the determinations which shall be made concerning their valuation. However, the circumstances of affairs make it necessary to have this question (to wit whether the King’s officers shall continue to refuse or whether they shally take guineas at the current price) to be forthwith decided by public authority. Appending: (1) computation: 1lb. gold = 12oz. Troy = 240dwt. = 5,760 grains. 1lb. gold is coined into 44½ guineas ergo 5760/44.5 = 129.439gr. or 5dwt. 9gr. 438/1000 in a guineas. then 1oz. gold = 20dwt. = 480 grains. the price of gold is admitted to be 106s. per oz. Troy if 480gr. = 106s. 60

The Rise of the Gold Standard, 1660–1819 129.4gr. = 28l. 6s. 3d. 63984/100000 which is the value of gold in the guinea when gold is at 5l. 6s. per oz. (2) An abstract of the several letters lately received from the Receivers General of Taxes relating to their receiving of guineas. (a) Henry Whitebread and Thomas Richards, Receivers General, co. Beds. ([their total receipt being] about 6,800l.) and co. Herts (about 9,900l.), by their letter of the 13th June say they shall not be able to bring in half their taxes unless they take guineas at 30s. a pices: and pray direction therein. (b) Robert Chaplinn, Receiver General, co. Suffolk (about 17,500l.), by his letter of 16th June says the collectors did resort to him to know if he would take guineas at 30s. and 31s. apiece; if not, they should not be able to get in their taxes: and therefore prays direction therein. (c) Nath. Rich, Receiver General, co. Essex (about 21,000l.), by letter of 14 June says the collectors resort to him to know if he would take guineas at 30s. apiece; otherwise they must be forced to make distresses and how to sell the goods at all for current money they know not. (d) Gilbert Spencer, Receiver General, co. Kent (about 19,500l.), by letter of 16 June to Mr Peters, the Teller’s clerk, says the collectors have taken many guineas at 30s. each and says they are current so in the country and swear they cannot get white money to change them. (e) Receivers for cos. Berks (9,700l.), Bucks (11,000l.), Oxford (9,000l.), Warwick (9,400l.) and Sussex (13,000l.) make the same personal complaints as above. (f) The correspondent of the Receiver General for co. Dorser (7,900l.) says he would now pay 6,000l. if guineas could pass at the Exchequer at 30s. apiece, though the money is not yet due to be paid to the Exchequer. (g) Also many of the Receivers’ correspondents here in town (viz. co. Norfolk, 17,000l.; North Wales and Chester, 20,000l.; Northampton and Rutland, 12,000l.) allege they cannot receive their bills [of exchange out of the country] unless they take guineas at 30s. apiece which is the occasion of keeping vast sums of money out of the Exchequer; particularly North Wales, Norfolk and other places.

61

10 December 1695 Resolutions put forward in the Report of the Committee of the whole House, laying the Foundation for the Great Recoinage

Over the next three years, about £10 million of clipped hammered silver money was collected and recoined by the English Mints at a cost of perhaps £3 million. Source: House of Commons, Journals of the House of Commons, vol. 11, p. 358. See also Ruding, Annals of the Coinage of Britain and its Dependencies, vol. 3, pp. 392–3.

Colonel Granville, according to the Order of the Day, reported, from the Committee of the whole House, to whom it was referred to consider the State of the Nation, the Resolutions of the said Committee; which they had directed him to report to the House; and which he read in his Place; and afterwards delivered in at the Clerk’s Table: where the same were read; and are as follows: viz. 1. Resolved, That it is of the Opinion of this Committee, That all Commodities and Provisions that shall be transported from England, for the Use of Forces in his Majesty’s Pay abroad, be exempted from any Duty, or Excise, throughout the Spanish and United Netherlands. 2. Resolved, That it is of the Opinion of this Committee, That the most effectual Way to put a Stop to the Mischiefs which the Nation suffers by the Currency of clipped Money, is, to re-coin the same. 3. Resolved, That it is of the Opinion of this Committee, That all clipped Money be re-coined according to the established Standard of the Mint, both as to weight and fineness. 4. Resolved, That it is of the Opinion of this Committee, That the Loss of such clipped Money, as is Silver, shall be borne by the Publick. 5. Resolved, That it is of the Opinion of this Committee, That a Day, or Days, be appointed, after which no Crowns, or Half-Crowns, other than such as are milled, be allowed in Payment, or to pass; except only to the Collector’s and Receivers of his Majesty’s Revenues and Taxes, or upon Loans, or Payments in the Exchequer. 62

The Rise of the Gold Standard, 1660–1819 6. Resolved, That it is of the Opinion of this Committee, That a Day, or Days, be appointed, after which no Crowns, or Half-Crowns, other than such as are milled, shall pass in any Payment whatsoever. 7. Resolved, That it is of the Opinion of this Committee, That all such Crowns, and Half-Crowns, as they come into his Majesty’s Receipt, be recoined into milled Money. 8. Resolved, That it is of the Opinion of this Committee, That a Day, or Days, be appointed, after which no Money clipped within the Ring be allowed in Payment, or to pass; except only to the Collectors and Receivers of His Majesty’s Revenues and Taxes, or upon Loans, or Payments into the Exchequer. 9. Resolved, That it is of the Opinion of this Committee, That a Day, or Days, be appointed, after which no Money clipped within the Ring shall pass in any payment whatsoever. 10. Resolved, That it is of the Opinion of this Committee, That a Day, or Days, be appointed, for all Persons to bring in their clipped Money, to be recoined into Milled money; after which no Recompense shall be made for the same. 11. Resolved, That it is of the Opinion of this Committee, That a Fund, or Funds, be settled for supplying the Deficiencies of the clipped Money.

63

1695 [undated] A short Paper on Guineas written by John Locke at the Request of Treasury Commissioner Sir William Trumbull in Connection with the Treasury Report of the 3rd of July 1695

Source: Patrick Hyde Kelly (ed.), Locke on Money (Oxford: Clarendon Press, 1991), vol. 2, pp. 363–4. For Sir William Trumball’s request of Locke’s opinion on the Treasury report, dated from the 19th of July 1695, see E. S. De Beer (ed.), The Correspondence of John Locke (Oxford: Clarendon Press, 1979), vol. 5, no. 1927, p. 414.

£1 Sterling = 1860 gr 1 Crown = 465 gr: 1 shilling = 93 gr: fere [i.e., almost] 1 penny = 7¾ gr: 1 Guinea weighs 5 dw and 9/438 gr or 129/438 gr 1 Guinea at 20s is as 129 to 1860 or 1 to 14½ almost. 1 Guinea at 21s is as 129 to 1953 i e as 1 to 15¼ 1 Guinea at 22s is as 129. to 2042 or 1. to 16. almost [i.e., reckoning the pound sterling at 1856 rather than 1860 gr; the figure 2042 should have been given as 2046] 1 Guinea at 30s is as 129 to 2784 or 1 to 21½ near [i.e., again reckoning the pound sterling at 1856 gr; the figure 2784 should have been given as 2790] But by confession of that paper [i.e., the Report of the Treasury Commissioners, of the 3rd of July 1695] your English currant coin now weighing but ½ of 64

The Rise of the Gold Standard, 1660–1819 what it should he that receives 30s for a guinea receives but 1392 gr: which is not quite 11. for one. So that he that received 20s in Mild money for a Guinea received 1860 gr: of standard silver for 129 gr: of gold but he that receives now our clipd Money 30s for his guinea receives but 1392 gr: of standard silver for 129 gr: of gold whereby it is evident that he that has a Guinea now for 30s clipd money has by ¼ a better bargain than he that had a guinea formerly for 20s. mild money which being so there is no hindering people from taking them. But if this be so how come foreigners so readily to import them? The reason is plain because 30s. of clipd mony in tale haveing still an imaginary value above its weight will buy 5 ounces of bullion or thereabouts as the paper confesses whereby the forreigner get[ting] 5 ounces of bullion for the 30s which he had for his Guinea does in this way of laying out his Money get 20 per Cent. But how comes it that 3 ounces of clipd money should purchase almost 5 ounces of Bullion? This still is from the imaginary value that goes along with your coin though clipd which buys almost as much cloth or Leather or corne as if it had the weight as well as denomination and stamp of the Mint. Here again it will be asked why does the Country man or farmer give as much corne or wool or other commoditys for half the weight of silver that is half the value as if it were the full weight? That is plain he does because this imaginary value is kept up by the Exchequers takeing it again for his Taxes and so as it were by authorizing or at least allowing it at that rate. Buy yet we see every one shifts away the light money as fast as he can and if he lays up any he will finde lesse losse in it to lay it up in Guineas at the rate of 30s. The way therefor proposed by the Bank to put a stop to the Receipt of Guineas at 30s. seems unreasonable for how can any one desire authority to hinder the subjects to receive 129 gr: for gold for 1392. of silver when the Law allows 1860 gr: of silver to be given for 129 gr: of gold i.e. a Guinea to pass for 20s. mild money. To put a stop to the importation of gold which at the losse of 25 per cent carys away our silver and prejudices the Exchange is for the Exchequer not any longer to authorize this imaginary value i.e. not to receive any silver money but according to its weight and for the publique authority to prohibit clipd money to pass for more than its weight. This is the only way to stop the importation of gold so much at present to our losse which is yet far greater to us when this gold is laid out in commoditys and not in bullion for then we loose £331/3 per Cent. A paper written at Sir Wm Trumbulls request upon occasion of a paper of the Lords Commissioners of the Treasury submitted to the Lords Justices 3 July [16]95. 65

17 January 1696 ‘An Act for Remedying the Ill State of the Coin of the Kingdom’

This Act, which received Royal Assent four days after passing through the House of Commons, became the first statute Act for the recoinage of the silver moneys of England. It obliged the government to accept clipped coins at full value in payment of taxes until the 4th of May, and it obliged the Exchequer to accept the same in payment of loans until the 24th of June, in effect, extending the dates set forth in the Royal Proclamation of 19 December 1695. Source: The Statutes of the Realm (London, 1820), vol. 7, pp. 1–4. Cited as 7 & 8. Wm. III, c. 1. See also Li, The Great Recoinage of 1696 to 1699, pp. 116–19.

Whereas the Silver Coins of this Realm (as to a great Part thereof) doe appeare to bee exceedingly diminished by such Persons, who (notwithstanding several good Laws formerly provided, and many Examples of Justice thereupon) have practiced the wicked and pernicious Crime of clipping, until att length the Course of the Moneys within this Kingdom is become difficult, and very much perplext, to the unspeakable Wrong and Prejudice of His Majestie and His good Subjects in their Affairs as well publick as particular, and noe sufficient Remedy can bee applied to the manifold evils ariseing from the Clipping of the Moneys, without recoining the clipt pieces. Now to the end a regular and effectual Method may bee observed and putt in Execution, in and for the recoining of the said clipt Moneys, whether the same bee Sterling Silver, or bee Silver of a coarser allay than the Standard; and to the end the Losse upon the said Moneys soe to bee recoined (to wit) the Quantity of Silver that is clipt away of deficient in the said Moneys, may bee better knowne and adjusted, in order to the makeing Satisfaction for the same by a Public Charge or Contribution. I. Bee it enacted by the Kings most excellent Majestie, by and with the Advice and Consent of the Lords Spiritual and Temporal, and of the Commons, in this present Parliament assembled, and by the authority of the same, That on or before the First Day of February One thousand six hundred ninety five [i.e., 1696], the present Commissioners of His Majesty’s Tresury or any 66

The Rise of the Gold Standard, 1660–1819 one or more of them now being or the Lord High Treasurer or any one or more of the Commissioners of the Treasury for the time being shall with the assistance of the Chamberlains of the Exchequer, the Under Tresurer, the Auditor of the Receipt, the Clerk of the Pells, and the Deputy Chamberlains there or with [the] assistance of any three or more of them, and in the presence of any Persons who have Loans owing to them att the Exchequer and will voluntarily offer themselves to bee present cause all the clipt Money being Sterling Silver or being Silver of a courser Allay than the Standard and which shall bee then actually remaining in the Kings Receipt of the Exchequer upon the account of Taxes, Revenues, Loans or otherwise to bee exactly numbered or told and to bee alsoe carefully weighed and the Tale and weight thereof to bee fairely entered in a Book to bee kept for that purpose within the said Receipt whereunto all Persons concerned shall have free accesse att all seasonable Times without Fee or Charge. And in the same Book there shall not onely bee expressed the general Tale of all the said clipt Moneys that shall bee then found within the said Receipt but alsoe the particular Remains thereof shall likewise bee sett downe and inserted (to witt) how much thereof is for Customs, how much for Excise, how much thereof for any Aid, and so of all the rest. And shall thereupon immediately cause all such clipt Money soe found in the said Receipt to bee there or in some convenient Place within the Precints thereof melted downe and cast into Ingotts and soe to bee essayed and delivered by Weight into His Majesties Mint or Mints where the Officers shall receive the same by Indenture to bee there immediately refined or otherwise reduced to sterling and to bee coined by the Mill and presse into the current Money of this Realme, to hold such Weight and Finenesse as are prescribed by the present Indenture with His Majesties Master and Worker for makeing of Silver Moneys att the Tower of London and with such Allowance called The Remedy, as is given to the said Master by the said Indenture which Weight and Finenesse are hereby declared to bee and shall remain to bee the Standard of and for the lawful Silver Coin of this Kingdom. II. And bee it further enacted by the Authority aforesaid That all the new Money proceeding from the Silver of the said clipt moneys (except the necessary Charge of makeing the said new Money) which Charge shall not exceed Fourteen Pence upon every Pound Weight Troy and except the necessary charge of melting and refining shall from time to time as fast as such New Money shall bee coined or att least by Weekly Payments be brought back into the Receipt of His Majesties Exchequer and bee there placed to the respective Accounts of the said particular Revenues, Taxes, Loans or other Branches to which the clipt Moneys belonged in such Manner as that the new Money shal be applied to every particular Branch or Fund in such or the like Proportion as the clipt Money taken from that particular Branch or Fund shall beare to the 67

The Monetary History of Gold Summ of the clipt Money soe as aforesaid to bee taken from the whole and shall bee issued, paid out and disposed accordingly soe farr as the same will extend and soe as that in all Cases where any of the said clipt Moneys were appropriated by any former Act or Acts of Parliament for Repayment of Loans or for Satisfaction of Interest Money of for Payment of Annuities or other Uses the new Money coming instead thereof soe farr as the same will extend shall bee appropriated, issued and applied to the same respective uses without being diverted or divertible to any other Use or being misapplied under the Penalty of incurring the same Forfeitures and Disabilities by the Officers or other Persons concerned therein as they would have incurred for diverting or misapplying the Money of such Taxes, Revenues, Loans or other Branches in case the same were not recoined. III. And bee it further enacted by the Authority aforesayd That a true Account shall bee kept in the said Receipt of Exchequer expressing therein particularly every every summ of the new moneys which shall be brought to that Receipt from the Mint or Mints for the proceed of the said clipt Money appointed to bee recoined as aforesaid to the end the Differences between the Summs in Tale of the said Clipt Money and the Summs in Tale of the said new Moneys proceeding therefrom may bee plainely known and manifested and to the end the Deficiencies which will thereby bee occasioned in the Produce of the said Revenues, Taxes, Loans and other branches may bee ascertained in order to the making them good att the publick charge to Book all Persons concerned at seasonable times shall alsoe have free Access without Fee or Charge. IV. And bee it further enacted by the Authority aforesaid That the several Receivers General and their several Deputies and the particular Receivers, Collectors and other Officers who have or shall have or bee intrusted with the Receipt or Collection of His Majesties Revenues, Impositions, Duties, Taxes, Aids [or] Supplies respectively such as Clipt Moneys as aforesaid being Sterling Silver or being Silver Moneys of a courser Allay than the Standard from such Person or Persons, Bodies Politick or Corporate as shall tender the same in or for such Payments respectively att any time or times before the Fourth Day of May which shall bee in the Yeare of our Lord One thousand six hundred ninety six att the same Rate or Value as if such Moneys were unclipt or undiminished and shall not refuse any Piece or Pieces of Silver Moneys soe tendered by reason or pretence of their being worse or holding more Allay then Standard Silver soe as such Piece or Pieces doe not evidently appeare to bee made of Copper or Base Metal plated over or washed with Silver only. V. And bee it further enacted by the Authority aforesaid, That the Tellers in [the] Receipt of His Majesties Exchequer respectively shall att any time or times before the Foure and twentieth Day of June One thousand six hundred ninety six not onely receive and take to His Majesties Use att the Receipt of 68

The Rise of the Gold Standard, 1660–1819 Exchequer the said Clipt Moneys which shall have been soe received or collected by the said Receivers General and their several Deputies or by [the] particular Receivers, Collectors or Other Officers which shall bee by them brought to the said Receipt for the said Revenues, Impositions, Duties, Taxes, Aids or Supplies before mentioned but shall alsoe att any time or times before the Four and twentieth Day of June receive and take to His Majesties Use in such Clipt Money as aforesaid any Loans which shall bee authorized to bee made or received there or any other Payments which shall bee due to His Majesty unlesse such Loans or Payments or any of them shall bee specially directed by any other Act or Acts of Parliament to bee received in other kind of Money. VI. And bee it further enacted by the Authority aforesaid, That the said Tellers in the Receipt of His Majesties Exchequer shall take care to separate and keep aparte all the said clipt Moneys that shall hereafter bee received by them for Loans, Taxes, Revenues or any other Cause whatsoever, soe that it may bee knowne which sp[ec]ificall Parcels of Money brought in shall appertaine to every particular Tax, Fund or Branch and that the present Commissioners of the Treasury or any one or more of them or the Lord Treasurer or any one or more of the Commissioners of the Tresury for the time being shall once or oftner in every Fourteen Days in the Presence and with the Assistance of such Officers of the Exchequer as are above mentioned and of such Persons having Loans due to them from the Exchequer as shall desire to bee there present cause all the said clipt Moneys which they shall from time to time find to bee actually remaining in the Kings Receipt of the Exchequer for the said Taxes, Revenues, Loans or other Branches respectively to be exactly numbered or told and to bee alsoe carefully weighed and the Tale and Weight thereof to bee fairely entered in the Book of the above mentioned to bee kept for that purpose wherein shall bee expressed the particular Taxes, Funds or Branches whereunto such clipt Moneys doe severally belong and shall thereupon immediately cause all the clipt moneys which shall soe from time to time bee found in the Receipt to bee melted downe and cast into severall Ingotts in such manner as that the Money of one Branch shall not bee mixed with that of another in the melting or in the Ingott and shall alsoe cause the said Ingotts to bee essayed and delivered to the Officers of His Majesties Mint or Mints by Indenture expressing the Weight and Finenesse of every Ingott and the particular Tax, Fund or Revenue to which it belongs, which said Officers shall immediately cause such Silver to bee refined and reduced to Sterling and coin the same by the Mill and Presse into the Current Moneys of this Realme to bee of such Weight and Finenesse as above mentioned and that all the new Moneys proceeding from the said Silver of the said clipt Moneys which shall soe from time to time bee transmitted to His Majesties Mint or Mints (except the necessary Charge for making the same and the Charge of refining and melting 69

The Monetary History of Gold as aforesaid) shall from time to time as fast as it shall bee coined or att least by weekly Payments bee brought back into the Receipt of His Majesties Exchequer and bee there placed to the respective Accounts of the said particular Revenues, Taxes, Loans or other Branches to which the clipt Moneys did respectively belong and shall bee issued, paid out and disposed of accordingly as far as the same will extend and shall bee appropriated, issued and applied to the same respective Uses without being diverted or divertible to any other Use or being misapplied under the Penalty of incurring the same forefeitures and Disabilities by the Officers or other Persons concerned therein as they would have incurred for diverting or misapplying the Money of such Taxes, Revenues, Loans or other Branches in case the same were not recoined. VII. And bee it further enacted by the Authority aforesaid, That a true Account shall bee kept in the said Receipt of the Exchequer expressing therein particularly every Summ of the new Moneys which shall soe from time to time bee brought to the said Receipt from the Mint or Mints for the Proceed of the said clipt Money appointed to bee recoined as aforesaid to the end of the Differences betweene the summs in Tale of the said clipt Moneys and the Summs in Tale of the new Moneys proceeding therefrom from time to time as is last mentioned may bee plainly known and manifested and to the end of the Deficiencies which will thereby bee occasioned in the Produce of the said Revenues, Taxes, Loans and other Branches may bee ascertained in order to the making them good att the Publick Charge. VIII. And bee it further enacted by the Authority aforesaid, That such Mints as His Majesty shall erect for the greater Ease of His Subjects in the remote parts of this Kingdom not being lesse then Foure shall bee under the Methods and Directions prescribed by this Act. IX. And in regard such of the Coins of this Realme made with the Hammer and not by the Mill and Presse and which doe att this time remain Whole and Unclipt will still bee most liable and subject to that pernicious Crime of Clipping or Rounding by wicked Persons who regard their owne unjust Lucre more then the Preservation of their native Countrey. For the better Prevention thereof bee it further enacted by the Authority aforesaid, That every Person having such unclipt hammered Moneys in his, her or their Hands, Custody, or Possession doe before the Tenth Day of February One thousand six hundred ninety five or before they dispose of the same cause such unclipt Moneys to bee struck through about the Middle of every Piece with a solid Punch that shall make a Hole without diminishing the Silver; And that after the said Tenth Day of February noe unclipt hammered Moneys (that is to say) such Pieces as have both Rings or the greatest part of the Letters appearing thereon shall bee Current unlesse it be soe struck through. And if any Piece struck through shall appeare afterwards to bee clipt noe Person shall tender or receive 70

The Rise of the Gold Standard, 1660–1819 the same in Payment under the Penalty of forfeiting as much as the clipt Moneys soe puncht through shall amount to in Tale to bee recovered to the Use of the Poor of the Parish where such Money shall bee soe tendred or received. And His Majesties Justices of the Peace or the major part of them in the General Quarter Session upon Complaint to bee made to them of such Offense are hereby impowered to take Cognizance thereof and to determine the same and for that purpose to cause the Parties complained of to appear before them and in case of Conviction to issue their Warrant or Warrants to levy such Penalty upon the Goods and Chattells of the Offenders. X. And bee it further enacted by the Authority aforesaid, That in all Cases where any Matter or Thing is by this Act enjoyned to bee done by any of His Majesties Officers of the Exchequer or of the Mints or by any Receiver General or any other Officer of His Majesties herein imployed and such Officer shall make wilfull Default in the Performance thereof by which any Person or Persons whatsoever shall be grieved or suffer any Losse or Damage then and in every such Case the Officer or Officers making such Default shall bee liable by virtue of this Act to answer and pay Double Damages to the Party grieved or injured; And that all Penalties and Forfeitures ariseing by this Act in all Cases where noe speciall Remedy is before appointed for Recovery thereof shall and may be recovered by Action of Debt, Bill, Suit or Information in any of His Majesties Courts of Record wherein noe Essoign, Protection, Wager of Law or more than One Imparlance shall bee granted. XI. And in regard the smaller Pieces of the new Moneys to bee coined as aforesaid will bee most useful in Commerce, Bee it further enacted, That from and after the Fourth Day of February One thousand six hundred ninety five, the Master and Worker of His Majesties Mint for the time being shall upon every Hundred pound weight Troy of sterling Silver to bee coined as aforesaid pursuant to the Direction of this Act from time to time cause att least Fourty Pounds weight Troy to bee coined into Shillings and Ten Pounds weight Troy to be coined into Sixpences besides the other Coins which hee is to make out of the same pursuant to the said Indenture of the Mint; And that in case the Master and Worker of the Mint shall omitt soe to doe, hee shall forfeit for every such Offense Twenty Pounds, the one Moiety thereof to bee to His Majestie, the other Moiety thereof to the Informer to bee recovered by Action of Debt, Bill, Plaint or Information wherein noe Wager of Law, Protection, Priveledge, Imparlance or Essoign shall bee allowed. XII. Provided that nothing in this Act shall extend or bee construed to extend to enforce or oblige the melting downe and recoining or prohibit the receiving or paying of Sixpences being of sterling Silver, and not being clipt within the innermost Ring. 71

15 February 1696 Resolution put forward in the Report of the Committee of the whole House, stating that no Guinea should pass for more than 28 Shillings

Source: House of Commons, Journals of the House of Commons, vol. 11, p. 451. See also Ruding, Annals of the Coinage of Britain and its Dependencies, vol. 3, p. 409.

Mr Palmes, according to the Order of the Day, reported, from the Committee of the whole House, to whom it was referred to consider of the Price of Guineas, the Resolution of the said Committee; which they had directed him to report to the House; and which he read in his Place; and afterwards delivered in at the Clerk’s Table: Where the same was read; and is as followeth; viz. Resolved, That it is the Opinion of this Committee, That no Guineas pass, in any Payment, at above the Rate of Eight-and-twenty Shillings.

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24 February 1696 ‘An Act for taking off the Obligation and Incouragement for Coining Guineas for a certaine Time therein mentioned’

The Act is reproduced below in its entirety. Source: The Statutes of the Realm (London, 1820), vol. 7, pp. 77–8. Cited as 7 & 8. Wm. III, c. 13. See also House of Commons, Journals of the House of Commons, vol. 11, p. 464.

Whereas by an Act made in the Eighteenth Yeare of the Reigne of King Charles the Second, intituled An Act for incouraging of Coinage, and continued by an other Act made in the Five and twentieth Yeare of the Reigne of the said King Charles, intituled An Act for continuing a former Act concerning Coinage, both which Acts were revived by an Act made in the First Yeare of the Reigne of the late King James and are continued by an Act made in the Fourth session of the last Parliament intituled an Act for reviving, continuing, and explaining several Laws therein mentioned, which are expired and neare expiring, Itt is provided that whatsoever Person or Persons, Native or Forreigner, Alien or Stranger, shall, from and after the Twentieth day of December One thousand six hundred sixty and six bring any Forreign Coine, Plate, or Bullion of Gold or Silver in Masse molten or allayed or any sort of Manufacture of Gold or Silver into His Majesties Mint or Mints within the Kingdome of England to bee there melted downe and coined with all convenient Speed without any Defalcation, Diminution, or Charge for the Assaying, Coinage, or Waste in Coinage so as that for every Pound Troy of Crowne or Standard Gold that shall bee brought in or delivered by him or them to bee assayed, melted downe, and coined as aforesaid, there shall bee delivered out to him or them respectively a Pound Troy of the Current Coins of this Kingdome of Crowne or Standard Gold. And whereas great Quantities of Gold have been lately imported from Forreigne Parts which being coined here as aforesaid into Guineas have been (on occasion of the present ill State of the Silver Coins) taken and accepted by the Subjects of this Realme att very high and unusual Rates and Prices tending to the great Damage and Losse of the Publick. The 73

The Monetary History of Gold continuance of which Practice (unlesse Speedily prevented) will run the Nation vastly in debt to Forreigners for the Repayment whereof the Silver Moneys of this Kingdom must inevitably be exhausted on Terms of great Disadvantage; therefore to prevent the further Growth of soe great an Evil, Bee it enacted by the Kings most Excellent Majesty, by and with the Advice and Consent of the Lords Spiritual and Temporal and Commons in this present Parliament assembled, and by the Authority of the same, That from and after the Second Day of March in the Yeare of Our Lord One thousand six hundred ninety five till the First day of January then next following there shall not bee any Obligation of receiving into His Majesties Mint of Mints to be coined any Gold whatsoever nor shall any of the Officers of His Majesties Mints bee obliged to coin any Gold within the time aforesaid for any Person whatsoever, Any thing in the said recited Acts or any other Law to the contrary notwithstanding. And be it further enacted by the Authority aforesaid, That the several Impositions upon Wine, Vinegar, Cyder, Beer, Brandy, and Strong Waters imported, levyable and payable by the Acts before recited, shall bee applied entirely towards the Encouragement of the Silver Mint accordingly as is there expressed without any relation to the Coinage of Gold during the Continuance of this present Act, Any thing in the said former Acts to the contrary in any wise notwithstanding. Provided neverthelesse That it shall and may bee lawfull for the Royal African Company of England to bring to His Majesties Tower of London to bee coined dureing the Continuance of this Act such Gold as shall bee imported by them the Husband of the said Company first making the Oath before the Warden, Comptroller, or Master Worker of the Mint for the time being (which Oath any of the said Officers of the Mint are hereby authorized to administer) that all the Gold soe brought to the Mint to be coined for the Use of the African Company was imported on the Account of the said Company in return of their Goods sent to Africa and on no other Account, which Gold shall bee received by the Officers of the Mint and coined into Halfe Guineas and delivered back in the same Manner and with like Encouragement as it ought to have been before the making of this Act, Any thing herein to the contrary notwithstanding. And whereas the Importation of Guineas from beyond Sea may prove very prejudicial to this Kingdome in the present Conjuncture if not prevented, Be it therefore enacted by the Authority aforesaid, That from and after the said Second day of March until the said First day of January, it shall not bee lawfull for any Person or Persons to import Guineas or Halfe-Guineas into this Kingdome on any pretence whatsoever upon Forefeiture of all such Guineas or Halfe-Guineas as shall bee soe imported Moiety thereof to His Majesty and 74

The Rise of the Gold Standard, 1660–1819 the other to such Person or Persons who shall seize or prosecute for the same to bee received by Bill, Plaint, or Information in any of His Majesties Courts of Record att Westminster wherein noe Essoigne, Protection, Priveledge, or Wager of Law shall bee allowed nor any more then one Imparlance.

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10 April 1696 ‘An Act to incourage the bringing Plate into the Mint to be Coined, and for the further Remedying the Ill State of the Coin of the Kingdom’

The Act contained a ‘rider’, setting the maximum price of the guinea at twentytwo shillings. Source: The Statutes of the Realm (London, 1820), vol. 7, p. 97. Cited as 7 & 8. Wm. III, c. 19, s. 12.

And whereas the uncertaine Value of Coyned Gold has beene highly prejudiciall to Trade and an encouragement to certaine evil disposed Persons to raise and fall the same to the great Prejudice of the Landed Men of the Kingdome, Bee it therefore enacted by the Authority aforesaid, That from and after the Tenth Day of April One thousand six hundred ninety six, noe Person shall utter or receive any of the Peices of Gold Coyne commonly called Guineas att any higher or greater Rate or Value than Two and Twenty Shillings for each Guinea and soe proportionably for every greater or lesser Peice of Coyned Gold. And whosoever shall offend herein shall incurre the Penalties and Forfeitures provided in an Act made in this present Parliament for those that shall receive or pay Guineas and other Peices of Coyned Gold att a greater or higher rate than in that Act is directed to bee recovered by the same wayes and meanes that the Penalties and Forefeitures of that Act are to bee or may bee recovered.

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23 October 1696 ‘An Act for Importing and Coining Guineas and Half-Guineas’

Source: The Statutes of the Realm (London, 1820), vol. 7, pp. 161–2. Cited as 8 & 9. Wm. III, c. 1.

Whereas by an Act made in the First Session of this present Parliament, intituled, An Act for taking off the Obligation and Encouragement of coining Guineas for a certaine time therein mentioned, it is enacted, That from the Second Day of March, in the Yeare of our Lord One thousand six hundred ninety five, until the First Day of January then next following, there shall not be any Obligation of receiving into His Majesties Mint or Mints, to be coined, any Gold whatsoever; nor shall the Officers of his Majesties Mint be obliged to coine any Gold within the Time aforesaid, for any Person whatsoever; and that the Recompences appointed by the Statute made in the Eighteenthe Yeare of the Reigne of King Charles the Second, and other subsequent Statutes, for Encouragement of Coinage, shall be applied to the Use of the Silver Mints. And it is also thereby further enacted, That from and after the said Second Day of March, until the First Day of January, it shall not be lawful for any Person or Persons whatsoever to import Guineas or Halfe-guineas into this Kingdome, upon any Pretence whatsoever, upon Forfeiture of the said Guineas or Halfe-guineas. And whereas the Reason of making the said Act was occasioned by the high and unusual Price of Guineas, which might in the end be very prejudicial to the Subject: But the said Price of Guineas being now reduced to or neare the Standard, and sundry Persons being desirous to coine Gold, and also to import great Quantities of Guineas and Halfe-guineas, which will be very beneficial to the Trade and Comerce of this Kingdome. For the Encouragement whereof, Be it enacted by the King’s most Excellent Majesty, by and with the Advice and Consent of the Lords Spiritual and Temporal, and Commons, in Parliament assembled, and by the Authority of the same, That the said Act, and every Clause, Matter and Thing, therein contained (other than what related to the Recompences by the Act appointed to be applied to the Silver Mints, 77

The Monetary History of Gold and what concerns the Royal African Company) be and are hereby repealed and utterly made void, to all Intents and Purposes; and that all and every Person or Persons may freely import into this Kingdome Guineas and Halfeguineas, as they might or usually did before the making of the said Act for prohibiting the same. And be it further enacted by the Authority aforesaid, That the Master and Worker and other Officers of His Majesties Mint in the Tower of London shall, on or before the Tenth Day of November, One thousand six hundred ninety six, prepare and set apart one or more Mill or Mills, Presse or Presses, with other Conveniences, to be in the first Place imployed in the Coinage of Gold, which shall be brought thither, by any Person or Persons, Native or Forreigner, to be received in, coined, and delivered out, in such Manner, Course, and Order, as by the aforesaid Statute made in the Eighteenth Yeare of King Charles the Second is directed and appointed; so that the Course in Coinage of Gold and Silver be kept in distinct Accounts, and not interferre one with another, either in receiving into, or delivering out of His Majesties said Mint, and that such coining and delivering out Gold in a distinct Course, according to the Time of bringing in the same, although there be Silver remaining there uncoined, shall not be interpreted any undue Preference, to incurr any Penalty in of Delivery of Money coined; Any thing in the said Statute of the Eighteenth Yeare of King Charles the Second, or other Statute, to the contrary thereof notwithstanding.

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19 September 1698 Correspondence of Isaac Newton, Warden of the Mint, dated from Jermin Street in Westminster, to John Locke

The correspondence is concerned with the weight and fineness of various coins, no doubt in connection with Locke’s work on the Board of Trade Report. Source: J. F. Scott (ed.), The Correspondence of Isaac Newton, vol. IV: 1964–1709 (Cambridge: The Royal Society, 1967), no. 593, pp. 282–4. The original can be found in MS Cambridge, Corpus Christi College Library, Cambridge, MS. Locke, b. 3, folio 127.

I have enquired the weight and finesse of the pieces of money mentioned in your Letter and they are as follows. A Holland Ducat weighs 2 dwt: 4 gr: and is 1 car 2 gr: better than our Standard. A three guilder piece weighs 20 dwt: 6 gr: and is 3 dwt worse than standard. A Spanish Pistol weighs 4 dwt: 8 gr: and is ¼ dwt worse. A piece of eight weighs 17 dwt: 12 gr: and varies in finess: The Pillar piece is 2 dwt better: the Mexican 1 dwt worse, the Peruvian 16 dwt worse. The French Lewis d’or weighs 4 dwt: 8 gr: and is ¼ dwt worse. The French Crown weighs 17 dwt: 12 gr: and is 06 dwt worse. The Cross Dollar weighs 18 dwt and is 12½ dwt worse. The Jacobus piece coin’d for 20 shillings is the 41th: part of a pound Troy, and a Carolus 20s piece is of the same weight. But a broad Jacobus (as I find by weighing some of them) is the 38th part of a pound Troy. The whole number of guineas coined in the three last Reigns (recconing 33½ Guineas to a pound weight Troy) is 7983739. Bank money at present is at about 5 per cent discount in Holland and Gold at 6¼ or 6½ per cent discount. So that a Guinea is worth 20s 8d or 20s 8½d of our Milld Money at present in Holland.

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The Monetary History of Gold The paper which I left with you I have received, but the Goldsmith MS I cannot yet procure. If there be any thing further in which I can serve the Lord Commissioners of the Council of Trade, you may command. Memdm: The grains of the penny weights are different from the grains of the Carats. For 24 grains of the first sort make a penny weight and 4 grains of the other sort make a carat. Memdm: Mr. Newton said that a Carat is sometimes taken for the 24th part of an ounce, and sometimes for the 24th. part of a pound.

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22 September 1698 Report of the Board of Trade

The Report of the Board of Trade, which included John Locke and John Pollexfen among its four members, to the House of Commons addresses the high price of guineas and the consequent flight of silver from England. Although prepared in September, the Report was ordered to be laid before the House of Commons only on the 10 February 1699. Source: Li, The Great Recoinage of 1696 to 1699, pp. 126–8. For the order of the 10th February to lay the Report before the House of Commons, see House of Commons, Journals of the House of Commons, vol. 12, p. 496.

In obedience to your Excellencies Order in Council dated the 8th of the Month, that we should take into consideration the Value of Guineas, as they are now current at 22s. and the prejudice which had been represented to your Excellencies to arise thence to the trade of this Kingdom, and particularly in the Importation of Silver Bullion; and that having spoken with merchants and other fit persons, we should report to your Excellencies our opinion thereupon, and what we conceive your Excellencies may fitly do in the matter: We have accordingly spoken with several eminent merchants, and other persons, whom we thought most capable to give us information therein; and thereupon must humbly report. That the merchants and others, we have consulted thereupon are generally agreed, that the Importation of Gold, occasioned by our over-valuing it in the currency of guineas at 22s. is a prejudice to this Kingdom in our Trade; and an occasion that so much silver as the Value of Gold so imported is worth, hath been either carried out of England or hindered from coming in; that we cannot expect and Silver Bullion, from Spain or elsewhere, should be imported and coined here, whilst we put so great an over-value upon Gold; because it is easy for merchants to know the value of both, in all Places where they deal, and exchange their Silver for Gold; and most certain, they will only import hither to be coined, what makes most for their own advantage.

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The Monetary History of Gold But besides their opinion, the thing demonstrates itself, for it is certain, That Gold in Holland, from whence the greater Part, of what has been lately coined here been brought over to us, is about Six per cent cheaper than it is here; that is to say The same Quantity of Gold that will yield here at the Mint a sum equivalent to One Hundred ounces of Silver will there be bought for less than 94 ounces of the same Silver; and from thence it evidently follows, That whoever imports Gold, gains Six per cent here more than if he imported Silver to be coined, and carries away for it, either so much of our silver or, at least, so much of our Commodities as that Six per cent amounts to: which is both ways alike prejudicial to this Kingdom. That this over-value of guineas draws Gold in upon us, the Mint is an unquestionable Evidence; from the first of May last, to the 12th of this present September have been coined 250,713 Guineas but in Silver only 72,366l. 8s. And it also observable that the Silver so coined has been only some Remain of our clipped and hammered Money and not foreign Bullion imported: nor can it be hoped, that this course of coinage, now in the Mint, viz.: The Coinage of Gold in a much greater proportion than silver, should alter; but that it will be continued on to the exportation of our silver, and very great loss to the exportation of our silver, and very great loss to this Kingdom in trade, so long as gold here shall have the value of 22s. sterling for a guinea. The Prejudice arising from hence to Trade and the advantage that may be expected from the fall of Guineas, are also more particularly observed to us by Merchants, from the rate of exhange. For the course of exchange between England and Holland, having of late by the importation of so much gold from thence been brought considerably lower than the Par, the consequence of which is, that we pay as much for everything we bring from thence, and receive so much less for everything we send thither; that the course has ever since your Excellencies Commands to us make an Inquiry into this Matter, by the spreading of the Rumours and expectation of some Change, already received an Alteration of about one per cent to our Advantage; and it is not doubted, but as the Price of Guineas shall be more certainly reduced towards their true value, the Exchange will rise proportionately. This being the state of the Matter, we are humbly of Opinion that it is necessary, Guineas in their common currency be brought down to 21s. 6d. at least; And further humbly conceive that Your Excellencies may fitly do it by giving directions that the Officers of the Receipt of his Majesty’s Exchequer and all other Receivers of His Majesty’s Revenue, do not take them at the higher rate. This appears to us the Most Convenient way; because it may, at all times, be a ready and easy remedy, upon any further variation that shall happen in the world in the Price of Gold; or even in case this new proposed Lowering of Guineas should not prove sufficient: For it being impossible, that more than one Metal should be 82

The Rise of the Gold Standard, 1660–1819 the true Measure of Commerce; and the world by common Consent and Convenience having settled that Measure in Silver; Gold as well as other Metals, is to be looked upon as a Commodity, which varying in its Price as other Commodities do, its Value will always be changeable; and the fixing of its value in any country, so that it cannot be readily accommodated to the course it has in other neighbouring Countries, will always be prejudicial to the Country which does it. The value of Gold, here at the price of 21s. 6d. a Guinea, in the proportion to the Rate of Silver in our Coin, will be very near as fifteen and one half to one; the value of Gold in proportion to Silver, in Holland and Neighbouring Countries, as near as can be computed, upon a Medium, is as fifteen to one, so that by bringing to so low a Price as in our Neighbouring Countries; Nevertheless, we are humbly of opinion that the Abatement of Sixpence in the Guinea will be sufficient to stop the present disproportionate Importation of gold; because the charge for Insurance, Freight, Commission, and the like, will eat up the Profit that may then be made thereby, and hinder that Trade; but if, contrary to our Expectation, this Abatement should prove too small Guineas may by the same easy Means be lowered yet further, according as may be found expedient. All of which, nevertheless, is most humbly submitted.

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c.1700 Excerpts from Hopton Haynes’s ‘Brief Memoire relating to the Silver and Gold Coins of England, with an Account of the Corruption of the hammered Moneys; and of the Reform of the Late Grand Coynage at the Tower and the five County Mints in the years 1696, 1697, 1698, and 1699’

Haynes worked at the Royal Mint from boyhood, and was appointed weigher and teller in 1701 on the recommendation of Isaac Newton (see below). His manuscript is regarded as a major source for late seventeenth-century English monetary history. The excerpts printed here summarise the circumstances in England immediately prior to the recoinage. Source: Bland, Brown, and Tawney (eds), English Economic History: Select Documents, pp. 677–8. For a brief biographical note on Haynes, see John Nichols (ed.), Literary Anecdotes of the 19th Century (London: Nichols, Son and Bentley, 1812), vol. 2, pp. 140–1n.

The silver moneys of England as well as the coins of all other countries are liable to abuse by these three following methods: 1st, by alteration of the standard appointed by public authority. 2nd, by melting them down and converting the metal to other uses. 3rd, by exporting them into foreign countries, to carry on a trade […] And by all those methods was the whole stock of the cash of this kingdom excessively impaired before the late grand coinage. For the 1st. the standard of our silver moneys appointed by the government was notoriously violated. By the standard is here meant that particular weight and finesness in the silver moneys which was settled by Queen Elizabeth and continued all her time, and after it, through the reigns of her several successors down to her present majesty, and was lately confirmed by act of parliament […]

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The Rise of the Gold Standard, 1660–1819 These were the just weights, and the legal fineness of our silver moneys coined with the hammer, of which sort the far greater part of the cash of the whole kingdom did consist; but they were very liable to be clipped and diminished in their weight, because very few of these pieces were of a just assize when they first came out of the Mint. So many pieces, I suppose, were by the moneyers cut out of a bar of standard silver, as did pretty exactly answer the pound weight troy; and the tale of the pieces required in that weight, by the indenture of the Mint: but though all the pieces together might come near the pound weight or be within remedy; yet divers of them compared one with the other were very disproportionable, as was too well known to many persons, who picked out the heavy pieces, and threw them into the melting pot, to fit them for exportation, or to supply silver smiths. And according to the best observation of goldsmiths and others the clipping of our coins began to be discoverable in great receipts a little after the Dutch war in 1672, but it made no great progress at first for some years: and the silver moneys of Queen Elizabeth were very little diminished […] But the yearly loss by clipping made terrible advances every year from 1686 […] In the latter end of 1695 the public loss upon all the clipped money then actually current (if one may judge of the whole […]) was at least 45 per cent. by mere clipping and light counterfeit pieces, which upon the whole running silver cash of the kingdom amounts to 2,250,000l. […] The whole kingdom was in a general distraction by the badness of the silver coin and the rise of guineas, for no body knew what to trust to; the landlord knew not in what to receive his rents, nor the tenant in what to pay them. Neither of them could foretell the value of his moneys to-morrow. The merchant could not foresee the worth of his wares at two or three days distance, and was at a loss to set a price upon his goods. Everybody was afraid to engage in any new contracts, and as shy in performing old ones, the king subsisted his forces in foreign parts at a disadvantage of seven or eight per cent. interest and five per cent. premio for money borrowed here, besides the loss by the exchange abroad: and how to provide for the next years expense, was a mystery.

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20 January 1701 Report of Isaac Newton, Master of the Mint, to the Lords Commissioners of His Majesty’s Treasury, concerning the high Value of French and Spanish Pistoles in England Source: J. F. Scott (ed.), The Correspondence of Isaac Newton, vol. IV, no. 631, pp. 352–3, from a draft, unsigned, in the hand of a copyist, in the Royal Mint, Newton MSS. II, fol. 139.

The great value put upon French and Spanish Pistoles in England has made them flow plentifully hither above all other sorts of Gold, especially the French Pistoles wch are better sized and coyned and less liable to be counterfeited and by consequence of more credit then the Spanish. For Pistoles pass amongst us for 17s. 6d a piece whereas one with another they are worth but about 17s. 0½d or 17s. 1d at the rate Guineas of due weight and allay are worth 21s. 6d. And tho allowance be made for the lightness of our Silver monies by wearing yet Pistoles will be worth but between 17s. 2d. and 17s. 3d. About four years ago by the English putting too great a value upon Scotch money the Northern borders of England were filled with that money and Scotland with ours the Scots makeing about 8 or 9 pre cent profit by the Exchange untill your Lordships were pleased to put a stop to the mischief. The case being now the same (but of much greater consequence) in the reputed par of the Exchange between the English money and the Pistoles, wch runs 3d or 4d in a Pistole too high to the Nations loss in the course of the Exchange, we thought it our duty humbly to represent it to your Lordships in order to such a remedy as your Lordships shall think fit. We presume also to lay before your Lordships that by reason of the great demand of silver for Exportation in Trade, the price of Bullion exceeds that of silver monies 3d or 4d and sometimes 6d or 7d per ounce whereas monies ought to be of great or greater value then Bullion by reason of the workmanship and certainty of the standard. And this high price of Bullion has not onely put an end to the coynage of Silver, but is a great occasion of melting down and Exporting what has been already coyned. All of wch is most humbly submitted to your Lordships consideration and great wisdom. 86

28 September 1701 Report of Isaac Newton to the Lords Commissioners of His Majesty’s Treasury, concerning edicts of the King of France relative to the Gold and Silver Coinage of France

Source: J. F. Scott (ed.), The Correspondence of Isaac Newton, vol. IV, no. 640, pp. 373–4, from the original, in Newton’s hand, in the PRO T 1/76, no. 36. See also William Arthur Shaw (ed.), Select Tracts and Documents Illustrative of English Monetary History, 1626–1730 (London: George Harding, 1935 [1896]), pp. 135–6.

By the Edicts of the French King for raising the monies in France, the proportion of the value of Gold to that of Silver being altered, I humbly presume to give your Lordships notice thereof. By the last of those Edicts the Lewis d’or passes for fourteen Livres and the Ecus or French crown for three Livres and sixteen sols. At wch rate the Lewis d’or is worth 16s 7d sterling supposing the Ecus worth 4s 6d as it is recconed in the course of exchange and as I have found it by some Assays. The proportion therefore between gold and silver is now become the same in France as it has been in Holland for some years. For at Amsterdam the Lewis d’or passes for nine Guilders and nine or ten styvers wch in our money amounts to 16s 7d and it has past at this rate for the last five or six years. At the same rate a Guinea of due weight and allay is worth 1lib. 00s. 11d. In Spain Gold is recconed (in stating Accompts) worth sixteen times its weight of Silver of the same allay, at wch rate a Guinea of due weight and allay is worth 1lib. 2s. 1d., but the Spaniards make their payments in gold and will not pay in silver without an abatement. This abatement is not certain but rises and falls accordingly as Spain is supplied with Gold and Silver from the Indies. Last winter it was about five per cent. The state of the money in France being unsetled, whether it may afford a sufficient argument for altering the proportion of the values of Gold and Silver monies in England is most humbly submitted to your Lordships great wisdome.

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7 July 1702 Report of Isaac Newton to Sidney Godolphin, Lord High Treasurer of England, concerning the Values of various foreign Gold and Silver Coins

Source: J. F. Scott (ed.), The Correspondence of Isaac Newton, vol. IV, no. 650, pp. 388–91, esp. pp. 388–90, from the original, in Newton’s hand, in the Public Record Office (PRO, London), PRO T 1/80, no. 105. See also Shaw, Select Tracts and Documents Illustrative of English Monetary History, pp. 135–9.

According to your Lordships direction we have examined the values of several forreign coyns and endeavoured to inform our selves of the values of Gold in proportion to silver in several nations and considered the ways of preserving the coyn. And by the Accompts we have met with, Gold is higher in England then in France by about 9d or 10d in the Guinea, then in Holland by 11d or 12 pence in the Guinea, then in Germany and Italy by 12d in the Guinea or above. In Spain and Portugal Gold is higher then in England by about 11d in the Guinea. For the great quantity of Silver coming from the West-Indies has brought down the price of Silver in all Europe in proportion to Gold and principally in Spain where the Bullion first arrives. The low price mends the market and thereby carries silver from Spain into all Europe and from all europe to the East Indies and China, the Merchant bidding more for it then it goes for among the natives. In Spain the Merchants advance about six per cent or above for silver: At which rate a Guinea is worth about 21s. 3-3/8d and sometimes less. In England they advance 3d or 4d per ounce, and at the rate of 3d per ounce advance a Guinea is worth but 20s. 6-1/6d. Gold is therefore at too high a rate in England by about 10d or 12d in the Guinea. And this tending to the decrease of the silver coyn we humbly conceive that one way of preserving this coyn is to lower the price of Gold suppose by taking 6d, 9d or 12d from the price of the Guinea so as that Gold may be of the same value in England as in the neighbouring parts of Europe. France has set ua an example for in the last war when the Lewisdor was raised there to 14 livres the Ecu was raised only to 72 sols but it is now raised to 76 sols tho the Lewis d’or be raised only to 14 livres as before. So that Gold in respect of Silver 88

The Rise of the Gold Standard, 1660–1819 is lower in France now then in the last in the last war in the proportion of 76 to 72 that is by above 13½d in the Guinea. The liberty of melting forreign monies into ingots in private shops and houses for exportation gives opportunity of melting down the money of England for the same purpose. For restraining of wch a law might be usefull against exporting any Ingots of silver melted down in England except in publick Office to be appointed or erected for that purpose. The law by barring the exportation of forreign silver after it is coyned prevents the coynage thereof because the Merchant cannot afterwards export it, and tends to discourage the importation of silver into England because the Merchant can make no use of it whilst it stays here in the form of Bullion. The bringing of silver to the market of England and the turning it into money should rather be encouraged as the proper means of encreasing the coyn, silver being more apt to stay with us in the useful form of money then in the useless form of Bullion. If the merchant might export what he coyns, some part of what he coyns would be apt to be laid out here. And this liberty may be allowed him after some such manner is described in the scheme hereunto annexed. The licensing the exportation of Bullion whilst the exportation of the money is prohibited makes silver worth more uncoyned than coyned and thereby not only stops the the coynage but causes the melting down of the money in private for exportation. For remedying this mischief it may be perhaps better on the contrary to prohibit the exportation of Bullion and and license that of money, and whenever the money is in danger to license the exportation of so much money only as shall from time to time be coyned out of forreign Bullion. The saftey and encrease of the coyn depends principally on the ballance of trade. If the ballance of trade be against us the money will be melted down and exported to pay debts abroad and carry on trade in spight of laws to the contrary, and if the ballance of trade be for us such laws are needless and even hurtfull to trade. If trade can be so ordered that no branch of it be detrimental to the nation the money will be safe. For wch end luxury in forreign commodities should be checkt and the exportation of our own commodities encouraged. If a law were made and well executed against trading with more gold and silver by any Merchant or company of Merchants then in certain proportions to the value of the goods exported, such an Addition to the Act of Navigation might put Merchants upon searching out sufficient ways of vending our commodities abroad and as we humbly conceive, be more effectual for preserving the coyn then the absolute prohibition of the exportation thereof. As for the alteration of the standard we are humbly of the opinion that if the value of the several species to be hereafter coyned be diminished without 89

The Monetary History of Gold changing the denomination, it will occasion the melting down and recoyning the species already coyned for the profit that may be made thereby. And if the value be encreased the Merchants and people will value their goods by the old money already coyned in wch thay are to be paid, and the new money of greater value (if any shall be coyned) will be pickt out for exportation and the Importer who coyns it will lose the overvalue to the dicouragement of the coynage, and in payments made by tale to forreigners the nation will also lose the overvalue. But if it be proposed to retain the value of the several species or quantity of fine silver therein and only to alter the allay, we are humbly of the opinion, that if small money which by continual use weares away fast and is apt to be lost, were coyned of coarse allay as is done in several countries abroad, provided it were well coyned to prevent counterfeiting, such money would weare longer and be less apt to be lost then the small money now in use. By small money we understand Groats, Three pences, Two pences and pence, unless the penny by reason of its smallness should be made of copper.

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1705 [undated] Excerpt from John Law’s famous tract Money and Trade Considered Money and Trade Considered puts forward an argument in support of a paper currency based on reserves in land rather than precious metal. In this brief excerpt, Law argues that silver is superior to gold and copper as a medium for commercial exchange, effectively dispensing with these metals before moving on to direct his proposal for a land-based paper currency against silver. The recommendations of Law were put into effect in France in the early eighteenth century, though with disastrous results. Source: John Law, Money and Trade Considered, with a Proposal for Supplying the Nation with Money (New York: A.M. Kelley, 1966), p. 11.

[…] Gold and Copper may be made Money, but neither with so much Convenience as Silver. Payments in Copper being Incovenient by reason of its Bulk; and Gold not being in so great Quantity as to serve the Use of Money. In Countries where Gold is in great Quantity, it is used as Money; and where Gold and Silver are scarce, Copper is used. Gold is Coin’d for the more easie Exchange of that Mettal, and Copper to serve in small Payments; But Silver is the measure by which Goods are Valued, the Value by which Goods are Exchanged, and in which Contracts are made payable.

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31 December 1710 Report of Sir Isaac Newton to the Lords Commissioners of Her Majesty’s Treasury, concerning the Fineness of Gold Coins in Relation to the Trial Plate used in the Trial of the Pyx of 21 August 1710

The dating of the Report is uncertain and is assigned arbitrarily by the editors; it was certainly written after the trial but before 28 March 1711. Source: A. Rupert Hall and L. Tilling (eds), The Correspondence of Isaac Newton, vol. V: 1709–1713 (Canmbridge: Royal Society, 1975), no. 816, pp. 82–3, from a draft in the Mint Papers I, fol. 275.

Finding reason to suspect that the present indented trial piece is too fine; I have nicely examined it and find that it is finer then the last trial piece by about a quarter of a grain and that the last trial piece is also something too fine by the assay. Which excessed of fineness being of great consequence, I have further endeavoured to find out the reason thereof that the like accidents in making new triall pieces hereafter may be avoided. And by the assay I am satisfied that there are various degrees of fine gold, some being 24 carats fine by the assay, some a quarter of a grain coarser or finer or above, and that gold may be refined so high as to almost half a grain finer 24 carats. And accordingly as the fine gold of wch the standard pieces are made is finer or coarser the standard pieces will be finer or coarser in proportion. By wch means the standard of gold is rendred uncertain And the like for silver. I humbly offer therefore to your Lordps consideration, whether for ascertaining the value of gold and silver there should not be one common standard of gold and one of silver for the money plate and Merchantable Ingots in all great Britain, setled by the assay which is the rule of the market; and whether the standard once setled should not be preserved in the Exchequer for a rule to Juries in makeing trial pieces for the future without varying or the present trial piece remain.

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21 September 1717 Report of Sir Isaac Newton, Master of the Royal Mint, to the Lords Commissioners of His Majesty’s Treasury, on the Price and Relationship of Gold to Silver and the Consequences for the Coinage of the Kingdom

Newton prepared the Report in response to the Treasury’s request for an account of the large amounts of gold coming in to the Mint and the flight of silver to India. In his Report, Newton devalued the guinea, coined in standard gold at 916 parts out of 1000 fine, to £1.1s. 6d. This was equivalent to a price of £3.17s. 10½d. per standard ounce of gold and £4.4s. 11½d. per ounce of fine gold. Except for the period of the Napoleonic wars when cash payment in gold was suspended, this price persisted until the early twentieth century. Source: House of Commons, Journals of the House of Commons, vol. 18, pp. 664–5.

In Obedience to Your Lord’ps Order of Reference of August 12th that I should lay before Your Lord’ps a State of the Gold and Silver Coyns of the Kingdom in weight and fineness, and the Value of Gold in proportion to Silver, with my Observations and Opinion, and what Method may be best for preventing the melting down of the Silver Coyn: I humbly represent, that a pound weight Troy of Gold eleven ounces fine and one ounce allay is cut into 44½ Guineas, and a pound weight of Silver eleven ounces two penny weight fine and eighteen penny weight allay is cut into 62 Shillings. And according to this rate, a pound weight of fine gold is worth Fifteen pounds weight six ounces seventeen penny weight and five grains of fine silver, recconing a Guinea at 1l. 1s. 6d. in Silver money. But Silver in Bullion exportable is usually worth 2d. or 3d. per ounce more then in Coyn. And if at a Medium such bullion of standard allay be valued at 5s. 4½d. per ounce per ounce, a pound weight of fine Gold will be worth but 14lwt. 11oz. 12dwt. 9gr. of fine Silver in bullion. And at this rate a Guinea is worth but so much Silver as would make 20s. 8d. When ships are lading for the East Indies, the demand of Silver for Exportation raises the price 93

The Monetary History of Gold to 5s. 6d. or 5s. 8d. per ounce or above: but I consider not those extraordinary cases. A Spanish Pistole was coyned for 32 Ryalls or four pieces of Eight Ryalls, usually called Pieces of Eight, and is of equal allay and the Sixteenth part of the weight thereof. And a Doppio Moeda of Portugal was coyned for ten Crusados of Silver and is of equal allay and the Sixteenth part of the weight thereof. Gold is therefore in Spain and Portugal of Sixteen times more value then Silver of equal weight and allay according to the standards of those Kingdoms. At which rate a Guinea is worth 22s. 1d. But this high price keeps their Gold at home in good plenty, and carries away the Spanish Silver into all Europe; so that at home they make their payments in Gold, and will not pay in Silver without a premium. Upon the coming in of the Plate fleet, the premium ceases or is but small; but as their Silver goes away and becomes scarce, the premium increases and is most commonly about Six per Cent, which being abated a Guinea becomes worth about 20s. and 9d. in Spain and Portugall. In France a pound weight of fine Gold is reconed worth Fifteen pounds weight of fine Silver. In raising or falling their Money, their Kings Edicts have sometimes varied a little from this proporc[i]on in excess or defect: but the variations have been so little that I do not here consider them. By the Edict of 1709 a new Pistole was coyned for four new Lewises and is of equal allay and the Fifteenth part of the weight thereof except the Errors of their Mints. And by the same Edict fine Gold is valued at Fifteen times its weight of fine Silver. And at this rate a Guinea is worth 20s. 8½d. I consider not here the Confusion made in the Monies in France by frequent Edicts to send them to the Mint and give the King a Tax out of them. I consider only the value of Gold and Silver in proportion to one another. The Ducats of Holland and Hungary and the Empire were lately current in Holland among the common people in their Marketts and ordinary affairs at five Guilders in specie and five Stivers, and commonly changed for so much. Silver Monies in three Guilder pieces and Guilder pieces, as Guineas are with us for 21s. 6d. sterling. At which rate a Guinea is worth 20s. 7½d. According to the rates of Gold to Silver in Italy, Germany, Poland, Denmark and Sweden, a Guinea is worth about 20s. and 7d., 6d., 5d., or 4d. For the proportion varies a little within the sev[era]l Governments in those Countries. In Sweden Gold is lowest in proportion to Silver, and this hath made that Kingdom which formerly was content with Copper Money, abound of late with Silver sent thither (I suspect) for Naval stores. In the end of King William’s reign and the first year of the late Queen, when Forreign Coyns abounded in England, I caused a great many of them to 94

The Rise of the Gold Standard, 1660–1819 be assayed in the Mint and found by the assays that fine Gold was to fine Silver in Spain, Portugal, France, Holland, Italy, Germany and and the Northern Kingdoms in the proportions above mentioned, Errors of the Mints excepted. In China and Japan one pound weight of fine Gold is worth but Nine or ten pounds weight of fine Silver; and in East India it may be worth Twelve. And this low price of Gold in proportion to Silver, it carries away Silver from all Europe. So then by the Course of Trade and Exchange between nation and nation in all Europe, fine Gold is to fine Silver as 14 4/5 or 15 to one; and a Guinea at the same rate is worth between 20s. 5d. and 20s. 8½d. except in extraordinary cases, as when a Plate fleet is just arrived in Spain, or ships are lading here for the East Indies, which cases I don not here consider. And it appears by experience as well as by reason that Silver flows from those places where its value is lowest in proportion to Gold, as from Spain to all Europe and from all Europe to the East Indies, China and Japan; and that Gold is most plentiful in those places in which its value is highest in proportion to silver, as in Spain and England. It is the demand for Exportation which hath raised the price of Exportable Silver about 2d. or 3d. in the ounce above that of Silver in Coyn, and hath thereby created a Temptation to export or melt down the Silver Coyn rather than give 2d. or 3d. more for Forreign Silver. And the demand for exportac[i]on arises from the high price of Silver in other places then in England in proportion to Gold, that is, from the higher price of Gold in England then in other places in proportion to Silver: and therefore may be diminished by lowering the value of Gold in proportion to Silver. If Gold in England or Silver in East India could be brought down so low as to bear the same proportion to one another in both places, there would be here no greater demand for Silver then for Gold to be exported to India: And if Gold were lowered, only so as to have the same proportion to the Silver Money in England that it hath to Silver in the rest of Europe, there would be no temptation to export Silver rather than Gold to any other part of Europe. And to compass this last there seems nothing more requisite then to take of about 10d. or 12d. from the Guinea, so that Gold may bear the same proporc[i]on to the Silver Money in England which it ought to do by the Course of Trade and Exchange in Europe. But if only 6d. were taken off at present, what further effects would shew hereafter better then can appear at present, what further reduction would be most convenient for the publick. In the last year of King William, the Dollars of Scotland worth about 4s. 6½d. were put away in the North of England for 5s. and at this price began to flow in upon us. I gave notice thereof to the Lords Comm[issione]rs of the 95

The Monetary History of Gold Trea[su]ry, and they ordered the Collectors to forbear taking them and thereby put a stop to the mischief. At the same time the Lewidors of France which were worth but Seventeen Shillings and three ffarthings apiece passed in England at 17s. 6d. I gave notice thereof to the Lords Comm[issione]rs of the Trea[su]ry, and his late Ma[jes]ty put out a proclamation that they should go but at 17s. and thereupon they came to the Mint and 1,400,000l. were coyned out of them. And if the advantage of 5¼d. in a Lewidor sufficed at that time to bring into England so great a quantity of French Money, and the advantage of three farthings in a Lewisdor to bring to the Mint: the advantage of 9½d. in a Guinea or above may have been sufficient to bring in the great quantity of Gold which hath been coined in these last Fifteen years without any Forreign Silver. Some years ago the Portugal Moeders were received in the West of England at 28s. apiece. Upon notice from the Mint that they were worth only about 27s. 7d. the Lords Commissioners of the Treasury ordered their Receivers of Taxes to take them at no more then 27s. 6d. Afterwards many Gentlemen in the West sent up to the Treasury a Peticion that the receivers might take with them again at 28s. and promised to get returns for this Money at that rate, alledging that when they went at 28s. their Country was full of Gold which they wanted very much. But the Commissioners of the Treasury considering that at 28s. the Nation would loose 5d. apiece, rejected the Peticion. And if an advantage to the Merchant of 5d. in 28s. did pour that money in upon us: much more hath an advantage to the Merchant of 9½d. in a Guinea or above, been able to bring into the Mint great quantitys of Gold without any Forreign Silver, and may be able to do it still, till the cause be removed. If things be lat alone till Silver Money be a little scarcer, the Gold will fall of itself, for people are already backward to give Silver for Gold, and will in a little time refuse to make payments in Silver without a premium as they do in Spain, and this premium will be an abatement in the value of the Gold. And so the Question is, Whether Gold shall be lowered by the Government or let alone till it falls of itself by the want of Silver Money. It may be said that there are great quantitys of Silver in Plate, and if the plate were coyned there would be no want of Silver Money. But I recon that Silver is safer from exportacion in the form of Plate then in the form of Money, because of the greater value of the Silver and fashion together. And therefore I am not for coyning the Plate till the Temptation to export the Silver Money (which is a profit of 2d. or 3d. an ounce) be diminished. For as often as men are necessitated to send away Money for answering Debts abroad, there will be a Temptacion to send away Silver rather than Gold, because of the profit, which is almost 4 per cent. And for the same reason Forreigners will chuse to send hither their Gold rather then their Silver. 96

22 December 1717 Royal Proclamation of King George I forbidding the Exchange of Guineas for more than 21s each and putting England on a bimetallic Standard

In practice, this measure led to the establishment of the gold standard in England. The proclamation was issued in response to the recommendation for such a valuation of the guinea put forward by Sir Isaac Newton in his Report of September 1717 (see previous document). William Cobbett, Cobbett’s Parliamentary History (London: R. Bagshaw; Longmans & Co, 1806–1812), Vol. 7, cols. 524–6; Li, The Great Recoinage of 1696 to 1699, pp. 156–7; William A. Shaw (ed.), Calendar of Treasury Books, January– December 1717, vol. 31, pt. 3, pp. 722, 730.

G. R. Whereas the value of the Gold, compared with the value of the Silver in the current coins of this realm, as paid and received, is greater in proportion than the value of gold is to the value of silver in neighbouring nations; and the over-valuation of Gold in the current coins of this realm, hath been a great cause of carrying out and lessening the species of the Silver coins thereof, which is highly prejudicial to the trade of this kingdom: And whereas the Commons in parliament have, by their Address, humbly besought us, That we would be graciously pleased to issue our royal Proclamation, to forbid all persons to utter or receive any of the pieces of Gold, called Guineas, at any greater or higher rate than one and twenty shillings for each guinea, and so proportionably for any greater or lesser pieces of coined gold, which we have graciously condescended unto. Now, for, and towards remedying the said evil, we have thought fit, with the advice of our privy Council, to issue this our Proclamation, hereby strictly prohibiting all and every person and persons whatsoever, to utter or receive any of the pieces of Gold Coin of this Kingdom, commonly called Guineas, (which in our Mint were coined only at twenty shillings each, but have been by our subjects paid and received at the rate of one and twenty shillings and six pence each) at any greater or higher rate or value than one and twenty shillings for each guinea, and so proportionably for the 97

The Monetary History of Gold pieces of gold called half-guineas, double-guineas, and five pound pieces; and the other pieces of ancient Gold Coin of this Kingdom, which by their wearing may be diminished in their weight, at any greater or higher rate or value than as followeth, That is to say, the piece of gold now received and paid for three and twenty shillings and six pence, to be hereafter received and paid for three and twenty shillings, and no more. The piece of gold now received and paid for five and twenty shillings and six pence, to be hereafter received and paid for five and twenty shillings, and no more; and so proportionably for smaller pieces of the like gold coin; at which Rates and Values we do hereby declare the said respective pieces of coined gold to be current. And we do hereby strictly charge and command all our loving subjects whatsoever, that they do not presume to receive or pay the gold coins of this realm, at any greater rates or values than the rates or values aforesaid, upon of our highest displeasure and upon pain of the greatest punishment that by law may be inflicted upon them for their default, negligence and contempt in this behalf.

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31 December 1717 Anonymous Communication to Sir Isaac Newton in Response to the Publication, on the previous Day, of Newton’s Report of the 21st of September to the Lords Commissioners of His Majesty’s Treasury

As Hall and Tilling duly noted, this letter illustrates the interest elicited by Newton’s paper on the gold and silver coinage of the kingdom and perhaps also the extent of Newton’s reputation. Source: Hall and Tilling (eds), The Correspondence of Isaac Newton, Vol. VI: 1713–1718 (Cambridge, Royal Society, 1976), no. 1271, pp. 426–7, from the original in the Mint Papers II, fol. 121.

Sir, Your Representation to the Treasury concerning the Coin of this Kingdom, which was printed in the daily Courant of yesterday, is so judicious, instructive, and Satisfactory, that it deserves equal thanks, as admiration, and attention, and so far as I am able to judge of it, a standing Rule may be formed from it for regulating, and proportioning our Species at all times; For, as we are to watch other Nations do in that respect and govern out selves accordingly, in the proportions between Gold, and Silver, and in putting a value upon each of them, you furnish with a method for adjusting that, with all ease, and plainness, and upon that acco[un]t (I presume) you proposed to lower Gold at present; Whether it will contribute to bring in Silver from abroad, or bring out what may be hoarded at home, or cause our Gold to be exported is yet too early to determine; but if some information may be credited, it is, that a great quantity has been carried away since the Proclamation, and particularly to Holland, where the profit 1½ per Cent by carrying Guineas thither before they were reduced here, and then one cannot wonder that they should thither now that they are lower’d by Authority, which the profit near 4 per Cent upon them; But this being happen’d since the date of your paper, you cannot be said to be answerable for it, nor for others not considering the Rule you have laid down, so as to apply it to this raising of Gold in Holland; But instead of enlarging on this particular, I shall proceed to that part of your paper, which shews 99

The Monetary History of Gold the watchful Eye you had on some privates wags [sic] to raise both Gold, and Silver to the prejudice of the public, as receiving Scotch Dollars at 5 sh: and Moeders at 28 sh: both which were stopt on your representing it to the Treasury, and this seems to imply, how much it lys in the Treasury to regulate momey-matters by timely interposing their Authority with Receivers, and other Officers of Revenue, for as these are directed to take, or refuse money, so will other people thro the Nation take their measures, and be governed in all negotiations; which brings to mind the bad State our Coin was in by being clipt, and counterfeit to a great degree, and in the most notorious manner, which you cannot but remember, as well as the Millions it cost the Nation to retrieve the mischief: Now Every one knows that the Scandalous pass which money was then brought to, did not happen all of a sudden and at once, but came to it by degrees, and in Several years, Suppose therefore, that the then Treasury (and you know who was at the head of it) had interposed when they perceived it, and as early as they might have done, and had given proper directions About it to the Receivers of the Revenue, One might imagine, it would have put a stop to it, as easily as there was once put to Dollars, and Moeders, and then if this had been done properly those Millions (at least a great deal thereof) might have been saved, If I am mistaken in this point, I hope you will set me right, I have often consider’d it, and could never be perswaded but the Treasury might have done exceeding much to have stopt (if not prevented) that pernicious practice of clipping and debasing Coin and thus I leave it with you; with adding one thing more which is about our paper-money (or Credit) the increasing or restraining which, seems equally to be in the power of the Treasury, as the Silver, and Gold Species, That it is increased, is not to be deny’d, But whether this increase is so good for the nation, is another consideration, and at this time seems to be well worth it, as it does, whether this increase has not been some cause of our being so much in want of Silver, and whether, if paper money be suffer’d so to multiply, and be not soon restrained it may not be some occasion of an equal want of Gold? You are an able Judge of these matters, and your Opinion of all of them will oblige a great many people, but I being wholly unknown to you, I cannot desire it otherwise, than in the way (which was in print) that your Representation came to the hands of Sr., Your most humble Servant, M.M.

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20 October 1718 Memorandum containing Sir Isaac Newton’s Observations on the State of the Gold and Silver Coins

There exists a clerical manuscript copy of the memorandum dated from two days after the version reproduced here, which contains significant additions and revisions. Hall and Tilling were unable to locate the official version of the memorandum, but they suspect that the draft reproduced here was taken from the official version. Source: Hall and Tilling (eds), The Correspondence of Isaac Newton, Vol. VII: 1718–1727 (Cambridge, Royal Society, 1977), no. 1302, pp. 8–10, from the holograph draft in the Mint Papers II, fols. 124–5.

Obs. 1. Standard Gold before sixpence was taken from the Guinea was worth 3li. 19s. 9¼d. per ounce at the Mint, and by taking six pence from the Guinea became worth 3li. 17s. 11d. per ounce. And standard silver is there worth 5s. 2d. per ounce. But the demand for exportation hath raised both species above the price at the Mint, and thereby hath carried out all the forreign silver for many years, and began to carry out some of the forreign gold last November, and therefore raised the price of gold for exportation above the Mint price before the sixpence was taken from the Guinea. But it never raised it to more then 4li. 0s. 6d. per ounce, nor kept it long at that price. For in March last, forreign gold fell down below the old Mint price, and hath ever since continued below it, being at 3li. 19s. 6d. and for the most part at 3li.19s.0d. and under. And therefore the price of forreign Gold for exportation was raised the last winter by some other cause then the taking sixpence from the Guinea. And the price of Gold for exportation to forreign markets having been ever since March below the old Mint-price, that price was certainly too high. Obs. 2. The price of gold for exportation depends upon the price in forreign markets and answers to the course of exchange. When the Exchange is lowest the price of forreign gold is highest and on the contrary. And thence the coinage of gold hath of late years been greater or less according as the course of Exchange hath been higher or lower. In the year 1713 the course of Exchange 101

The Monetary History of Gold and the coinage grew high together. In the years 1714 and 1715 the Exchange was highest, it being (for instance) with Amsterdam from 36 to 37 shillings, and then the coinage was greatest. In the year 1716 the Exchange was only from 35 to 36 shillings with Amsterdam and proportionally with other places, and the coinage abated accordingly. In the year 1717 the Exchange with Amsterdam was only from 34 to 35.2, and the coinage abaated to one half of what it had been two or three years before. And in this present year the Exchange has been only from 33.10 to 34.10 till within this fortnight; and this course of Exchange together with the discouragement of the coinage of gold by the taking sixpence from the Guinea, hath carried out almost all the Gold imported and thereby hath had the same good effect for paying our debts abroad in gold and preserving our silver, wch the Bill proposed [during] the last Sessions of Parliament would have had if it had been passed into an Act for stopping the coinage of gold. Whence those debts is arose is difficult to understand without more skill in Trade than I can pretend to. But considering that a good part of the Gold imported in the years 1713, 1714, 1715 and 1716 was in French money and Ducats, I suspect that after the war with France was at anend, great quantities of gold were sent hither to pay for Stocks untill the interest of Stocks was lowered by Act of Parliament: and since the discouragement some forreigners have been drawing their moneys back with the interest and some their stocks [i.e., perhaps, ‘with the Interest of their Stocks’, as the manuscript copy reads] and some gold hath this year been to the Mints in France. Obs. 3. The course of Exchange was as low in November last before the 6d. was taken from the Guinea, and it was afterwards in February last; and both times was at the lowest, being (with Amsterdam) at 33.10. And therefore the lowness of the Exchange last winter arose, not from the taking sixpence from the Guinea, but from the debts wch we had abroad before the sixpence was taken off. Which debts, if the coinage of gold had not been discouraged by taking 6d. from the Guinea, might have remained unpaid till they could have been paid in silver with more advantage to private persons. Obs. 4. By the payment of our debts abroad in Gold the demand for exportation hath abated ever since February last, and the exchange hath risen gradually to 35 shillings and gold hath fallen down gradually to the Mint price and begun to come to the Mint again, so that within a fortnight so much gold hath come to ye Mint as will make above 75000li. Whence I gather that whenever the Exchange with Amsterdam is above 35 shillings it will bring gold to the Mint and would have brought gold to the Mint in the years 1713, 1714, 1715, 1716 and part of 1717 although the sixpence had been taken off before, the exchange with Amsterdam in all those years being above 35 shillings and for the most part above 36. And therefore in all the gold then coined, which 102

The Rise of the Gold Standard, 1660–1819 was above five millions, the nation would have saved sixpence per Guinea had the sixpence been taken off before. Obs. 5. The demand for exportation hath ever since the sixpence was taken from the Guinea, raised the price of silver about three times more then the price of gold and sometimes four or five times more or above. And therefore the temptation to export gold moneys hath all this year been three times less then the temptation to export silver moneys. And if this temptation hath not this year sensibly diminished the quantity of our silver moneys it hath much less carried out our gold moneys: And all or almost all the gold wch hath been exported this year hath been in forreign bullion. And by consequence the nation hath lost little or nothing by the exportation, because the bullion being forreign, went out at the same price it came in at. Forreigners or their Agents who here receive guineas in payments, will lose above 3d. per Guinea by exporting them, besides the danger they run by breaking the Law. [The manuscript copy continues: ‘there hath been above £110,000 Imported Gold to be coyn’d since Christmas, and the 6d. per Guinea sav’d in all this Coynage will recompense abundantly the loss of 6d. per Guinea in all the Guineas Exported by Forreigners, and therefore there is nothing in the Objection, that in making payment to Forreigners in Guineas we lose 6d. per Guinea, for we get the 6d. again in receiving back all the Guineas which they do not Export’.] Obs. 6. Since the demand of silver for exportation hath all this year been three times greater then that of Gold, no gold would have been exported this year had it not been for the want of forreign silver; and the exportation thereof hath prevented the exportation of the same value of forreign silver as fast as it could have been procured for paying debts abroad, and in the mean time hath saved the of the debts paid off. Obs. 7. And this expenditure [‘exportation’, in the manuscript copy] hath been a further advantage to the nation by raising the course of exchange from 33.10 to 35. For when the exchange is low the nation loseth by it so much as it is under the par. And if the debts which have been paid in gold had continued till they could have been paid in silver, they would have caused the exchange to continue low. Obs. 8. And to restore the sixpence to the Guinea would be to lose these advantages, and to give more by above ninepence in the Guinea for all the gold which shall be coined hereafter then it is worth in forreign markets, and to revive the corrupt trade of exporting silver to buy gold abroad and importing gold to buy silver at home.

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22 March – 12 November 1720 Excerpts from the Correspondence of William Pulteney, 1st Earl of Bath and MP (1705–42), to James Craggs, Secretary of State for Southern Affairs (1717–21), concerning the State of the Gold Coin in France

The correspondence illustrates the inflationary consequences of a rapid increase in the volume of currency in France in the form of not only specie but also bills of credit and notes, which stemmed from the implementation of the theories put forward by John Law in his Money and Trade considered. Source: PRO (London), SP 78/166, fols. 182r–182v; 191r–192r, esp. 191r; 195r– 195v; 311r–312v, esp. 312r–312v; 315r–316v, esp. 315v; 381r–381v; 424r–424v.

22 March 1720 The people continue to carry their gold and silver to the Bank and to the Mints, and the Bank Bills are now preferred in all payments to the coin; even at [L]isle and other palces, where they were lately at a considerable discount; so that Mr Law says he shall now gain the most important point in his system, which was to draw into his Bank [of] all the gold and silver in the Kingdomes; to suppress entirely the use of gold coin, and to allow no more silver than is absolutely necessary for small payments and to support the circulation of the Bank Bills; the rest of the silver is to be employed in such foreign trades as cannot be carried on without it, or as Mr Law may propose to beat us and the Dutch out oft by that means: the gold is to be sent abroad to turn the ballance of the exchange and to purchase all the silver that can possibly be got; Commissions for this purpose are sent to Genoa, Cadiz, Amsterdam and London; and I am told that Mr Midleton the Goldsmith in the Strand who is Mr Law’s agent and Banker, has already heap’d up in his house very considerable quantities of Silver. The serious advantage which might be made by sending gold and silver here according to the preferred exchange between us and France is the high price given for it at the Bank and the Mint, will no doubt occasion the melting down of a great deal of our silver coin; but to prevent us as well as 104

The Rise of the Gold Standard, 1660–1819 other strangers from making the utmost advantage this way and at the same time to hinder the importation of gold, an Arret is published to prohibit under very severe penalties any person except the Company from importing into this Kingdom gold or silver in coin or otherwise, to the end of December next, when several directions for bringing the gold and silver here to the same standard as in other places, will be completed; Mr Law has said that he will drain us of all our silver. I beg leave to submit to your consideration whether it might not be necessary for us on this occasion to lower the price of gold, that since we cannot hinder the exportation of silver; Mr Law may at least pay the full value for it, which he would not do at present according to the proportion on price between the gold and silver. If this be proper, I believe you will think it should be done immediately. 10 April 1720 I beg leave to add what I said in my letter of the 6th inst. concerning our Coin, that it should not be thought proper either to allow the exportation of our Coin and lay at the same time such a small duty upon the exportation of Bullion as may engages the Merchants to bring the Bullion to the Mint, or to prohibit absolutely the exportation of Bullion, it may however be proper and necessary that a power should be lodged in the King to prohibit the exportation of Bullion on any extraordinary occasion. unless one of these methods or others to the same purpose are are taken we may be drained of all our silver coin, without a possibility of putting a Stop to it, if it should be attempted when the parliement is not sitting. I cannot help being under a good deal of apprehension in this respect, because I am well assured that Mr Law has this and many other evil designs against us. The succeeding in any one of them will not only encourage him to attempt the rest, but will enable him to remove the chief difficulty, I fear the only one, he finds in bringing others here into all his measures and designs against us; I mean the doubt there may have been about the success. 18 April 1720 I have advice from Calais that twelve millions of livres in gold were, on the 12th instant N.S., shipped off there for London; I have reason to believe this is not the first cargo which has been sent thence, and is not to be the last; besides what may have put by the way of Holland.

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The Monetary History of Gold 20 August 1720 The exchange with London is under 9 pence for a French crown, at which rate 100 £ st. yields about 8000 Livres in Bank Bills on Comptes en Banque; and yet I have taken it as a very great favour that a Banker gave me to day 4600 L. in mony for 100 £ st. I am assured that very great sums of gold are brought from England, in guineas; this is done not only by the Bankers for the great profits they may make in changing gold and silver for Bill, but by those who have gained in our stocks, it being at present allowed to keep any sums in money. Letters from several provinces say the misery is very great among the common people; that in some parts of Brittany they have been reduced to such extremity as to eat the corn in the fields, and that the harvest is spoilt there by the great rains which have fallen of late. An officer of the garrison in the C[astle] of Marseilles has sent to the Commandant of that C[astle] who is here, that the plague begins to abate, but that the misery is so great among the people, that there is reason to apprehend a revolt, if some care be not soon taken for their relief. It is said that the Company will undertake the selling several lots of commoditys to bring down the excessive prices [now] let upon them; the people complain that the system has not only ruined them for this world; but is likely to do them do for the next; the price of a […] being from 15 [sdls] to 25. 24 August 1720 The exchange to London was yesterday at 8 pence for a French crown of 3 Livres. A person who is likely to be well informed has assured me that m/400 guineas have been brought here within a week. 1 October 1720 The enclosed edict was published this Evening; it declares that for the future no Gold or Silver coin shall be made at the Mint but with a certain mark, and according to the Standard, described by this Edict; that all the old species, except one or two particular Coinages, shall be brught to the Mint to be recoined, and that the excepted Species shall be brought there likewise, to have a certain stamp or mark put on them in the same manner as the new coin; that all Foreign Coins shall be brought to the Mint, that to the several Sums of Gold and Silver brought in, an equal sum of Bills of 100, 50, and 10 livres shall be added, and the amount of the Whole shall be paid in New Coin; that is, for a 1000 livres in Gold or Silver, and another thousdand in Paper, 2000 shall be given in the new Coin, the intrinsic value of which will little 106

The Rise of the Gold Standard, 1660–1819 more than answer the 1000 £ in the old Coin. That after the 1st of December next, the Old Species shall be abolished entirely, and not be negotiated in any manner whatever; but shall be confiscated if found in the Possession or Custody of any Persons or Communitys without exception; one half to the sting, the other half to the informer. All former Arrêts or Declarations concerning the Exportations of Gold and Silver in Coin or in Bullion are renewed and enforced; and Subjects or Foreigners who export and Gold or Silver, (except only in small Quantity of New Coin, which will be too bad to be exported for the use of Travellers) are to be punished with Death, a fine of 6000 Livres, and forfeiture of Ships, Wagons, or other Voitures made use of on that occasion. The Preamble to the Edict says that a very considerable Quantity of Gold and Silver has lately been brought here from foreign Parts. The French call this the second part of the Bankrupt made by the Arrêt of the 15th of the last month. Mr Law said the other day publickly at his Table, that the French would have sold their Stock in the South Sea, but their Correspondents in London had been ordered by the government not to do it; he says and reports every day many things concerning our affairs equally false and impertinant. I send enclosed an Arrêt published this morning which grants to the India Company the sole Trade to the Coast of Guinea from the Serr Lyon to the Cape of Good Hope 12 November 1720 An Arrêt published this day forbids, all dealings for Gold or Silver in Coin or in Bullion, by the weight, otherwise than at the Mint, and in the Offices of the sworn Brokers, Agens de Change, on the penalty of forfeiting the sums dealt for, and a fine of 3000.£ to the Informer; the reasons given for this in the Preamble to the Arrêt, is, that people, fond of unlawfull gains, delay carrying to their old Species, and Bullion to the Mint, with a prospect of making greater advantages by such private dealings. This is a plain acknowledgement that they want mony very much, but it is surprising they can expect people should carry their old Species or Bullion to the Mint or the Agens de Change, to sell there at much less value, then [sic] can be got in other places; they give at the Mint 52. Sols for a piece, lately coined and given out from thence at 60. Sols, and pay for it in another New peice, of Equal value, at 60. Sols.

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1730 [undated] Excerpts from John Conduitt’s Treatise ‘Observations upon the present State of our Gold and Silver Coins’

In 1717, Conduitt married Catherine Barton, Sir Isaac Newton’s step-niece, and he also succeeded Newton as Master of the Royal Mint in 1727, holding that office until his death ten years later. His tomb lies adjacent to Newton’s in Westminster Abbey. Conduitt’s writings as Master of the Mint are less well known than those of Newton, but, like Newton’s, they succinctly pose sound and insightful arguments in answer to the problems at hand. Though written in 1730, this lengthy treatise was published for the first time only in 1774 from a manuscript copy that, inexplicably, had been in the possession of the Irish satirist Jonathan Swift. It addresses the relationship between gold and silver in England as opposed to neighbouring countries during the early eighteenth century and the necessity to bring the proportional value of the metals more closely into line with their value in other European nations. Source: Shaw, Select Tracts and Documents Illustrative of English Monetary History, pp. 181–214.

When we cannot pay in goods, what we owe abroad, on account of the balance of trade, or for the sale or interest of stocks belonging to foreigners, or for foreign national services, our debts must be paid in gold or silver, coined or uncoined; and when bullion is more scarce or more dear the English coin, English coin will be exported, either melted or in specie, in spite of any laws to the contrary. All that can be done in such cases is, to take care from time to time, that a pound weight of fine silver be worth as much as fine gold in our monies, as it is in the good coins of our neighbouring nations with whom we have the greatest dealings, that it may turn equally to the merchant’s account to pay any balance he owes abroad, or to have any balance that is due to him, sent hither, either in gold or silver; for if gold be valued here higher than in other parts, and silver lower, any debts to us from abroad, will be paid only in gold, and any debts we owe abroad will paid only in silver; and over and above the balance to be paid or received, it will be a profitable trade to import gold, which is over valued, and export silver, which is under valued. The value of 108

The Rise of the Gold Standard, 1660–1819 gold and silver in respect of each other, has constantly varied in all nations, and must vary according to the plenty or scarcity of either. In Europe, for many years, 12 pounds weight of fine silver were equal to one pound weight of fine gold. By the discovery of the silver mines in America, silver fell gradually, from the proportion of 12 to 1, to 16 to 1. In England, by the high price of guineas, it has been at all rates, from 12 to above 21 to 1. By the discovery of the new gold mines in Brasil, and an increase of the demand for silver, gold has for some years been falling, and silver rising all over Europe. If the importation of gold should still increase, and that of silver decrease, or a greater demand arise for it, a pound of gold may again be worth no more than 12 pounds of silver, as it was formerly in Europe, or than 9, as it is now in China; and whatever nation will not alter the proportion between gold and silver, according to the general want or abundance of either, only exposes itself to be the dupe of those who do, and to be bought and sold withits own money. In England, reckoning the guinea at 1l. 1s., 15 lb. 2 oz. 10dwt. 7 grs. of fine silver are equal to one pound weight of fine gold. In Portugal, a mark of gold of 22 carrats fine, and two carrats allay, is coined into 102,400 rees, and a mark of silver 11 ounces fine and one ounce allay, into 6,400 rees; so that at the Mint price, one pound weight of fine gold is equal to 16 pounds of fine silver; by reason of which high valuation of gold and low valuation of silver, there has been no silver coined or current there for several years last past, though but twenty years ago it was in greater plenty than gold. To supply the want of it, they coin pieces of gold of several denominations, from pieces of five moedas, as low as the tenth of a moeda, and a great quantity of copper money; but notwithstanding these helps, they are obliged to open books of debtor and creditor for small sums, and the retailers often refuse to sell their goods, unless the buyers bring change with them: which are difficulties, that would be insupportable in a nation that subsists by trade, carried on chiefly by multitudes of labourers and manufacturers. Though a mark of silver at Lisbon produces at the Mint only 6,400 rees, yet without considering the high price it bears, when the Portugese East-India ships are going out, it is not to be bought at a medium, one time with another, under 7,200 rees, which reduces the real proportion between silver and gold in Portugal as 14 lb. 2 oz. 13 dwt. 8 grs. of fine silver, is to one pound weight of fine gold, at which rate a guinea is worth 19s. 7½d. In Spain, till lately, one pound weight of fine gold was equal to 16 lb. of fine silver at the Mint; but weighty silver had always a premium upon it, sometimes as high as 15 per cent. Two years ago, pistoles, that used to go for 32 ryals, were made current for 36; and weighty dollars, which used to go for 8 ryals, were raised to 9½, to put them upon a par with the base silver money current in Spain: which is an augmentation of 12½ per cent. on gold, and 18¾ on silver, and reduces the proportion between silver and gold, at the Mint in Spain, as 15 lb. 17 dwt. 21 grs. to one 109

The Monetary History of Gold pount weight, at which rate a guinea is worth 20s. 11d. But besides the additional augmentation of 6¼ per cent. more on silver than on gold, there is still a further premium upon weighty silver; and notwithstanding both the augmentation and the premium, silver only continues to be exported, and only gold and base silver is left in Spain. As Spain is the country in Europe to which the greatest quantities of silver must be brought, and it cannot be transported elsewhere without new charge and risque, it must be cheapest there, and consequently, ought to have a higher value set upon it in other countries than it has in Spain. In France, when Sir Isaac Newton made his table of assays on foreign coins, silver was to gold as 15 to 1; but at present 88 French ounces of fine gold, and 8 ounces of allay, are coined into 360 louis-d’or, which at 24 livres each, make 8640 livres; and 88 ounces of fine silver and 8 ounces of allay, are coined into 99 crowns of three-fifths of a crown, which at 6 livres each, make 597 livres ans 12 sols. So that silver to gold in France is as 14 lb. 5 oz. 9 dwt. 21 grs. to 1 lb., at which rate the guinea is worth 19s. 11¼d. In Holland, five silver ducatons are generally equal to three gold ducats. The ducatons weigh generally one ounce and twenty-one grains. I have made several assays of the year 1727, and find, they are only 11 oz. 4½ dwt. fine; whereas they were formerly, like the ducatons of Flanders, 11 oz. 7 dwt. fine, and they go still in payment for as much as the Flanders ducatons. The gold ducats weigh generally 2 dwt. and 6 grs.; and according to several assays I have made of some of the year 1727, they are 23 carrats 2½ grains fine; at which rate, silver to gold is as 14 lb. 8 oz. 16 dwt. 14 grs. to 1 lb., and a guinea is worth 1l. 0s. 4d. Sir Isaac Newton, in his table of assays, makes the ducat only 23 carrats and two grains fine, and the ducatons 11 oz. 5 dwt. fine, at which rate silver to gold is in Holland as 14 lb. 10 oz. 6 dwt. 13 grs. to 1 lb., and a guinea is worth 20s. 6d. As the several provinces differ somewhat in the fineness of their ducats and ducatons, I shall take the medium of these two computations, which is 14 lb. 9 oz. 11 dwt. 13 grs. to 1 lb., at which rate a guinea is worth 20s. 5d. These are nations with whom we have the greatest dealings. I have not yet been able to inform myself thoroughly of the proportion of between gold and silver in the variety of coins in Germany and Italy; bu according to Sir Isaac Newton’s table of assays, silver is higher in proportion to gold in these countries than in Holland. It appears from hence that gold is at present much higher, and silver lower in England, than it is even in Spain, in any other part of Europe, or in any other Mint, except that of Lisbon. According to the foregoing computations, the number of grains of fine gold contained in one pound sterling, or in 20/21 of a guinea, will produce in France only 23 livres and 9 sols., and in Holland 35 schellings and 7 grosche in ducats or ducatons: Whereas the number of grains of fine silver contained in 20 shillings will produce in France 24 livres 14 sols., and in Holland in ducats or ducatons 36 110

The Rise of the Gold Standard, 1660–1819 schellings and 7 grosche: so that, it is a profit of above 5 per cent. to import gold from France, and of 3 per cent. to import gold from Holland, and export our weighty silver coin in lieu of it, and a greater advantage in proportion to bring gold hither, rather than silver, to buy goods or pay debts. Anyone who considers how often this exchange of silver for gold may be made in a year, will easily account for the small quantities of silver current now, in proportion to what they were formerly, and see that nothing could prevent a total exportation of our silver coin but the lightness of the greater part of what is remaining; there is still a considerable profit to be made, by culling out the weightiest pieces, and picking up those that are new coined. Whoever melts down any new silver coin, and carries it to market where standard silver in bars now sells for 5s. 6d. per ounce, will make a profit of 6l. 8s. on each 100l. sterling, and proportionally any greater or lesser part. As great quantities of our gold coins are likewise considerably too light, foreigners who take our guineas in quantities only by weight, may melt down the heavy ones, and have 21s. here in silver for the lightest, which will make it turn in some measure to account to exchange them for light silver; but even allowing that it is not worth while to export any silver that is not weighty, it is but an uncomfortable reflection that we shall have no silver coin left among us but what is light, and that every ounce of new silver (which at a medium is a loss of 2½d. an ounce to those who are obliged to coin it) will very probably be either exported or melted down the moment it becomes current, without which it is useless. Since December 1701, when the great re-coinage was entirely ended, the only quantities of silver sent to the Mint were what was taken at Vigo, or bought by the publick in the year 1709 at of 2½d. per ounce loss, and in 1711 at 4d. per ounce loss, or sent by the South-Sea Company in 1723, when two millions were remitted, or annually by the Welsh Copper Company, and Company for smelting lead with pitcoal, pursuant to an act of parliament: So that in 26 years, no silver has been imported to the Mint but what was forced thither, though above 11 millions of pounds sterling have been coined there in gold within the same time. The total cessation of any free coinage of silver for so many years, has not been owing to any want of silver in the nation: for it appears by the custom-house books, that within that time, many millions of pounds weight of silver in bullion and foreign coin have been exported; and by entries at Goldsmiths Hall, that immense quantities have been wrought into plate. If gold and silver had been these 26 years of the same value in proportion to each other here as in other countries, it is very probable that a great deal of that part of the 11 millions of gold, as was the balance of trade in our favour, would have come to the Mint in silver, as it used to do formerly. In the 26 years next after the Restoration, near four millions sterling were coined in silver, though the guinea was then valued as high or higher than it is now. 111

The Monetary History of Gold To bring the silver and gold to the same proportion here as they bear to each other in the neighbouring nations, either the value of the guineas must be lowered in respect of the silver, or the value of the silver must be raised in respect of the gold. The reasons given for lowering the gold are, that gold is only to be looked upon as a commodity, and so should rise or fall as the occasion requires; that it either is not, or ought not to be a legal tender at a certain rate, but go only according to its intrinsic value; and therefore no person will have any reason to complain of any necessary reduction; that if the guinea be 6d. too high, the landord, who receives his rents in gold, receives 6d. less in a guinea from his tenant than he ought to have; and is defrauded so muxh; and that if you lower the gold, that will sink the price of the silver, and bring it equally with gold to the Mint, and that the exchange will alter to your advantage in the proportion you lower the gold. The objections made to lowering the gold are, the immediate loss that will accrue upon all the cash in the Exchequer and publick offices, and in the Bank, and in the hands of bankers and private persons, and in the payments to be made to foreigners, at least for the debts now due to them; for though when you buy anything of foreigners thay will take your gold and silver only according to the intrinsic value, they must receive their debts according to the denomination you put upon them. Thus, all those who lent money in Spain upon the flota and galleons, when pistoles went at 32 ryals, and dollars at 8, were by the intermediate augmentation of the money obliged to receive it back again in pistoles at 36 ryals, and dollars at 9½; è contra, if a foreigner orders his correspondent here to sell for him 100l. South-Sea stock, and to remit him the produce of it, which we will suppose to be 105l. if guineas go here at 21s., the foreigner is paid with 100 guineas; but if they are reduced to 20s. 6d. he correspondent must remit him 102 guineas and nine shillings for what he bought perhaps with guineas at 1l. 1s. 6d. The objections to raising the silver are, that where leases have been made or goods sold, or money lent for a certain number of pounds sterling, upon a presumption that a pound weight of standard silver should be paid for 3l. 2s., if you cut it into 3l. 4s. the lessor and vendor are defrauded of the additional 2s. That an ounce of fine silver is, and always has been, and ought to be the standing and invariable measure between nation and nation; and that if you once alter the silver, which is your bushel, no nation will know how to deal with you hereafter, and that the exchange will alter to your disadvantage in proportion to the extrinsic argumentation [sic] of your silver. In answer to these objections it may be said, that it is worth considering, whether the person who pays ought not to be regarded as well as he who receives; and whether it would not be as hard to hurt the first by lowering the guinea, as the other by raising the silver. That nine parts in ten, or more, of all payments made in England, are now made in gold, and if so, they will be very little affected by any alteration in the 112

The Rise of the Gold Standard, 1660–1819 silver. But supposing for argument sake, that all payments in England are paid in silver, the receiver, in that case, loses more at present than he would do if a pound weight of standard silver was cut into 3l. 4s., for the species of silver in which payments are chiefly made, are now, by wearing, considerably lighter than the new coin made after that rate would be. […] When both gold and silver are raised in any country, beyond their intrinsic value, as now in France, the exchange will fall in proportion; but as nine part in ten, or more, of all payments in England, are made in gold, and, for want of large parcels of weighty silver, great quantities of guineas are exported, it is to be doubted that, whether the raising the silver will alter the exchange even so long to our disadvantage, as the lowering of gold [i.e., by Royal proclamation on the 22nd of December 1717, as recommended by Sir Isaac Newton] did to our advantage. It is certain that the giving silver here the same value, in respect of gold, as it has in other countries, is no reason for the falling exchange; and in money matters, what is not grounded on a solid foundation, cannot have any durable effect; and they fear of giving foreigners only a groundless pretence for the falling exchange, ought not to deter or divert us from preventing the real advantages they make at present, or may make, at our expense. Necessity and convenience will make that coin the measure which is in greatest plenty: It was for this reason, that silver, and not gold, was the first measure. Wherever the silver coin of any country is bought at a premium, with the gold coin of the same country, there gold is the measure, and silver is the merchandize; and wherever gold is a legal tender, at a certain rate, it is as much a measure as silver. In Denmark and Sweden the good silver coins are not to be had without a premium: In Portugal gold is now the only measure, and in Spain too; for no payments are made there in any silver, but what is base, without a premium, even for bills that are payable in dollars.

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c.1734 Excerpt from Richard Cantillon’s Essai sur la Nature du Commerce en General Cantillon’s Essai was published posthumously first in French in 1755 and in English in 1759, but can be dated back no later than 1734, the same year when Cantillon was murdered at his London residence. Cantillon’s treatise is now widely considered as an example of the most innovative economic thinking of the early eighteenth century, but confusion over the date of its composition led many commentators to suppose, erroneously, that Cantillon had taken his ideas from the writings of other intellectuals. The innovative character of Cantillon’s tract was finally recognised in the later nineteenth century by the economist W. Stanley Jevons. This particular passage concerns the relationship between gold and silver, which was a major preoccupation of European governments during the late seventeenth and early eighteenth centuries. Source: Henry Higgs (ed.), Essai sur la Nature du Commerce en General. By Richard Cantillon (London: Macmillan and Company, 1931), pp. 268–87, esp. pp. 272–87.

[…] Silver mines have always been found more abundant than those of gold, but not equally in all countries or at all times. Several ounces of silver have always been needed to buy one ounce of gold, sometimes more sometimes less according to the abundance of these metals and the demand for them. In the year AUC 310, 13 ounces of silver were needed in Greece to buy an ounce of gold, i.e., gold was to silver as 1 to 13: AUC 400 or thereabouts 1 to 12, AUC 460 1 to 10 in Greece, Italy and the whole of Europe. This ratio of 1 to 10 seems to have persisted for three centuries to the death of Augustus, AUC 767 or AD 14. Under Tiberius gold became scarce or silver more plentiful, and the ratio gradually rose to 1 to 12, 12½, and 13. Under Constantine AD 330 and Justinian AD 550 it was 1 à 142/5. Later history is more obscure. Some authors think it was 1 to 18 under certain French kings. In AD 840 under Charles the Bald gold and silver coins were struck at 1 to 12. Under Saint Louis, who died in 1270 the ratio was 1 to 10: in 1361, 1 to 12: in 1421 over 1 to 11: in 1500 under 1 to 12: about 1600, 1 to 12: in 1641, 1 to 14: in 1700, 1 to 15: in 1730, 1 to 14½. 114

The Rise of the Gold Standard, 1660–1819 The quantity of gold and silver brought from Mexico and Peru in the last century has not only made these metals more plentiful but has increased the value of gold compared with silver which has been more abundant, so that in the Spanish Mints, following the market prices, the ratio is fixed at 1 to 16. The other States of Europe have followed pretty closely the Spanish price in their Mints, some at 1 to 157/8, others at 153/4, 155/8, etc. following the ideas and views of the Directors of the Mints. But since Portugal has drawn great quantities of gold from Brazil the ratio has commenced to fall again if not in the the Mints at least in the Markets, and this gives a greater value to silver than in the past. Moreover a good deal of gold is often brought from the East Indies in exchange for the silver taken thither from Europe, because the ratio is much lower in India. In Japan where there are a good many silver mines the ratio of gold to silver is today 1 to 8: in China 1 to 10: in other countries of the Indies on this side 1 to 11, 1 to 12, 1 to 13, and 1 to 14 as we get nearer to the West and to the Europe. But if the mines of Brazil continue to supply so much gold the ratio may probably fall eventually to 1 to 10 even in Europe which seems to me the most natural if anything but chance is to guide the ratio. It is quite certain that when all the gold and silver mines in Europe, Asia and Africa were the most exploited for the Roman republic the ratio of 1 to 10 was the most constant. If all the gold mines regularly produced a tenth part of what Silver mines produce, it could not be determined that for that reason the ratio between these two metals would be a 1 to 10. The ratio would always depend on the demand and on the market price. Possibly rich people might prefer to carry gold money in their pockets than silver and might develop a taste for gildings and gold ornaments rather than silver, thus increasing the market price of gold. Neither could the ratio between these metals be arrived at by considering the quantity of them found in a State. Suppose the ratio 1 to 10 in England and that the quantity of gold and silver in circulation there were 20 million ounces of silver and 2 million ounces of gold, that would be equal to 40 million ounces of silver, and suppose that 1 million ounces of gold be exported from England out of the 2 millions, and 10 million ounces of silver brought in in exchange, there would then be 30 million ounces of silver and only 1 million ounces of gold, still equivalent in all to 40 million ounces of silver. If the quantity of ounces be considered there are 30 millions of silver and 1 million of gold, and therefore if the quantity of the two metals decided the ratio it would be as 1 to 30, but that is impossible. The ratio in neighbouring countries is 1 to 10, and it would therefore cost only 10 millions ounces of silver with a trifle for 115

The Monetary History of Gold the cost of carriage to bring back to the State 1 million ounces of gold in exchange for 10 million ounces of silver. To judge then of the ratio between gold and silver the Market price is alone decisive: the number of those who need one metal in exchange for the other, and of those who are willing to make such an exchange, determines the ratio. It depends on the humour of men: the bargaining is done roughly and not geometrically. Still I do not think that one can imagine any rule but this to arrive at it. At least we know that in practice it is the one which decides, as in the price and value of everything else. Foreign markets affect the price of gold and silver more than they do the price of any other goods or merchandise because nothing is transported with greater ease and less injury. If there were a free and regular trade between England and Japan, if a number of ships were regularly employed in this trade and the balance of trade were in all respects equal, i.e., if as much as merchandise were always sent from England to Japan, having regard to price and value, as was imported from Japan, it would end in drawing at last all the gold from Japan in exchange for silver, and the ratio between gold and silver in Japan would be made the same as it is in England, subject only to the risks of navigation; for in our hypothesis the costs of the voyage would be supported by the trade in merchandise. Taking the ratio at 1 to 15 in England and 1 to 8 in Japan there would be more then 87 per cent. to gain by carrying silver from England to Japan and bringing back gold. But this difference is not enough in the ordinary course to pay the costs of so long and difficult a voyage. It pays better to bring back merchandise from Japan rather then gold in exchange for silver. It is only the costs and the risks of the transport of gold and silver which can leave a difference in the ratio between these metals in different States: in the nearest State the ratio will differ very little, there will be a difference from one State to another of 1, 2 or 3 per cent. and from England to Japan the total of all these differences of ratio will amount to more than 87 per cent. It is the market price which decides the ratio of the value of gold to that of silver. The Market price is the base of this proportion in the value assigned to coins of gold and silver. If the market price varies considerably, that of the coinage must be reformed to follow the market rate. If this be not done confusion and disorder set in in the circulation, and coins of one or the other metal will be taken above the Mint value. There are an infinity of examples of this antiquity. There is a quite recent one in England under the regulations made at the London Mint. The ounce of silver, eleven twelfths fine, is worth there 5s. 2d. sterling. Since the ratio of gold to silver (which had been fixed at 1 to 16 in imitation of Spain) has fallen to 1 to 15 and 1 to 14½, the ounce of silver sold at 5s. 6d. sterling, while the gold guinea continued to circulate at 21s. 6d. sterling, which caused the export from England of all the silver crowns, shil116

The Rise of the Gold Standard, 1660–1819 lings and sixpences which were not worn by circulation, silver money became so scarce in 1728 (though only the most worn pieces remained) that people had to change a guinea at a loss of nearly five per cent. The trouble and confusion thus produced in trade and circulation obliged the Treasury to request the celebrated Sir Isaac Newton, Master of the Tower Mint, to make a Report on the measures he thought most suitable to remedy this disorder [reproduced above, dated from 21 September 1717]. There was nothing easier. It was only necessary to follow the market price of silver in coining silver at the Tower. And whereas the ratio of gold to silver was of old time by the laws and regulations of the Tower Mint 1 to 15¾, it was only necessary to make the silver coins lighter in the proportion of the market price which had fallen below 1 to 15; and, to anticipate the variation which the gold of Brazil brings annually in the ration between these two metals, it might even have been possible to fix it on the footing of 1 to 14½, as was done in 1725 in France and as they will be forced later to do in England itself. It is equally true that the coinage in England might equally have been adjusted to the market price and ratio by diminishing the nominal value of gold coins. This was the policy adopted by Sir Isaac Newton in his Report, and by Parliament in consequence of this Report. But, as I shall explain, it was the least natural and the most disadvantageous policy. Firstly it was more natural to raise the price of silver coins, because the public had already done so on the market, the ounce of silver which was worth only 62d. sterling at the Mint being worth more than 65d. in the market, and all the silver money being exported except what the circulation had considerably reduced in weight. On the other hand it was less disadvantageous to the English nation to raise the silver money than to lower the gold money considering the sums which England owes the foreigner. If it is supposed that England owes the foreigner 5 millions sterling of capital, invested in the public funds, it may be equally supposed that the Foreigner paid this amount in gold at the rate of 21s. 6d. a guinea or in silver at 65d. sterling the ounce, according to the market price. These 5 millions have therefore cost the Foreigner at 21s. 6d. the guinea 4,651,163 guineas; but now that the guinea is reduced to 21s. the capital to be repaid is 4,761,904 guineas, a loss to England of 110,741 guineas, without counting the loss on the interest annually paid. Newton told me in answer to this objection that according to the fundamental laws of the Kingdom silver was the true and only monetary standard and that as such it could not be altered. It is easy to answer that the public having altered this Law by custom and the price of the market it had ceased to be a law, that in these circumstances there was no need to adhere scrupulously to it to the detriment of the nation 117

The Monetary History of Gold and to pay to Foreigners more than their due. If the gold coins were not considered true money, gold would have supported the variation, as in Holland and China where gold is looked upon rather as merchandise than money. If the silver coins had been raised to their market price without touching gold there would have been no loss to the Foreigner, and there would have been plenty of silver coins in circulation. They would have been coined at the Mint, whereas now no more will be coined until some new arrangement is made. By reducing the value if gold (brought about by Newton’s Report from 21s. 6d. to 21s.) the ounce of silver which was sold in the London market before at 65 pence and 65½ pence no longer sold in truth but at 64d. But as it was coined at the Tower the ounce was valued in the market at 64d. and if it was taken to the Tower to be coined it would be worth no more than 62d. So no more is taken. A few shillings or fifths of crowns have been struck at the expense of the South Sea Company, losing the difference of the market price; but they disappeared as soon as they were put into circulation. Today no silver coins can be seen in circulation if they are of full Mint weight, only coins which are worn and do not exceed in weight the market price. However the value of silver continues to rise imperceptibly in the market. The ounce which was worth only 64 after the reduction of which we have spoken has risen again to 65½ and 66 in the market; and in order to have silver coin in circulation and coined at the Tower, it will be necessary again to reduce the value of the gold guinea from 21s. to 20s. and to lose to the Foreigner double of what is lost already unless it is preferred to follow the natural course and to adjust silve coin to the market price. Only the market price can find the ratio of the value of gold and silver as of all other values. Newton’s reduction of the guinea to 21s. was devised only to prevent the disappearance of the light and worn coins which remain in circulation, and not to fix in gold and silver coins the true ratio of their price, I mean by their true ratio that which is fixed by Market prices. This price is always the touchstone of these matters. Its variations are slow enough to allow time to regulate the Mints and prevent disorders in the circulation. In some centuries the value of silver rises slowly against gold, in others the value of gold rises against silver. This was the case in the age of Constantine who reduced all values to that of gold as the more permanent; but the value of silver is generally more permanent and gold is more subject to variation.

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[1735] c.1721 Excerpts from John Atkins’s Account of his Travels along the west Coast of Africa, in the West Indies and Brazil in the early eighteenth Century

Atkins travelled as a Royal Navy Surgeon aboard His Majesty’s Ships The Swallow and Weymouth, and his travelogue includes a description of the various kinds of gold mined and traded on the Gold Coast of Guinea. Source: John Atkins, A Voyage to Guinea, Brazil, & the West Indies, etc. (London: Frank Cass, 1970 [1735]), pp. 183–6.

The Gold of Guinea is mostly traded for at the Gold Coast (thence denominated) and is either in Fetish, in Lump, or in Dust. The Fetish-Gold is that which the Negroes cast into various Shapes, and wear as Ornaments at their Ears, Arms, and Legs, but chiefly at their Head, entangled very dextrously in the Wool; and it is so called, from some Superstition (we do not well understand) in the Form, or in their Application and Use, commonly mixed with some baser Metal, to be judged of by the Touch-Stone, and skill of the Buyer you employ. The Lump, or Rock Gold, is in pieces of different weights, pretended to be brought out of Mines. I saw one of these which Mr Phips had at Cape Corso, weighing thirty Ounces; they are always suspected to be artificial, and by the cunning Fellows in Trade, cast so, to hide some baser mixture of Silver, Copper or Brass: wherefore it is not safe trusting to the antique, but to cut or run it for satisfaction. Dust Gold is the common Traffick, the best comes hither from the neighbouring inland Kingdoms of Dinkira, Akim, and Arcana, and is got (we are told) out of the River-Sands. Tagus in Portugal was once so famed; Omnis arena Tagi, quodque in mare volvitur aurum. Juvenal. Satir. 3. The Natives dig Pits nigh the Water-falls of Mountains abounding with this Metal; the Ponderosity of their Particles sinking them there: and then with incredible Pains and Industry, they wash the Earth and Sand in Trays and Vessels till it swims off, and they espy at bottom now and then two or three 119

The Monetary History of Gold shining Grains of Gold that pays them (without great Fortune) only as Labourers. This is the most probable Account, how they come by their Gold on this Coast: For if it were through Mines, and from Kingdoms so nearly bordering on our Factories as Arcana (whence the best and purest) it would long since, I imagine, have tempted us, or the Dutch to have dispossessed the Natives, and worked them solely to our own use. Gold Dust is not gathered at any part of the same River, it’s said, but at convenient Spots nearest the Mountains; because when too distant from the Floods that wash through Mines, their weight buries them too deep, or disperses their Particles too widely, to answer the Labour of Searching. Masters of Ships customarily hire a Native, at so much per month, for this part of the Trade; he has a quicker sight at knowing, and by Practice, readier at separating the drossy and false Gold, with which the true has ever some Mixture, to impose on unskilful People. This impure Stuff is called Crackra, a Pin or brass Dust, current upon the Gold Coast among themselves, but is a gross Cheat in Traffick, some of it is very bad. The way to separate, is by copper Blow-pans, shaped like Fire-Shovels; into this your Gold-taker throws three or four Ounces at a time, and by gently tossing, and blowing upon it, the lightest being the false, flies off: the larger Grains he discriminates by his sight, and separates by his Fingers with a wonderful dexterity. Their way of counting Gold at the Factories, is by Ounces, Bendees, and Marks, lesser are Dumbays, and Doccys, or Toccus; 12 of this, or 24 of that, make an Accy, (about 5s) All reserve it in Leather Pouches, and at London, the Gold-Smith runs it down in a Crucible [i.e., an earthenware vessel capable of bearing intense heat] at two pence per Ounce; it’s kept dissolved for the Evaporation of Dross, (perhaps one Ounce in a hundred) and then cast into a solid Bar; a Chip from it he send to the Assay-master in the Tower, who by his Office is Judge, and on a small Fee, signs back a Note of it’s Value, that is, how much above, or under Sterling; and so amounts to a Shilling or two over or under 4l. a Troy Ounce.

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2 April 1792 United States Coinage Act of 1792

This Act established the United States Mint and provided the statutory guidance on the minting of coins in the early United States. The silver to gold ratio was approximately 15 to 1. The gold value of the dollar was initially set at $19.42 per troy ounce of 0.915 fine gold. The dollar would be traded at that rate until revalued in 1834. Source: The Public Statutes at Large of the United States of America (Boston: Charles C. Little and James Brown, 1845), vol. 1, pp. 246–51.

Chap. XV. – An Act establishing a Mint, and regulating the Coins of the United States. SECTION 1. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, and it is hereby enacted and declared, That a Mint for the purpose of a national coinage be, and the same is established; to be situate and carried on at the seat of the government of the United States, for the time being: And that for the well conducting of the business of the said Mint, there shall be the following officers and persons, namely, – a Director, an Assayer, a Chief Coiner, an Engraver, a Treasurer. […] SECTION 3. And be it further enacted, That the respective functions and duties of the officers above mentioned shall be as follows: The Director of the Mint shall have the chief management of the business thereof, and shall superintend all other officers and persons who shall be employed therein. The Assayer shall receive and give receipts for all metals which may lawfully be brought to the Mint to be coined; shall assay all such of them as may require it, and shall deliver them to the Chief Coiner to be coined. The Chief Coiner shall cause to be coined all metals which shall be received by him for that purpose, according to such regulations as shall be prescribed by this or any future law. The Engraver shall sink and prepare the necessary dies for such coinage, with the proper devices and inscriptions, but it shall be lawful for the functions and duties of Chief Coiner and Engraver to be performed by one person. The Treasurer shall receive from the Chief Coiner all the coins which shall have 121

The Monetary History of Gold been struck, and shall pay or deliver them to the persons respectively to whom the same ought to be paid or delivered: he shall moreover receive and safely keep all monies which shall be for the use, maintenance and support of the Mint, and shall disburse the same upon warrants signed by the Director. […] SECTION 7. And be it further enacted, That the accounts of the officers and persons employed in and about the said Mint and for services performed in relation thereto, and all other accounts concerning the business and administration thereof, shall be adjusted and settled in the treasury department of the United States, and a quarter yearly account of the receipts and disbursements of the said Mint shall be rendered at the said treasury for settlement according to such forms and regulations as shall have been prescribed by that department; and that once in each year a report of the transactions of the said Mint, accompanied by an abstract of the settlements which shall have been from time to time made, duly certified by the comptroller of the treasury, shall be laid before Congress for their information. SECTION 8. And be it further enacted, That in addition to the authority vested in the President of the United States by a resolution of the last session, touching the engaging of artists and the procuring of apparatus for the said Mint, the President be authorized, and he is hereby authorized to cause to be provided and put in proper condition such buildings, and in such manner as shall appear to him requisite for the purpose of carrying on the business of the said Mint; and that as well the expenses which shall have been incurred pursuant to the said resolution as those which may be incurred in providing and preparing the said buildings, and all other expenses which may hereafter accrue for the maintenance and support of the said Mint, and in carrying on the business thereof, over and above the sums which may be received by reason of the rate per centum for coinage herein after mentioned, shall be defrayed from the treasury of the United States, out of any monies which from time to time shall be therein, not otherwise appropriated. SECTION 9. And be it further enacted, That there shall be from time to time struck and coined at the said Mint, coins of gold, silver, and copper, of the following denomination, values and descriptions, viz. Eagles – each to be of the value of ten dollars or units, and to contain two hundred and forty-seven grains and four eighths of a grain of pure, or two hundred and seventy grains of standard gold. Half Eagles – each to be of the value of five dollars, and to contain one hundred and twenty-three grains and six eighths of a grain of pure, or one hundred and thirty-five grains of standard gold. Quarter Eagles – each to be of the value of two dollars and a half dollar, and to contain sixty-one grains and seven eighths of a grain of pure, or sixty-seven grains and four eighths of a grain of standard gold. Dollars or Units – each to be of the value of a Spanish milled dollar as the same is now current, and to contain three hundred and 122

The Rise of the Gold Standard, 1660–1819 seventy-one grains and four sixteenths parts of a grain of pure, or four hundred and sixteen grains of standard silver. Half Dollars – each to be of half the value of the dollar or unit, and to contain one hundred and eighty-five grains and ten sixteenth parts of a grain of pure, or two hundred and eight grains of standard silver. Quarter Dollars – each to be of one fourth the value of the dollar or unit, and to contain ninety-two grains and thirteen sixteenth parts of a grain of pure, or one hundred and four grains of standard silver. Dismes – each to be of the value of one tenth of a dollar or unit, and to contain thirty-seven grains and two sixteenth parts of a grain of pure, or forty-one grains and three fifths parts of a grain of standard silver. Half Dismes – each to be of the value of one twentieth of a dollar, and to contain eighteen grains and nine sixteenths parts of a grain of pure, or twenty grains and four fifths parts of a grain of standard silver. Cents – each to be of the value of one hundredth part of a dollar, and to contain eleven penny-weights of copper. Half Cents – each to be of the value of half a cent, and to contain five penny-weights and a half a pennyweight of copper. SECTION 10. And be it further enacted, That, upon the said coins respectively, there shall be the following devices and legends, namely: Upon one side of each of the said coins there shall be an impression emblematic of liberty, with an inscription of the word Liberty, and the year of the coinage; an upon the reverse of each of the gold and silver coins there shall be the figure or representation of an eagle, with this inscription, ‘United States of America’ and upon the reverse of each of the copper coins, there shall be an inscription which shall express the denomination of the piece, namely, cent or half cent, as the case may require. SECTION 11. And be it further enacted, That the proportional value of gold to silver in all coins which shall by law be current as money within the United States, shall be as fifteen to one, according to quantity in weight, of pure gold or pure silver; that is to say, every fifteen pounds weight of pure silver shall be of equal value in all payments, with one pound weight of pure gold, and so in proportion as to any greater or less quantities of the respective metals. SECTION 12. And be it further enacted, That the standard for all gold coins of the United States shall be eleven parts fine to one part alloy; and accordingly that eleven parts in twelve of the entire weight of each of the said coins shall consist of pure gold, and the remaining one twelfth part of alloy; and the said alloy shall be composed of silver and copper, in such proportions not exceeding one half silver as shall be found convenient; to be regulated by the director of the Mint, for the time being, with the approbation of the President of the United States, until further provisions shall be made by law. And to the end that the necessary information may be had in order to the making of 123

The Monetary History of Gold such further provision, it shall be the duty of the director of the Mint, at the expiration of a year after commencing the operations of the said Mint, to report to Congress the practice thereof during the said year, touching the composition of the alloy of the said gold coins, the reasons for such practice, and the experiments and observations which shall have been made concerning the effects of different proportions of silver and copper in the said alloy. SECTION 13. And be it further enacted, That the standard for all silver coins of the United States, shall be one thousand four hundred and eighty-five parts fine to one hundred and seventy-nine parts alloy; and accordingly that one thousand four hundred and eighty-five parts in one thousand six hundred and sixty-four parts of the entire weight of each of the said coins shall consist of pure silver, and the remaining one hundred and seventy-nine parts of alloy; which alloy shall be wholly of copper. SECTION 14. And be it further enacted, That it shall be lawful for any person or persons to bring to the said Mint gold and silver bullion, in order to their being coined; and that the bullion so brought shall be there assayed and coined as speedily as may be after the receipt thereof, and that free of expense to the person or persons by whom the same shall have been brought. And as soon as the said bullion shall have been coined, the person or persons by whom the same shall have been delivered, shall upon demand receive in lieu thereof coins of the same species of bullion which shall have been so delivered, weight for weight, of the pure gold or silver therein contained: Provided nevertheless, That it shall be at the mutual option of the party or parties bringing such bullion, and of the director of the said Mint, to make an immediate exchange of coins for standard bullion, with a deduction of one half per cent. from the weight of the pure gold , or pure silver contained in the said bullion, as an indemnification to the Mint for the time which will necessarily be required for coining the said bullion, and for the advance which shall have been so made in coins. And it shall be the duty of the Secretary of the Treasury to furnish the said Mint from time to time whenever the state of the treasury will admit thereof, with such sums as may be necessary for effecting the said exchanges, to be replaced as speedily as may be out of the coins which shall have been made of the bullion for which the monies so furnished shall have been exchanged; and the said deduction of one half per cent. shall constitute a fund towards defraying the expenses of the said Mint. SECTION 15. And be it further enacted, That the bullion which shall be brought as aforesaid to the Mint to be coined, shall be coined, and the equivalent thereof in coins rendered, if demanded, in the order in which the said bullion shall have been brought or delivered, giving priority according to priority of delivery only, and without preference to any person or persons; and if any preference shall be given contrary to the direction aforesaid, the officer by 124

The Rise of the Gold Standard, 1660–1819 whom such undue preference shall be given, shall in each case forfeit and pay one thousand dollars; to be recovered with costs of suit. And to the end that it may be known if such preference shall at any time be given, the assayer or officer to whom the said bullion shall be delivered to be coined, shall give to the person or persons bringing the same, a memorandum in writing under his hand, denoting the weight, fineness and value thereof, together with the day and order of its delivery into the Mint. SECTION 16. And be it further enacted, That all the gold and silver coins which shall have been struck at, and issued from the said Mint, shall be a lawful tender in all payments whatsoever, those of full weight according to the respective values herein before declared, and those of less than full weight at values proportional to their respective weights. SECTION 17. And be it further enacted, That it shall be the duty of the respective officers of the said Mint, carefully and faithfully to use their best endeavours that all the gold and silver coins which shall be struck at the said Mint shall be, as nearly as may be, conformable to the several standards and weights aforesaid, and that the copper whereof the cents and half cents aforesaid may be composed, shall be of good quality. SECTION 18. And the better to secure a due conformity of the said gold and silver coins to their respective standards, Be it further enacted, That from every separate mass of standard gold or silver, which shall be made into coins at the said Mint, there shall be taken, set apart by the treasurer and reserved in his custody a certain number of pieces, not less than three, and that once in every year the pieces so set apart and reserved, shall be assayed under the inspection of the Chief Justice of the United States, the Secretary and Comptroller of the Treasury, the Secretary for the department of State, and the Attorney General of the United States, (who are hereby required to attend for that purpose at the said Mint, on the last Monday in July in each year,) or under the inspection of any three of them, in such manner as they or a majority of them shall direct, and in the presence of the director, assayer and chief coiner of the said Mint; and if it shall be found that the gold and silver so assayed, shall not be inferior to their respective standards herein before declared more than one part in one hundred and forty-four parts, the officer or officers of the said Mint whom it may concern shall be held excusable; but if any greater inferiority shall appear, it shall be certified to the President of the United States, and the said officer or officers shall be deemed disqualified to hold their respective offices. SECTION 19. And be it further enacted, That if any of the gold or silver coins which shall be struck or coined at the said Mint shall be debased or made worse as to the proportion of fine gold or fine silver therein contained, or shall be of less weight or value than the same ought to be pursuant to the directions 125

The Monetary History of Gold of this act, through the default or with the connivance of any of the officers or persons who shall be employed at the said Mint, for the purpose of profit or gain, or otherwise with a fraudulent intent, and if any of the said officers or persons shall embezzle any of the metals which shall at any time be committed to their charge for the purpose of being coined, or any of the coins which shall be struck or coined at the said Mint, every such officer or person who shall commit any or either of the said offences, shall be deemed guilty of felony, and shall suffer death. SECTION 20. And be it further enacted, That the money of account of the United States shall be expressed in dollars or units, dismes or tenths, cents or hundredths, and milles or thousandths, a disme being the tenth part of a dollar, a cent the hundredth part of a dollar, a mille the thousandth part of a dollar, and that all accounts in the public offices and all proceedings in the courts of the United States shall be kept and had in conformity to this regulation.

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27 February 1797 Newspaper Account of a Council Decision to suspend Cash Payments by the Bank of England

The excerpt reproduced here illustrates the response to news of the landing of French troops at Fishguard in Pembrokeshire, signalling the beginning of the Napoleonic conflict and resulting in a heavy demand for guineas. During times of crisis, governments would often suspend the obligation of banks to exchange gold for notes. Source: The Times, 27 February 1797, Issue 3829, pp. 2d–3a. For the account of the landing itself, see ibid., p. 2a–2b. For the Order in Council referred to in the text, see ibid., p. 3a.

The news of the enemy’s landing in Wales had no sooner reached town on Saturday morning, than Messengers were sent off to Lord Grenville, at Dropsmore, and Mr Dundas, at Wimbledon, desiring their immediate attendance in London. At noon, a Council was held at Mr Pitt’s house, in Downing Street; and in the afternoon, Mr Dressins, a Messenger, was dispatched to the Duke of Portland’s office with instructions from his Grace to the Lord Lieutenant of Ireland, and from the Duke of York to General Lake at Belfast; he was to go by way of Holyhead. Mr Major, another Messenger, took duplicates of the same dispatches, and was to travel by way of Port Patrick. Mr Dickens, a Messenger, was dispatched to Haverfordwest. On Saturday night, another Council was held at Mr Pitt’s house, when it was resolved to dispatch a Messenger to his Majesty, at Windsor, requesting his personal attendance in town; a circumstance never before recollected, especially on a Sunday. Accordingly, the King came to town early yesterday morning, and at noon a Cabinet Council was held at the Queen’s House, Buckingham-Gate, which sat three hours; and on breaking up, the Council adjourned to Mr Pitt’s house, and remained sitting till past five o’clock. The Gentlemen who attended at this Council, besides the Ministers, were Mr Fawkener, the Clerk of the Council, the Attorney and Solicitor General, the Governor and Deputy Governor of the Bank, and Mr Samuel Thornton and Mr Bosanoury, Bank Directors. 127

The Monetary History of Gold At this Council it was resolved that a communication should this day be made from his Majesty to Parliament, acquainting the two Houses that he thought it expedient for the Public service to direct an order Council to be issued, to restrain the money payments of the Bank of England. It is probable that this very wise and salutory measure was adopted on account of the heavy demand for Guineas which has been lately made on the Bank of England, in conseqence of the Newcastle Bank having suspended their payments, and the effects of false or exaggerated alarms respecting an invasion, which have produced a danger that there might not remain sufficient cash for the exigencies of the public service, even though the restrictions on discounts should be carried to an extent highly inconvenient. The Directors of the Bank, in consequence of the large demands for cash made upon them, had recently adopted the prudent measure of limiting their discounts, to the no small embarrassment of the mercantile world, for the sake of narrowing the extent of their paper circulation, and of thus providing effectually for the payment in ready money of all the Notes issued by them. One effect of the Order of Council will necessarily be (if the spirit and exertions of individuals are such as they ought to be for the support of credit, and if due weight is given to the known solidity of the Bank Capital) that they will be enabled to return to a larger scale of discounts. We think it right to express no further opinion till more is known. A meeting of the principal Bankers and Merchants of London, is to be held at the Mansion-house at 12 o’clock this day on the subject, when it is expected that an agreement will be entered into similar to that in the year 1745, to take Bank of England Notes in payment, and to promote the circulation of them. We hope that this will operate as an example, and as an encouragement for forming without delay Associations of Gentlemen and Traders in the country, for the purposes of encouraging the acceptance of Country Bank Notes, or Bank of England Notes in payment in like manner. Further lights must be thrown on the subject by the discussions in Parliament; we will only add, that we rest perfectly persuaded of the solidity of the Bank, and of the full sufficiency of the public resources to meet every real exigency, and to overcome all the affects of temporary alarm.

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28 February 1797 Newspaper Account of a Message of the King, read before the House of Lords by the Lord Chancellor on the preceding Day, suspending Cash Payments by the Bank of England

Unfounded rumors that a French army had landed on the British Isles led to a run on the Bank of England as panicking citizens attempted to redeem their notes for gold. Faced with a growing financial panic, the government and the Bank suspended the convertibility of notes into gold. Source: ‘Parliamentary Intelligence: House of Lords’, The Times, 28 February 1797, Issue 3830, p. 2a.

In consequence of the the unusual demand for specie that had been made upon the metropolis, arising from ill-founded or exaggerated alarms in different parts of the country, his Majesty had thought it expedient for the public service to direct an order of Council to be issued to the Governor and the Company of the Bank of England, to forbear issuing any cash in payments, until the sense of Parliament could be taken on the subject. His Majesty had taken the earliest opportunity of communicating that information to the House, and relied with the fullest confidence on the wisdom, experience, and firmness of their Lordships, that they would ue their best exertions in calling forth the resources of the country, and adopt such measures as were best calculated to meet the temporary pressure, in support of the public and Commercial Credit of the Kingdom, and their own dearest interests.

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28 February 1797 Newspaper Account of the Suspension of Cash Payments by the Bank of England

The suspension of payments was originally conceived as a temporary measure, with convertibility scheduled to resume on 24 June 1797. Yet payments were not resumed until more than twenty years later. Source: ‘Consideration of His Majesty’s Message – Committee on the Quakers Bill’, The Times, 28 February 1797, Issue 3830, p. 4b.

Yesterday morning at seven o’clock, there was a private meeting of about 60 Bankers at the London Tavern; when it was the unanimous opinion of the meeting to adopt the sentiments of his Majesty’s Order in Council, and to support the Bank in the circulation of Notes. Yesterday was a phenomenon in the political history of the country. The Bank of England refused paying its notes in specie, and the credit of the Country immediately revived. There cannot be a stronger instance than this of the loyalty and spirit of the country; the Consols which had fallen on Saturday as low as 50¼ soon rose to 52½ – but they again declined towards the close of the market. Yesterday the Bank of England and the Bankers paid only the fractional parts of drafts in specie. The rest was paid in Bank-notes. It is the opinion of almost every man, that Government could not have recommended a more proper measure than is contained in the Order of Council.

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8 June 1810 ‘Report, together with Minutes of Evidence, and Accounts, from the Select Committee on High Price of Gold Bullion’

The Report of the Select Committee is an extremely valuable source of information for British monetary policy and the gold trade on the London market during the Napoleonic era. This document was issued during the so-called Bullionist Controversy over whether or not the government should reinstate convertibility. The Bullionists, including David Ricardo and Henry Thornton, argued for an immediate resumption of cash payments to combat growing inflation. The AntiBullionists, argued that the continued issuance of banknotes would suffice. The House of Commons Select Committee recommended the removal of restrictions preventing the resumption of payments in specie on Bank of England promissory notes within two years. The transcription below includes merely the introduction and the conclusions of the Report. Source: House of Commons, ‘Report, together with Minutes of Evidence, and Accounts from the Select Committtee on the High Price of Bullion’, House of Commons Parliamentary Papers, 1810 (London, House of Commons, 1810), vol. 3, no. 349, pp. 1–232, esp. pp. 1–2, 30–3.

The SELECT COMMITTEE appointed to enquire into the cause of the High Price of Gold Bullion, and to take into consideration the state of the Circulating Medium, and the Exchanges between Great Britain and Foreign Parts; – and to report the same, with their observations thereupon, from time to time, to the House; – Have, pursuant to the Orders of the House, examined the matters to them referred; and have agreed to the following REPORT: YOUR Committee proceeded, in the first instance, to ascertain what the price of Gold Bullion had been, as well as the rates of the Foreign Exchanges, for some time past; particularly during the last year. Your Committee have found the price of Gold Bullion, which, by regulations of His Majesty’s Mint, is £.3.17.10½. per ounce of standard fineness, was, during the years 1806, 1807, and 1808, as high as £.4. in the market. Towards the end of 1808 it began to advance very rapidly, and continued very high during the whole year 1809; the market price of standard Gold in bars fluctuating 131

The Monetary History of Gold from £.4.9. to £.4.12. per oz. The market price at £4.10. is about 15½ per cent. above the Mint price. Your Committee have found, that during the first three months of the present year, the price of standard Gold in bars remained nearly at the same price as during the last year; viz. from £.4.10. to £.4.12. per oz. In the course of the months of March and April, the price of standard Gold is quoted but once in Wettenhalls tables; viz. on the 6th of April last, at £.4.6. which is rather more than 10 per-cent. above the Mint price. The last quotations of the price of Gold, which have been given in those tables, are upon the 18th and 22d of May, when Portugal Gold coin is quoted at £.4.11. per oz.: Portugal Gold coin is about the same fineness as our standard. It is stated in the same tables, that in the month of March last, the price of new Doubloons rose from £.4.7. to £.4.9. per oz. Spanish Gold id from 4½ to 4¾ grains better than standard, making about 4s. per oz. difference in value. It appears by the Evidence, that the price of foreign Gold coin is generally higher than that of bar Gold, on account of the former finding a more ready vent in foreign markets. The difference between Spanish and Portugal Gold in coin and Gold in bars, has of late been about 2s. per ounce. Your Committee have also to state, that there is said to be at present a difference of between 3s. and 4s. per ounce between the price of bar Gold which may be sworn off for exportation as being foreign Gold, and the price of such bar Gold as the Dealer will not venture to swear off; while the former was about £.4.10. in the market, the latter is said to have been about £.4.6. On account of these extrinsic differences, occasioned either by the expense of coinage, or by the obstructions of law, the price of standard Gold in bars, such as may be exported, is that which is most material to keep generally in view through the present inquiry. It appeared to Your Committee, that it might be of use in judging of the cause of this high price of Gold Bullion, to be informed also of the prices of Silver during the same period. The price of standard Silver in His Majesty’s Mint is 5s. 2d. per ounce; at this standard price, the value of a Spanish Dollar is 4s. 4d. or, which comes to the same thing, Spanish Dollars are, at that standard price, worth 4s. 11½d. per ounce. It is stated in Wettenhall’s tables, that throughout the year 1809, the price of new Dollars fluctuated from 5s. 5d. to 5s. 7d. per ounce, or from 10 to 13 per cent. above the Mint price of standard Silver. In the course of the last month, new Dollars have been quoted as high as 5s. 8d. per ounce, or more than 15 per cent. above the Mint price. Your Committee have likewise found, that towards the end of the year 1808, the Exchanges with the Continent became very unfavourable to this Country, and continued still more unfavourable through the whole year of 1809, and the three first months of the present year. 132

The Rise of the Gold Standard, 1660–1819 Hamburgh, Amsterdam, and Paris, are the principal places with which the Exchanges are established at present. During the last six months of 1809, and the three first months of the present year, the Exchanges on Hamburgh and Amsterdam were depressed as low as from 16 to 20 per cent. below par; and that on Paris still lower. The Exchanges with Portugal have corresponded with the others; but they are complicated by some circumstances which shall be explained separately. Your Committee find, that in the course of the month of March last, that is, from the 2d of March to the 3d April, the Exchanges with the three places above mentioned received a gradual improvement. The Exchange with Hamburgh rose gradually from 29.4 to 31.; that with Amsterdam from 31.8. to 33.5.; that with Paris from 19.16. to 21.11. Since the 3d of April last to the present time, they have remained nearly stationary at those rates, the Exchange with Hamburgh, as stated in the tables printed for the use of merchants, appearing as much against this Country as £.9. per cent. below par; that with Amsterdam appearing to be more than £.7. per cent. below par; and that with Paris more than £.14. per cent. below par. So extraordinary a rise in the market price of Gold in this Country, coupled with so remarkable a depression of our Exchanges with the Continent, very early, in the judgement of Your Committee, pointed to something in the state of our own domestic currency as the cause of both appearances. But before they adopted that conclusion, which seemed agreeable to all former reasonings and experience, they thought it proper to enquire more particularly into the circumstances connected with each of thise two facts; and to hear, from persons of commercial practice and detail, what explanations they had to offer of so unusual a state of things. With this in view, Your Committee called before them several Merchants of extensive dealings and intelligence, and desired to have their opinions, with respect to the cause of the high price of Gold and the low rates of exchanges. ***** Upon a review of all the facts and reasonings which have been submitted to the consideration of Your Committee in the course of their Enquiry, they have formed an Opinion, which they submit to the House: – That there is at present an excess of paper in circulation in this Country, of which the most unequivocal symptom is the very high price of Bullion, and next to that, the low state of the Continental Exchanges; that this excees is to be ascribed to the want of a sufficient check and control in the issues of paper from the Bank of England; and originally, to the suspension of cash payments, which removed the natural and true control. For upon a general view of the subject, Your Committee are of opinion, that no safe, certain, and constantly adequate pro133

The Monetary History of Gold vision against an excess of paper currency, either occasional or permanent, can be found, except in the convertibility of all such paper into specie. Your Committee cannot, therefore, but see reason to regret, that the suspension of cash payments, which, in the most favourable light in which it can be viewed, was only a temporary measure, has been continued so long; and particularly, that by the manner in which the present continuing Act is framed, the character should have been given to it of a permanent war measure. Your Committee conceive that it would be superfluous to point out, in detail, the disadvantages which must result to the Country, from any such general excess of currency as lowers its relative value. The effect of such an augmentation of prices upon all money transactions for time; the unavoidable injury suffered by annuitants, and by creditors of every description, both private and public; the unintended advantages gained Government and all other debtors; are consequences too obvious to require proof, and too repugnant to justice to be left without remedy. By far the most important portion of this effect appears to Yout Committee to be that which is communicated to the wages of common country labour, the rate of which, it is well known, adapts itself more slowly to the changes which happen in the value of money, than the price of any other species of labour or commodity. And it is enough for Your Committee to allude to some classes of the public servants, whose pay, if once raised in consequence of a depreciation of money, cannot so conveniently be reduced again to its former rate, even after money shall have recovered its value. The future progress of these inconveniences and evils, if not checked, must at no great distance of time, work a practical conviction upon the minds of all those who may still doubt their existence; but even if the progressive increase were less probable than it appears to Your Committee, they cannot help expressing an opinion , that the integrity and honour of Parliament are concerned, not to authorize, longer than is required by imperious necessity, the continuance on this great commercial Country of a system in circulation, in which the natural check or control is absent which maintains the value of money, and, by the permanency of that common standard of value, secures the substantial justice and faith of monied contracts obligations between man and man. Your Committee moreover beg leave to advert to the temptation to resort to a depreciation even of the value of the Gold coin by an alteration of the standard, to which Parliament itself might be subjected by a great and long continued excess of paper. This has been the resource of many Governments under such circumstances, and it is the obvious and most easy remedy to the evil in question. But it is unnecessary to dwell on the breach of public faith and dereliction of a primary duty of Government, which would manifestly be 134

The Rise of the Gold Standard, 1660–1819 implied in preferring the reduction of the coin down to the standard of the paper, to the restoration of the paper to the legal standard of the coin. Your Committee therefore, having very anxiously and deliberately considered this subject, report it to the House as their Opinion, That the system of the circulating medium of this Country ought to be brought back, with as much speed as is compatible with a wise and necessary caution, to the original principle of Cash payments at the option of the holder of Bank paper. Your Committee have understood that remedies, or palliatives, of a different nature, have been projected; such as, a compulsory limitation of the amount of Bank advances and discounts, during the continuance of the suspension; or, a compulsory limitation during the same period, of the rate of Bank profits and dividends, by carrying the surplus of profits above that rate to the public account. But, in the judgement of Your Committee, such indirect schemes, for palliating the possible evils resulting from the suspension of cash payments, would prove wholly inadequate for that purpose, because the necessary proportion could never be adjusted, and if once fixed, might aggravate very much the inconveniences of a temporary pressure; and even if their efficacy could be made to appear, they would be objectionable as a most hurtful and improper interference with the rights of commercial property. According to the best judgement Your Committee has been enabled to form, bo sufficient remedy for the present, or security for the future, can be pointed out, except the Repeal of the Law which suspends the Cash Payments of the Bank of England. In effecting so important a change, Your Committee are of opinion that some difficulties must be encountered, and that there are some contingent dangers to the Bank, against which it ought most carefully and strongly to be guarded. But all those may be effectually provided for, and by entrusting to the discretion of the Bank itself the charge of conducting and completing the operation, and by allowing to the Bank so ample a period of time for conducting it, as will be more than sufficient to effect its completion. To the discretion, experience, and integrity of the Directorsof the Bank, Your Committee believe that Parliament may safely entrust the charge of effecting that which Parliament may in its wisdom determine upon as necessary to be effected; and that the Directors of that great institution, far from making themselves a party with those who have a temporary interest in spreading alarm, will take a much longer view of the permanent interests of the Bank, as indissolubly blended with those of the Public. The particular mode of gradually effecting the resumption of cash payments ought therefore, in the opinion of Your Committee, to be left in great measure to the discretion of the Bank, and Parliament ought to do little more than to fix, definitively, the time at which cash payments are to become as before compulsory. The period allowed ought to be 135

The Monetary History of Gold ample, in order that the Bank Directors may feel their way, and that, having a constant watch upon the varying circumstances that ought to guide them, and availing themselves only of favourable circumstances, they may tread back their steps slowly, and may preserve both the course of their own affairs as a Company, and that of public and commercial credit, not only safe but unembarrassed. With this view, Your Committee would suggest, that the restriction on Cash payments cannot safely be removed at an earlier period than two years from the present time; but Your Committee are of opinion, that early provision ought to be made by Parliament for terminating, by the end of that period, the operation of the several Statutes which have imposed and continued that restriction. In suggesting this period of two years, Your Committee have not overlooked the circumstances, that, as the law stands at present, the Bank would be compelled to pay in cash at the end of six months after the ratification of a definitive Treaty of Peace; so that if Peace were to be concluded within that period, the recommendation of Your Committee might seem to have the effect of postponing, instead of accelerating the resumption of cash payments. But Your Committee are of opinion, that if Peace were immediately to be ratified, in the present state of our circulation it would be most hazardous to compel the Bank to pay cash in six months, and would be found wholly impracticable. Indeed, restoration of Peace, by opening new fields of commercial enterprise, would multiply instead of abridging the demands upon the Bank for discount, and would render it peculiarly distressing to the commercial world of the Bank were suddenly and materially to restrict their issues. Your Committee are therefore of opinion that even if Peace should intervene, two years should be given to the Bank for resuming its payments; but that even if the War should be prolonged, Cash payments should be resumed by the end of that period. Your Committee have not been indifferent to the consideration of the possible occurrence of political circumstances, which may be thought hereafter to furnish an argument in favour of some prolongation of the proposed period of resuming cash payments, or even in favour of a new law for their temporary restriction after the Bank shall have opened. They are, however, far from anticipating a necessity, even in any case, of returning to the present system. But if occasion for a new measure of restriction could be supposed at any time to arise, it can in no degree be grounded, as Your Committee think, on any state of the Foreign Exchanges, (which they trust that they have abundantly shewn the Bank itself to have the general power of controlling,) but on a political state of things producing, or likely very soon to produce, an alarm at home, leading to so indefinite a demand for cash for domestic uses as it must be impossible for any Banking establishment to provide against. A return to the 136

The Rise of the Gold Standard, 1660–1819 ordinary system of Banking is, on the very ground of the late extravagent fall of the Exchanges and high price of Gold, peculiarly requisite. That alone can effectually restore general confidence in the value of the circulating medium of the kingdom; and the serious expectation of this event must enforce of preparatory reduction in the quantity of paper, and all other measures which accord with the true principles of Banking. The anticipation of the time when the Bank will be constrained to open, may also be expected to contribute to the improvement of the Exchanges; whereas a postponement of this era, so indefinite as that of six months after the termination of the War, and especially in the event of an Exchange continuing to fall, (which more and more would generally be perceived to arise from an excess of paper, and a consequent depreciation of it) may lead, under an unfavourable state of public affairs, to such a failure of confidence (and especially among foreigners) in the determination of Parliament to enforce a return to the professed standard of the measure of payments, as may serve to precipitate the further fall of the Exchanges, and lead to consequences at once the most discreditable and disastrous. Although the details of the best mode of returning to cash payments ought to be left to the discretion of the Bank of England, as already stated, certain provisions would be necessary, under the authority of Parliament, for the convenience of the Bank itself, and for the security of the other Banking establishments in this Country and in Ireland. Your Committee conceive it may be convenient for the Bank to be permitted to issue Notes under the value of £.5. for some little time after it had resumed payments in specie. It will be convenient also for the Chartered Banks of Ireland and Scotland, and all the Country Banks, that they should not be compelled to pay in specie until some time after the resumption of payments in Cash by the Bank of England; but that they should continue for a short period upon their present footing, of being liable to pay their own notes on demand in Bank of England paper.

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9 July 1811 ‘A Bill, intituled, an Act for making more effectual Provision for preventing the current Gold Coin of the Realm from being paid or accepted for a greater Value than the current Value of such Coin; for preventing any Note or Notes of the Governor and Company of the Bank of England from being received for any smaller Sum than the Sum therein specified; and for staying Proceedings upon any Distress by Tender of such Notes’

The selection below contains the full text of the Act. This Act, an attempt at price control, sought to prop up the value of the ‘paper pounds’ by prohibiting people from paying more than the official price for gold. Due to the inflation then already underway, this was a widely flaunted effort. Source: House of Commons, House of Commons Parliamentary Papers, 1810–1811 (London: House of Commons, 1811), vol. 1, no. 255, pp. 621–4.

Whereas it is expedient to enact, as is hereinafter provided; Be it enacted by the King’s Most Excellent Majesty, by and with the Advice and Consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the Authority of the same, That, from and after the passing of this Act, no Person shall receive or pay for any Gold Coin lawfully current within the realm, any more in Value, Benefit, Profit or Advantage, than the true lawful Value of such Coin, whether such Value, Benefit, Profit or Advantage be paid, made, or taken in lawful Money, or in any Note or Notes, Bill or Bills of the Governor and Company of the Bank of England, or in any Silver Token or Tokens issued by the said Governor and Company, or bay any or all of the said means wholly or partly, or by any or all of the said means wholly or partly, or by any other means, device, shift or contrivance whatsoever. And be it further Enacted by the Authority aforesaid, That no Person shall by any means, device, shift or contrivance whatsoever, receive or pay any Note or Notes, Bill or Bills of the Governor and Company of the Bank of England, 138

The Rise of the Gold Standard, 1660–1819 as of less Value in Money, except lawful Discount, than the Sum expressed therein, to be thereby made so payable. And be it Enacted by the Authority aforesaid, That in case any Person shall proceed by Distress to recover from any Tenant or other Person liable to such Distress, any Rent or Sum of Money due from such Tenant or other Person, it shall be lawful for such Tenant or other Person, in every such case to tender Notes of the Governor and Company of the Bank of England, expressed to be payable on demand, to the Amount of such Rent or Sum so due, either alone or together with a sufficient Sum of lawful Money, to the Person on whose behalf such Distress is made or to the Officer or Person making such Distress on his behalf; and in case such Tender shall be accepted, or in case such Tender shall be made and refused, the Goods taken in such Distress shall be forthwith returned to the Party distrained upon, unless the Party distraining and refusing to accept such Tender shall insist that a greater Sum is due than the Sum so tendered, and in such case the Parties shall proceed as usual in such cases; but if it shall appear that no more was due than the Sum so tendered, then the Party who tendered such Sum shall be entitled to the Costs of all subsequent Proceedings: Provided always, that the Person to whom such Rent or Sum of Money is due, shall have and be entitled to all such other Remedies for the Recovery thereof, exclusive of Distress, as such Person had or was entitled to at the time of making such Distress, if such Person shall not think proper to accept such Tender to be made as aforesaid: Provided also, that nothing herein contained shall affect the Right of any Tenant, or other such Person as aforesaid having Right, to replevy the Goods so taken in Distress, in case, without making such Tender as aforesaid, he shall so think fit. Provided always, That nothing in this Act contained shall extend to Ireland. Provided always, and be it further Enacted, That this Act shall continue and be in force to and until the Twenty-fifth day of March one thousand eight hundred and twelve, and no longer.

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20 March 1812 ‘A Bill, to continue and amend an Act of the Session of Parliament, for making more effectual Provision for preventing the current Gold Coin of the Realm from being paid or accepted for a greater Value than the current Value of such Coin, for preventing any Note or Bill of the Governor and Company of the Bank of England from being received for any smaller Sum than the Sum therein specified, and for staying Proceedings upon any Distress by Tender of such Notes; and to extend the same to Ireland’

The transcription includes roughly the first half of the amendment, which contains the provisions concerning gold. Source: House of Commons, House of Commons Parliamentary Papers, 1812 (London: House of Commons, 1812), vol. 1, no. 121, pp. 515–9, esp. pp. 515–6.

Whereas an Act passed in the fifty-first year of the reign of His present Majesty, intituled, ‘An ACT for making more effectual Provision for preventing the current Gold coin of the Realm from being paid or accepted for a greater Value than the current Value of such Coin, for preventing any Note or Bill of the Governor and Company of the Bank of England from being received for any smaller Sum than the Sum therein specified, and for staying proceedings upon any Distress by Tender of such Notes:’ And whereas it is expedient that the said Act should be continued, and amended, and extended to Ireland; Be it therefore Enacted, by the King’s Most Excellent Majesty, by and with the Advice and Consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the Authority of the same, THAT from and after the [lacuna] no Person shall receive or pay, for any Gold Coin lawfully current within the United Kingdom, and more in Value, Benefit, Profit or Advantage, than the true lawful Value which such Gold Coin doth or shall by its denomination import, whether such Value, Benefit, Profit or 140

The Rise of the Gold Standard, 1660–1819 Advantage, be paid, made, or taken in lawful Money, or in any Note or Notes, Bill or Bills of the Governor and Company of the Bank of England, or in any Silver Token or Tokens issued by the said Governor and Company, if in Great Britain, or in any Note or Notes, Bill or Bills of the Governor and Company of the Bank of Ireland, or in any Silver Token or Tokens issued by the last-mentioned Governor and Company if in Ireland, or by any or all said means, wholly or partly, or by any other means, device, shift, or contrivance whatsoever; and every Person who shall offend herein, shall be deemed and adjudged guilty of [… lacuna …] and being thereof convicted by due course of Law, shall suffer [… lacuna …] Imprisonment, and find Sureties for his or her good behaviour for [… lacuna …] more, to be computed from the end of the said [… lacuna …] and if the same person shalol afterwards offend against this Act, and shall by the due course of Law be convicted of any subsequent Offence, he or she shall be imprisoned for the Term of [… lacuna …] for every such subsequent Offence. And be it hereby further Enacted, That if any Person shall be convicted of receiving or paying any such Gold Coin contrary to the said recited Act or this Act, and shall afterwards be guilty of the like Offence, the Clerk of the Assize or Clerk of the Peace for the County, City, or Place where such Conviction was so had, shall, at the end of the request of the Prosecutor, or any other Person on His Majesty’s behalf, certify the same by a Transcript, in a few words, containing the effect and tenor of such Conviction; for which Certificate [… lacuna …] and no more shall be paid; and such Certificate being produced in Court shall be sufficient Proof of such former Conviction. Provided always, and be it further Enacted, That on any Prosecution or Trial of any Offender or Offenders hereafter to be prosecuted or tried for any Offence against the said recited Act or this Act, it shall not be necessary to prove that the Money, Notes, Bills, Tokens, Securities, Warrants or Orders for payment of Money, or any or either of them, received or paid for any such Gold Coin, are respectively good, lawful and current Money of this Realm, or good, valid and effectual Notes, Bills, Tokens, Securities, Warrants or Orders for payment of Money, are respectively of the Value they on the face of them import; but that such Money, Notes, Bills, Tokens, Securities, Warrants or Orders for payment of Money, shall be deemed and taken to be good, valid and effectual respectively, and of the respective Values which on the face of them they import, until the contrary shall be proved, to the satisfaction of the Judge, Justice or Court before whom such Offender or Offenders shall be prosecuted or tried respectively; nor shall it be necessary in any such Prosecution or Trial of any Offender or Offenders hereafter to be prosecuted or tried for any Offence against the said recited Act or this Act, to prove that the Gold Coin received or purchased contrary to the said recited Act or this Act, is the cur141

The Monetary History of Gold rent Gold Coin of this Realm, but the same shall be deemed and taken so to be, if paid or received as such, until the contrary thereof shall be proved to the satisfaction of the Judge, Justice or Court before whom any such Offender or Offenders shall be prosecuted or tried. And be it further Enacted, That no Person shall, by any means, device, shift or contrivance whatsoever, receive or pay any Note or Notes, Bill or Bills of the Governor and Company of the Bank of England, in Great Britain, or any Note or Notes, Bill or Bills of the Governor and Company of the Bank of Ireland, in Ireland, for less than the Amount of lawful Money expressed therein, and to be thereby made payable; except only lawful Discount on such Note or Bill as shall not be expressed to be payable on demand; and every Person who shall offend herein shall be deemed and adjudged guilty of a [… lacuna …]

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31 May 1816 ‘A Bill, to provide for the New Silver Coinage, and to regulate the Currency of the Gold and Silver Coin of this Realm’

The Bill established ‘the lawful Gold Coin of the Realm’, the Sovereign, as the standard unit of currency and confirmed the valuation of one standard ounce of gold (11/12 fine) at £.3.17.10½ Source: House of Commons, House of Commons Parliamentary Papers, 1816 (London: House of Commons, 1816), vol. 2, no. 424, pp. 603–12.

Whereas the Silver Coins of the Realm have, by long use and other circumstances, become greatly diminished in Number and deteriorated in Value, so as not to be sufficient for the small payments required in Dealings under the Value of the Current Gold Coins, by reason whereof a great Quantity of Light and Counterfeit Silver Coin and Foreign Coin has been introduced into Circulation within this Realm; and the Evils resulting therefrom can only be remedied by a New Coinage of Silver Money, to be made and issued under the proper Regulations for maintaining its Value and preserving the same in circulation; Be it therefore Enacted by the King’s Most Excellent Majesty, by and with the Advice and Consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the Authority of the same, THAT from and after [… lacuna …] so much of an Act made in the Eighteenth year of the reign of his late Majesty King Charles the Second, intituled, ‘An Act for encouraging of Coinage’, and also so much of all and every other Act and Acts as provide and enact that whatsoever Person or Persons, Native or Foreigner, Alien or Stranger, should bring any Foreign Coin, Plate or Bullion in Silver, into His Majesty’s Mint or Mints within the Kingdom of England, to be there melted down coined into the Current Coins of this Kingdom, shall have the same there Assayed, melted down and coined with all convenient speed, without any defalcation, diminution or charge, for the assaying, coinage or waste in coinage, so as that for every Pound Troy of Sterling or Standard Silver that should be brought in and delivered by him to them to be assayed, 143

The Monetary History of Gold melted down and coined as aforesaid, there should be delivered to him or them respectively a Pound Troy of the Current Coins of this Kingdom, of Sterling or Standard Silver, and so proportionably for a greater or lesser Weight, or more or less, in proportion to the excess or deficiency in Fineness of any such Bullion, shall be and the same is and are hereby Repealed. [Paragraphs three through ten of the Bill contain further provisions regarding the new silver coinage.] AND whereas at various times heretofore the Coins of this Realm of Gold and Silver, have been equally a legal Tender for Payments to any Amount, and great Inconvenience has arisen from both these precious Metals being concurrently the Standard Measure of Value, and equivalent for Property; and it is expedient that the Gold Coin made according to the Indentures of the Mint, should henceforth be the sole Standard Measure of Value and legal Tender for Payment, without any Limitation of Amount, and that the Silver Coin should be a legal Tender to a limited Amount only, for the facility of Exchange and Commerce; BE it therefore Enacted, That from and after [… lacuna …] the Gold Coin of this Realm shall be and considered [sic] and is hereby declared to be the only legal Tender for Payments, except as hereinafter provided, with the United Kingdom of Great Britain and Ireland; and that the said Gold Coin shall hold such Weight and Fineness as are prescribed by the present Indenture with His Majesty’s Master and Worker of the Mint for making Gold Monies at His Majesty’s Mint in London, and with such Allowance, called the Remedy, as is given to the said Master by the said Indenture; which Weight and Fineness are hereby declared to be and shall remain to be the Standard of and for the lawful Gold Coin of the Realm. AND whereas it is expedient that the Silver of the Realm should be a legal Tender by Tale, according to its denomination, to any Amount, not exceeding the sum of [… lacuna …]. BE it therefore Enacted, That from and after such day as shall be for that purpose named in any Proclamation, which at any time after the passing of this Act shall be made and issued, by or on behalf of His Majesty, with the Advice of His Majesty’s Privy Council, so much and such parts of the Act made in Fourteenth year of His present Majesty’s reign, intituled, ‘An Act to prohibit the Importation of Light Silver Coin of this Realm from foreign Countries into Great Britain or Ireland, and to restrain the Tender thereof beyond a certain Sum’, as enacts or provides or may be construed to enact or provide, that any Tender in Silver Coin of the Realm shall be legal to the amount of Twenty-five Pounds, or a Tender for any greater Sum, according to its value by Weight, and also so much of an Act and Acts whereby the said last recited Act is continued revived or made perpetual, shall be, and the 144

The Rise of the Gold Standard, 1660–1819 same is and are hereby repealed accordingly: And that from and after such day as shall be for that purpose named in any such Proclamation to be made and issued as aforesaid, no Tender of Payment og Money made in the silver Coin of this Realm, of any sum exceeding the sum of [… lacuna …] at any one time, shall be reputed a Tender in Law, or allowed to be a legal Tender within the United Kingdom of Great Britain and Ireland, either by Tale or Weight of such Silver Coin or otherwise howsoever; any thing in the said recited Act of the Fourteenth year of His present Majesty’s reign, or in any other Act or Acts in force immediately before the passing of this Act, or any usage or custom to the contrary in anywise notwithstanding. And be it further Enacted, That from and after the [… lacuna …] no Person shall by any means, device, shift or contrivance whatsoever, receive or pay for any Gold Coin lawfully current within the United Kingdom of Great Britain and Ireland, any more or less in value, benefit, profit or advantage, than the true lawful value which such Gold Coin doth or shall by its denomination import; nor shall utter or receive any piece or pieces of Gold Coin of this Realm, at any greater or higher rate of value, nor at any less or lower rate of value than the same shall be current for in payment, according to the rates and values declared and set upon them pursuant to Law; and that every Person who shall offend herein shall be adjudged guilty of a Misdemeanor, and being thereof convicted by due course of Law, shall suffer Imprisonment for the term of [… lacuna …] and shall find Sureties for his or her good behaviour for One Year more, to be computed from the end of the said [… lacuna …]. And if the same Person shall afterwards be convicted of the like offence, such Person shall for such Second Offence, suffer [… lacuna …] and find Sureties for his or her good behaviour for one year more, to be computed from the end of the said last-mentioned Year: And if the same Person shall afterwards offend against this Act, and shall by the due course of Law be convicted of any subsequent Offence, he or she shall be imprisoned for the Term of [… lacuna …] for every such subsequent Offence. And be it further Enacted, That if any Person also shall be convicted of receiving or paying any such Gold Coin contrary to this Act, shall afterwards be guilty of the like Offence, the Clerk of the Assize or Clerk of the Peace for the County, City or Place where such Conviction was so had, shall, at the request of the Prosecutor or any other Person on His Majesty’s behalf, certify such Conviction, for which Certificate [… lacuna …] and no more shall be paid; and such Certificate being produced in Court, shall be sufficient proof of such former Conviction. And be it further Enacted, That no Person against whom any Bill of Indictment shall be found at any Assizes or Sessions of the Peace for any Offence against this Act, shall be entitled to traverse the same to any subsequent 145

The Monetary History of Gold Assizes or Sessions; but the Court at which such Bill of Indictment shall be found, shall forthwith proceed to try the Person or Persons against whom the same shall be found, unless he she or they shall shew good cause, to be allowed by the Court, why his her or their Trial should be postponed. Provided always, and be it further Enacted, That on any Prosecution or Trial of any Offender or Offenders hereafter to be prosecuted or tried for any offence against this Act, it shall not be necessary to prove that the Gold Coin received or paid or uttered contrary to the Act, is the Current Gold Coin of this Realm, but the same shall be deemed and taken so to be, if received or paid or uttered as such, until the contrary thereof shall be proved to the satisfaction of the Judge, Justice or Court, before whom any such Offender or Offenders shall be prosecuted or tried. And be it further Enacted, That all and every Act and Acts in force immediately before the passing of this Act, respecting the Coin of this Realm, or the clipping diminishing or counterfeiting of the same, or respecting any other matters relating thereto, and all Provisions, proceedings, Penalties, Forefeitures and Punishments therein contained or directed, not expressly repealed by this Act, and not repugnant or contradictory to the Enactments and Provisions of this Act, shall be and continue in full force and effect; and shall be applied and put in execution with respect to the Silver Coin, to be coined in pursuance of the directions of this Act, as fully and effectually to all intents and purposes whatsoever, as if the same were repeated and and re-enacted in this Act. Provided always, and be it Enacted, That nothing in this Act contained shall extend, or be contrued to extend, to alter or repeal any Clause Matter or Thing in any Act or Acts in force in Ireland, whereby it is enacted or provided that all sums of Money payable in Ireland, for any part of the Public Revenue there, shall be accepted by the Collectors Receivers and other Officers of the of the revenue in Ireland authorized to receive the same, in Silver Bank Tokens, of the Bank of Ireland, for Thirty Pence, Ten Pence, or Five Pence, respectively, which shall be issued during the continuance of the Restriction on Payments in Cash by the Governor and Company of the Bank of Ireland, if offered to be so paid; any thing in this Act before contained to the contrary thereof in anywise notwithstanding.

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5 April 1819 ‘First Report from the Secret Committee on the Expediency of the Bank resuming Cash Payments’

Source: House of Commons, House of Commons Parliamentary Papers, 1819 (London: House of Commons, 1819), vol. 3, no. 202, p. 3.

The Committee of Secrecy appointed to consider of the State of the Bank of England, with reference to the Expediency of the Resumption of Cash Payments at the period fixed by law, and into other such matters as are connected therewith; and to report to the House such information relative thereto, as may be disclosed without injury to the Public interests, with their Observations thereupon, – Are engaged in deliberating upon their Report; which they hope to be able to present to the House on an early day after the approaching recess. The Committee having a confident expectation that, in that Report, they shall be enabled to fix a period, and recommend a Plan, for the final removal of the present restriction on the Bank, think it their duty to submit to the House, that the execution of any such Plan would, in their opinion be materially obstructed and delayed by a continuance of the drain upon the Treasure of the Bank, on account of the engagement of the Bank to pay in Cash all its Notes outstanding, of an earlier date than January 1st, 1817, and on account of the payment in Cash of fractional sums under £.5.: That the Committee therefore think it their duty to suggest to the House, the expediencey of passing forthwith a Bill, restraining all such payments in Gold Coin, until the Report of the Committee shall have been received, and considered by the House, and a legislative measure passed thereupon.

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19 May 1819 ‘Proposed Resolutions [on the Expediency of the Bank resuming Cash Payments]’

Source: House of Commons, House of Commons Parliamentary Papers, 1819 (London: House of Commons, 1819), vol. 3, no. 326, p. 357.

1. – That it is expedient to continue the Restriction on payments in Cash by the Bank of England, beyond the time to which it is at present limited by law. 2. – That it is expedient that a definite period should be fixed for the termination of the Restriction on Cash Payments; and that preparatory measures should be taken, with a view to facilitate and ensure, on arrival of that period, the payment of Promissory Notes of the Bank of England in the legal Coin of the Realm. 3. – That in order to give the Bank a greater control over the issues of their Notes than they at present possess, provision ought to be made, for the gradual repayment to the Bank of the sum of Ten Millions; being part of the sum due to the Bank, on account of Advances made by them for the public service, and on account of the purchase of Exchequer Bills under the authority of acts of the Legislature. 4. – That it is expedient to provide, by law, that from the 1st February 1820, the Bank shall be liable to deliver, on demand, Gold of standard fineness, having been assayed and stamped at His Majesty’s Mint, a quantity of not less than sixty ounces being required in exchange for such an amount of Notes of the Bank as shall be equal to the value of the Gold so required, at the rate of Four pounds one shilling per ounce. 5. – That from the 1st October 1820, the Bank shall be liable to deliver, on demand, Gold of standard fineness, having been assayed and stamped as before mentioned, a quantity of not less than sixty ounces being required in exchange for such an amount of Notes as shall be equal to the value of the Gold so required, at the rate of £.3.19.6. per ounce. 6. – That from the 1st May 1821, the Bank shall be liable to deliver, on demand, Gold of standard fineness, having been assayed and stamped as 148

The Rise of the Gold Standard, 1660–1819 before mentioned, a quantity of not less than sixty ounces being required in exchange for such an amount of Notes as shall be equal in value to the Gold so required, at the rate of £.3.17.10½. per ounce. 7. – That the Bank may, at any period between the 1st February 1820 and the 1st May 1821, undertake to deliver Gold of standard fineness, assayed and stamped as before mentioned, at any rate between the sums of Four pounds one shilling per ounce, and £.3.17.10½ per ounce; but that such intermediate rate rate having been fixed by the Bank shall not be subsequently increased. 8. – That from the 1st May 1823, the Bank shall pay it Notes, on demand, in the legal Coin of the Realm. 9. – That it is expedient to repeal the Laws, prohibiting the melting and the exportation of the Coin of the Realm.

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21 May 1819 ‘Representation, agreed upon the 20th of May 1819, by the Directors of the Bank of England and laid before the Chancellor of the Exchequer [on the Expediency of the Bank resuming Cash Payments]’

With the resumption of cash payments by the Bank of England, Britain returned to a gold standard. However, its immediate resumption was not without controversy. Even the Bank of England was reluctant to resume cash payments immediately, and while the Resumption Act of 1819 provided for a return to gold convertibility, it was not until 1823 that the gold standard was truly reestablished. Source: House of Commons, House of Commons Parliamentary Papers, 1819, vol. 3, no. 338, pp. 359–62.

AT A COURT OF DIRECTORS AT THE BANK, On Thursday 20th May 1819. THE DIRECTORS of the Bank of England, having taken into their most serious consideration the Reports of the Secret Committees of the two Houses of Parliament, appointed to inquire into the State of the Bank of England, with reference to the expediency of the Resumption of Cash Payments at the period now fixed, – have thought it their duty to lay before His Majesty’s Ministers, as early as possible, their sentiments, with regard to the measures suggested by these Committees for the approbation of Parliament. IN the first place it appears, that, in the view of the Committees, the measure of the recommencing Cash Payments on the 5th of July next, the time prescribed by the existing law, ‘is utterly impracticable, and would be entirely inefficient, if not ruinous’. Secondly, it appears, that the two Committees have come to their conclusion at a period, when the outstanding Notes of the Bank of England do not much exceed £.25,000,000; when the price of Gold is about £.4.1s. per ounce; 150

The Rise of the Gold Standard, 1660–1819 and when there is great distress, from the stagnation of Commerce, and the fall of prices of imported Articles. IT must be obvious to His Majesty’s Ministers, that as long as such a state of things shall last, or one in any degree similar, without either considerable improvement on one side, or growing worse on the other, the Bank, acting as it does at present, and keeping its Issues nearly at the present level, could not venture to return to Cash Payments, with any probability of benefit to the Public, or safety to the Establishment. The two Committees of Parliament, apparently actuated by this consideration, have advised that the Bank shall not open payments in Coin for a period of four years, but shall be obliged, from the 1st of May 1821, to discharge their Notes in standard Gold Bullion, at Mint price, when demanded in sums not amounting to less than thirty ounces. And, as it appears to the Committees expedient, that this return to payments at Mint price should be made gradually, they propose that on the first day of February next, the Bank should pay their Notes in Bullion, if demanded in sums not less than sixty ounces, at the rate of £.4.1s. an ounce, and from the 1st of October 1820 to the 1st of May following at £.3.19s. 6d. an ounce. If the Directors of the Bank have a true comprehension of the views of the Committees in submitting this scheme to Parliament, they are obliged to infer, that the object of the Committees is to secure, at every hazard, and under every possible variation of circumstances, the return of payments in Gold at Mint price for Bank Notes, at the expiration of two years; and that this measure is so to be managed, that the Mint price denominations shall ever afterwards be preserved, leaving the market or exchange price of Gold to be controlled by the Bank, solely by the amount of their issues of Notes. It further appears to the Directors, with regard to the final execution of this plan, and the payment of Bank Notes in Gold at Mint price, that discretionary power is to be taken away from the Bank; and that it is merely to regulate its Issues, and make purchases of Gold, so as to be enabled to answer all possible demands whenever its Treasury shall be again open for the payment of its Notes. Under these impressions, the Directors of the Bank think it right to observe to His Majesty’s Ministers, that being engaged to pay on demand their Notes in statutable Coin, at the Mint price of £.3.17s. 10½d. an ounce, they ought to be the last persons who should object to any measure calculated to effect that end; but as it is incumbent on them to consider the effect of any measure to be adopted, as operating upon the general issue of their Notes, by which all the private Banks are regulated, and of which the whole Currency, exclusive of the Notes of private Bankers, is composed, they feel themselves obliged, by the new situation in which they have been placed by the Restriction Act of 1797, 151

The Monetary History of Gold to bear in mind, not less their duties to the Establishment over which they preside, than their duties to the Community at large, whose interest in a pecuniary and commercial relation, have in great degree been confided to their discretion. The Directors being thus obliged to extend their views, and embrace the interests of the whole Community, in their consideration of this measure, cannot but feel a repugnance, however involuntary, to pledge themselves in approbation of a system, which, in their opinion, in all its great tendencies and operations, concerns the Country in general more than the immediate interests of the Bank alone. It is not certainly a part of the regulatory duty of the Bank, under its original institution, to enter into general views of Policy, by which this great Empire is to be governed, in all its Commercial and Pecuniary transactions, which exclusively belong to the Administration, to Parliament, and to the Community at large; nor is it the province of the Bank to expound the Principles, by which these views ought to be regulated. Its peculiar and appropriate duty is the management of the concerns of the Banking Establishment, as connected with the payment of the Interest of the National Debt, the lodgements consigned to its care, and the ordinary Advances it has been accustomed to make to Government. But when the Directors are now to be called upon, in the new situation in which they are placed by the Restriction Act, to procure a Fund for supporting the whole National Currency, either in Bullion or in Coin, and when it is proposed that they should effect this measure within a given period, by regulating the market price of Gold by a limitation of the amount of the Issue of Bank Notes, with whatever distress such limitation may be attended to individuals, or the community at large; they feel it their bounded and imperious duty to state their sentiments thus explicitly, in the first instance to His Majesty’s Ministers, on this subject, that a tacit consent and concurrence at this juncture may not, at some future period, be construed into a previous implied sanction on their part, of a System, which they cannot but consider fraught with very great uncertainty and risk. It is impossible for them to decide beforehand what shall be the course of events for the next two, much less for the next four years; they have no right to hazard a flattering conjecture, for which they have not real grounds, in which they may be disappointed, and for which they may be considered responsible. They cannot venture to advise an unrelenting continuance of pecuniary pressures upon the Commercial world, of which it is impossible for them either to foresee or estimate the consequences. The Directors have already submitted to the House of Lords, the expediency of the Bank paying its Notes in Bullion at the market price of the day, 152

The Rise of the Gold Standard, 1660–1819 with a view of seeing how far favourable Commercial balances may operate in restoring the former order of things, of which they might take advantage: And with a similar view they have proposed, that Government should repay the Bank a considerable part of the sums that been advanced upon Exchequer Bills. These two measures would allow time for a correct judgement to be formed upon the state of the Bullion market, and upon the real result of those changes, which the late war may have produced, in all its consequences, of increased Public debt, increased Taxes, increased Prices, and altered relations, as to Interest, Capital, and Commercial dealings with the Continent; and how far these alterations thus produced are temporary or permanent; and to what extent, and in what degree, they operate. It was the design of the Directors, in pursuance of the before-mentioned two Measures, to take advantage of every circumstance which could enable the Bank to extend its purchases of Bullion, as far as the legitimate consideration of the ordinary wants of the Nation, for a sufficient Currency, could possibly warrant. Beyond this point, they do not consider themselves justified in going, upon any opinion, conjecture, or speculation, merely their own; and when a system is recommended, which seems to take away from the Bank any thing like a discretionary consideration of the necessities and distresses of the Commercial world; if the Directors withhold their previous consent, it is not from a want of deference to His Majesty’s Government, or to the opinions of of the Committees of the two Houses of Parliament, but solely from a serious feeling, that they have no right whatever to invest themselves, of their own accord, with the responsibility of countenancing a Measure, in which the whole Community is so deeplu involved; and possibly to compromise the universal Interests of the Empire, in all the relations of Agriculture, Manufacture, Commerce, and Revenue, by a seeming acquiescence, or declared approbation, on the part of the Directors of the Bank of England. The consideration of these great Questions, and of the degree in which all these leading and commanding Interests may be affected by the measure proposed, rests with the Legislature; and it is for them, after solemn deliberation, and not for the Bank, to determine and decide upon the course to be adopted. Whatever reflections may have from time to time benn cast upon the Bank, whatever invidious representations of its conduct may have been made, the cautious conduct it adopted, in so measuring the amount of the Currency, as to make it adequate to the wants of both the Nation and the Government, at the same time keeping it within reasonable bounds, when compared with what existed before the war, as is shown in the Lords’ Reports, pages 10, 11, 12 and 13, the recent effort to return to a system of Cash Payments, which commenced with the fairest prospects (but which was afterwards frustrated by 153

The Monetary History of Gold events that could not be foreseen nor controlled by the Bank;) are of themselves a sufficient refutation of all the obloquy, which has been so undeservedly heaped upon the Establishment. The Directors of the Bank of England, in submitting these Considerations to His Majesty’s Ministers, request that they may be allowed to assure them, that it is always their anxious desire, as far as depends upon them, to aid, by every consistent means, the measures of the Legislature, for furthering the Prosperity of the Empire. ROBERT BEST, Sec.

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Section II.

The Heyday of the Gold Standard, 1820–1930

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Section II. The Heyday of the Gold Standard, 1820–1930

Between 1820 and 1914, the gold standard went from being only Britain’s preferred monetary arrangement to being the keystone of the world’s monetary system. In 1930, despite the intervention of what was then the most destructive war in human history, all the major currencies in the world were once again linked to each other – seemingly in perpetuity – through their fixed values in gold. The exchange rate and price stability that existed among gold standard countries allowed for an unparalleled number of financial transactions and trading opportunities. The increased flows of capital and goods marked this era as the first age of globalisation, rivalling and predating the existing one today. This century of international financial integration was the high point of the gold standard. A rigid set of domestic institutions and loose international norms provided a framework for the smooth operation of the traditional gold standard. A free market economy coupled with strong legal protections for property rights allowed the gold standard to seamlessly transmit the ebbs and flows of international trading and financial relationships into the domestic economy. Political parties committed to limited government, laissez faire economic policies and balanced budgets ensured that the state’s fiscal position did not undermine its monetary commitments. Internationally, the balance of power between the major nation-states of Europe provided an environment conducive to an unprecedented period of peace and prosperity that covered the century between Waterloo and the beginning of the First World War. The international gold standard worked through what David Hume had earlier identified as the price-specie-flow mechanism.1 Under this system, movements in gold stocks between countries would finance trade. Countries that ran a trade deficit would experience an outflow of gold in order to finance these imbalances. The reduction in gold stocks would necessitate a reduction 1. See Hume’s essay on the ‘Balance of Trade’, reprinted in William Rees-Mogg (ed.), The Case for Gold, Vol. 1 (London: Pickering & Chatto, 2002), pp. 131–43.

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The Monetary History of Gold in the notes in circulation and lead to reductions in the domestic price level, a contraction of consumption as incomes dropped, and increased competitiveness of domestic products as their price dropped relative to foreign competitors. These shifts in the domestic price level would move the deficit country’s economy back into equilibrium. Surplus nations would experience a net inflow of gold and would experience rising prices, making their goods more expensive abroad and foreign goods cheaper domestically. The surplus country’s economy would move towards an external equilibrium as well. In such circumstances, governments that wanted to participate in the gold standard could not run long-term deficits. Without access to inflows of gold, a country that ran chronic budget deficits would soon deplete its gold reserves and be faced with the choice of abandoning its commitment to exchanging its currency for gold or would need to restore a balance to its accounts. What is most striking about the traditional gold standard is that it was not a centralised international monetary system. Rather it was the interaction of a series of domestic commitments to gold convertibility. Its expansion across the globe over the course of the nineteenth century depended upon two important factors. The first was the outcome of disparate domestic debates over appropriate monetary institutions. The second was the growth of British trade and the incentives it created for Britain’s trading partners to emulate British financial institutions. Because it was not a centrally-managed institution, the establishment of the traditional gold standard was due to the resolution of a variety of domestic debates over appropriate monetary institutions and relationships. There is persuasive evidence that in the nineteenth century developing countries used the gold standard as a commitment mechanism to provide evidence of their financial probity to international investors.1 The gold standard was not always a country’s preferred option, with many preferring silver to gold as a medium of exchange. Others preferred a bimetallic standard with both gold and silver circulating in a designated ratio to oneanother. This method proved difficult to manage as supplies of gold and silver fluctuated enough that the designated ratio could never remain stable. This instability led to the persistence of domestic debates over bimetallism in many countries, as those adversely affected by the deflationary aspects of gold standard membership (primarily farmers) resisted participation in the gold standard system. The United States provided a prime example of these tensions, where official bimetallism prevailed during much of the nineteenth century. However, 1. Michael Bordo and Hugh Rockoff, ‘The Gold Standard as a “Good Housekeeping Seal of Approval”’, Journal of Economic History, 56:2 (1992), pp. 389–428.

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The Heyday of the Gold Standard, 1820–1930 the official silver to gold rate of 15 to 1 overvalued silver compared with its relative value to gold at market rates. As a result, gold steadily disappeared from circulation and silver was used for most individual transactions until 1834 when the new Coinage Act created a new ratio between gold and silver of approximately 16 to 1 that relatively overvalued gold. The laws of supply and demand swung in the opposite direction and silver was rapidly withdrawn from circulation as gold replaced it as the preferred metal for currency. The financial burden that fighting the Civil War placed on the Federal government led the United States government to issue a paper currency, the so-called ‘greenbacks’, that was not backed by gold. When the United States began to redeem these greenbacks with specie in 1873, it reinstated only gold as a means of repayment and refrained from reviving the old gold to silver ratio. Six years later, the United States returned to the gold standard. With the end of bimetallism in the United States, silver was unable to take advantage of the shift above 16 to 1 that occurred in the late 1870s to replace gold as the dominant metallic currency.1 The United States, along with other gold standard countries, experienced substantial deflation between 1873 and 1896. The deflation had a harsh impact on the agrarian sector where farmers often owed money that had to be repaid in scarce gold. Had it remained legal tender, silver would have been moderately inflationary over this period. Consequently, a widespread and divisive debate erupted in the United States over the wisdom of demonetising silver in favour of gold. The debate over the gold standard reached its climax in the United States in 1896 when William Jennings Bryan’s pledge to prevent the crucifixion of farmers on the ‘Cross of Gold’ was at the heart of his unsuccessful bid for the Presidency.2 The rise of the gold standard was firmly entrenched when both the French and German governments demonetised silver in the 1870s. Prior to this decade, France had operated under bimetallism and Germany under the silver standard. Germany’s victory over France in the Franco-Prussian war provided the political environment for German unification. The immense reparations payments that Germany imposed upon France after the war provided Bismarck’s government with the financial means to create a new German monetary union based upon the gold standard. France subsequently intro1. Milton Friedman, ‘The Crime of 1873’, Journal of Political Economy, 98:6 (1990), pp. 1159–94. 2. Hugh Rockoff, ‘The Wizard of Oz as Monetary Allegory’, Journal of Political Economy, 98:4 (1990), pp. 739–60. See also ‘“Cross of Gold” Speech delivered by William Jennings Bryan to the Democratic National Convention at Chicago, Illinois’ in 1896, in the document below.

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The Monetary History of Gold duced restrictions on the exchange of silver, a policy designed to thwart German efforts to divest itself of its large silver stock. This strategy effectively demonetised silver in France, as silver was no longer freely convertible. By the end of the 1870s, both Germany and France were on the gold standard and silver was in practice demonetised. The decisive shift of the leading silver and bimetallic countries to the gold standard compelled the countries of Scandinavia, as well as Central and Southern Europe to fall into line with the monetary policies of their leading trading partners.1 Many countries, particularly agrarian countries which exported primary products to Europe, suffered financial crises due to their participation in the gold standard system. Nevertheless, the gold standard facilitated the growth of a world-wide financial system centred on the City of London, supplying capital and foreign investment for a full range of economic activities across the globe. Everything from the construction of the Suez Canal to tea plantations in India, steamship lines in Hong Kong and railways across the Great Plains of the United States was financed through banks and investment houses in London. The massive outflow of investment capital financed the building of transportation infrastructure and other economic development projects over large swathes of previously under-capitalised regions. High levels of trade accompanied the growth in foreign investment as goods and services flowed in unprecedented levels which increased each year. The assassination of Archduke Francis Ferdinand and the opening of the First World War brought an end to this ‘golden age’ and led to the first widescale suspension of the gold standard since the Napoleonic era. The high levels of government expenditure and borrowing that war entailed were antithetical to the internationally-understood rules of the gold standard. While policymakers and financial market participants understood that this suspension was a temporary necessity in times of war, the extent of the disruption was unanticipated. After the First World War, policymakers in the United States, Britain and France attempted to resurrect the gold standard. The United States – least affected by the ravages of war – returned the dollar to convertibility at its pre-war rate in 1919. However, it wasn’t until the mid1920s that Britain (1925) and France (1926) returned their currencies to gold. The British pegged their currency at its pre-war level of £3 17s. 10½d. per ounce (£1.00=$4.86), while the French took advantage of the extraordinary circumstances to devalue the franc, providing French producers with an advantage on foreign markets compared with their British and American com1. Marc Flandreau, ‘The French Crime of 1873: An Essay on the Emergence of the International Gold Standard, 1870–1880’, Journal of Economic History, 56:4 (1996), pp. 862– 97.

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The Heyday of the Gold Standard, 1820–1930 petitors. Other countries also returned to gold during this period and by the late 1920s it appeared that the gold standard was back in operation. Over the course of the nineteenth century, the gold standard spread from the British Empire to much of the rest of the industrialising world. By 1900, the United States, France and Germany along with all their colonial possessions were active participants in the gold standard system. Many of the countries of Latin America and the Far East also took part, although some had difficulty maintaining their membership in the face of declining commodity prices and government deficits. Despite the shock of the First World War, the leading financial powers sought to recreate the gold standard during the interwar years. They introduced modest changes to the system, but in its essence the gold bullion standard that existed in 1930 owed its existence to the perceived successes of the pre-war gold standard.

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29 August 1833 Bank of England Act, 1833: ‘An Act, for giving to the Corporation of the Governor and Company of the Bank of England certain Privileges, for a limited Period, under certain Conditions’

Under the gold standard, the Bank of England, in exchange for the privileged position it was granted within the British banking system, was obliged to redeem its notes in ‘legal coin’ – i.e. gold and silver. The Bank remained under this obligation until the passage of the Gold Standard Act of 1925. Source: The Statutes of the United Kingdom of Great Britain and Ireland, 3 & 4, William IV., 1833 (London: His Majesty’s Publishers, 1833), vol. 50, pp. 944–9, esp. p. 946. Cited as 3 & 4 Will. 4, Cap. 98, s. 6. See also Ian Shrigley (ed.), The Price of Gold (London: King, 1935), p. 40.

Section 6. And be it further enacted, That from and after the First Day of August One thousand eight hundred and thirty-four, unless and until Parliament shall otherwise direct, a Tender of a Note or Notes of the Governor and Company of the Bank of England, expressed to be payable to Bearer on Demand, shall be a legal Tender, to the Amount expressed in such Note or Notes, and shall be taken to be valid as a Tender to such Amount for all Sums above Five Pounds on all Occasions on which any Tender of Money may be legally made, so long as the Bank of England shall continue to pay on Demand their said Notes in legal Coin. […]

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27 June 1834 Coinage Act, 1834, United States: ‘An Act concerning the Gold Coins of the United States, and for other Purposes’

In order to bring the gold price into line with the silver price, the United States government provided for a slightly revised ratio of gold to the dollar. As silver remained unchanged, this had the effect of slightly altering the gold to silver from the ratio established in the Coinage Act of 1792. After 1834, the new ratio was approximately 16 to 1. One ounce of gold was the equivalent of $20.67. Source: The Public Statutes at Large of the United States of America (Boston: Charles C. Little and James Brown, 1846), vol. 4, pp. 699–700.

Be it enacted by the Senate and House of Representatives of the United States of America, in Congress assembled, That the gold coins of the United States shall contain the following quantities of metal, that is to say: each eagle shall contain two hundred and thirty-two grains of pure gold, and two hundred and fifty-eight grains of standard gold; each half eagle one hundred and sixteen grains of pure gold, and one hundred and twenty-nine grains of standard gold; each quarter eagle shall contain fifty-eight grains of pure gold, and sixty-four and a half grains of standard gold; every such eagle shall be of the value of ten dollars; every such half eagle shall be of the value of five dollars; and every such quarter eagle shall be of the value of two dollars and fifty cents; and the said gold coins shall be receivable in all payments, when of full weight, according to their respective values; and when of less than full weight, at less values, proportioned to their respective actual weights. SECTION 2. And be it further enacted, That all standard gold or silver deposited for coinage after the thirty-first of July next, shall be paid for in coin under the direction of the Secretary of the Treasury, within five days from the making of such deposit, deducting from the amount of said deposit of gold and silver one-half of one per centum: Provided, That no deduction shall be made unless said advance be required by such depositor within forty days.

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The Heyday of the Gold Standard, 1820–1930 SECTION 3. And be it further enacted, That all gold coins of the United States, minted anterior to the thirty-first day of July next, shall be receivable in all payments at the rate of ninety-four and eight-tenths of a cent per pennyweight. SECTION 4. And be it further enacted, That the better to secure a conformity of the said gold coins to their respective standards as aforesaid, from every separate mass of standard gold which shall be made into coins at the said Mint, there shall be taken, set apart by the treasurer and reserved in his custody, a certain number of pieces, not less than three, and that once in every year the pieces so set apart and reserved shall be assayed under the inspection of the officers, and at the time, and in the manner now provided by law, and, if it shall be found that the gold so assayed, shall not be inferior to the said standard hereinbefore declared, more than one part in three hundred and eightyfour in fineness, and one part in five hundred in weight, the officer or officers of the said Mint whom it may concern, shall be held excusable; but if any greater inferiority shall appear, it shall be certified to the President of the United States, and if he shall so decide, the said officer or officers shall be thereafter disqualified to hold their respective offices: Provided, That if, in making any delivery of coin at the Mint in payment of a deposit, the weight thereof shall be found defective, the officer concerned shall be responsible to the owner for the full weight, if claimed at the time of delivery.

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28 June 1834 Foreign Coins Act, 1834, United States: ‘An Act regulating the Value of certain foreign Gold Coins within the United States’

Foreign coins often circulated in the United States (and other countries) and national laws made allowance for their use as money, provided the foreign coins maintained a designated gold content. This law, passed the day after the Coinage Act of 1834, provided for the recognition and use of gold coins from Great Britain, Portugal and Brazil. Source: The Public Statutes at Large of the United States of America, vol. 4, p. 700.

Be it enacted by the Senate and House of Representatives of the United States of America, in Congress assembled, That, from and after the thirty-first day of July next, the following gold coins shall pass as current as money within the United States, and be receivable in all payments, by weight, for the payment of all debts and demands, at the rates following, that is to say: the gold coins of Great Britain, Portugal, and Brazil, of not less than twenty-two carats fine, at the rate of ninety-four cents and eight-tenths of a cent per pennyweight; the gold coins of France nine-tenths fine, at the rate of ninety-three cents and one-tenth of a cent per pennyweight; and the gold coins of Spain, Mexico, and Colombia, of the fineness of twenty carats three grains and seven-sixteenths of a grain, at the rate of eighty-nine cents and nine-tenths of a cent per pennyweight. […]

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19 July 1844 Bank Charter Act, 1844: ‘An Act to regulate the Issue of Bank Notes, and for giving to the Governor and Company of the Bank of England certain Privileges for a limited Period’

This Act lays out the statutory guidelines under which the Bank of England exchanged its notes for gold at the set rate of £3 17s. 9d. per ounce. Source: The Statutes of the United Kingdom of Great Britain and Ireland, 7 & 8, Victoria, 1844, vol. 61, pp. 187–200, esp. p. 189. Cited as 7 & 8 Vict., Cap. 34, s. 4. See also Shrigley (ed.), The Price of Gold, pp. 41–60.

IV. And be it enacted, That from and after the Thirty-first Day of August One thousand eight hundred and forty-four all Persons shall be entitled to demand from the Issue Department of the Bank of England Bank of England Notes in exchange for Gold Bullion, at the Rate of Three Pounds Seventeen Shillings and Ninepence per Ounce of Standard Gold: Provided always, that the said Governor and Company shall in all Cases be entitled to require such Gold Bullion to be melted and assayed by Persons approved by the said Governor and Company, at the Expense of the Parties tendering such Gold Bullion.

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13 July 1849 ‘An Act to extend an Act of the Fifty-sixth year of King George the Third, for providing a new Silver Coinage, and for regulating the Currency of the Gold and Silver Coin of this Realm’

Source: The Statutes of the United Kingdom of Great Britain and Ireland, 12 & 13, Victoria, 1849 (London: Her Majesty’s Publishers, 1849), vol. 66, pp. 122–3.

By this Act, After reciting the passing of 56 Geo. 3. c. 68: And that it is expedient that the provisions of the said Act, so far as regards the silver coin of the realm, should be extended: – It is Enacted, I. That from and after the passing of this Act it shall and may be lawful for Her Majesty’s master and worker of the Mint at Her Majesty’s Mint in London to coin or cause to be coined any silver bullion which at any time before or after the passing of this Act shall have been or shall be brought to or delivered or deposited at the said Mint into silver coins of a standard and fineness of 11 ounces 2 pennyweights of fine silver and 18 pennyweights of alloy in the pound troy, and in weight at the rate of 66s. to every pound troy, whether the same be coined in crowns, or in any pieces of a lower denomination; anything in any Act or Acts in force in Great Britain or Ireland respectively immediately before the passing of this Act or anything in any indenture with Her Majesty’s master or worker of the said Mint for the time being, or any law, usage, or custom whatsoever, to the contrary thereof in anywise notwithstanding: Provided always, that all and every silver coin, it being of a denomination which is authorized to be coined by the said recited Act, but being of a denomination which is authorized to be coined by this Act, which shall be issued after the passing of this Act, shall be deemed and taken been coined after the passing and under the authority of this Act, and shall be subject to all and every the rules, regulations, and provisions relating to the coin to be coined in pursuance of the provisions of this Act.

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The Heyday of the Gold Standard, 1820–1930 II. That all and every Act and Acts in force immediately before the passing of this Act respecting the coin of this realm or the clipping, diminishing, or counterfeiting of the same, or respecting any other matters relating thereto, and all provisions, proceedings, penalties, forfeitures, and punishments therein contained or directed, and not repugnant or contradictory to the provisions of this Act, shall be and continue in full force and effect, and shall be applied and put in execution with respect to the silver coin to be coined or issued in pursuance of the provisions of this Act, as fully and effectually to all intent and purposes whatsoever as if the same were repeated and re-enacted in this Act.

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6 February 1866 The Trial of the Pyx: ‘Statement of Proceedings at the Mint as to the Deposit of the Gold and Silver Coins in the Mint Pyx Boxes; and at Goldsmiths’ Hall, in the Assay of the Gold and Silver Pieces, constituting the Public Trial of the Pyx; by Henry W. Field, Queen’s Assay Master at Her Majesty’s Mint’

This Report concerns the process by which the standard of fineness of the gold and silver coinage of the realm is traditionally ascertained. Source: First Report of the Royal Commission Appointed to Inquire into the Recent Changes in the Relative Values of the Precious Metals (London: Her Majesty’s Stationery Office, 1887), Appendix X, pp. 44–5.

Preliminary Remarks. coin before issued to the public from the Mint undergoes severe test as to accuracy of weight and fineness by a private pyx in the Master’s Department within the Mint. It is usual as soon as 100 journeys (each 15 lbs. troy) of gold have been coined, to pyx them, which is effected as follows: One of the officers of the coining department brings the 100 bags of coin to the Mint Office Pyx Room, where the Deputy Master, the Queen’s Assay Master, a senior clerk, and two juniors are assembled: the senior clerk counts by inspection (having the aid of a simple machine for that purpose) the number of pieces in a pound troy from each bag. The Queen’s Assay Master carefully weighs each lb., and his report is registered by the clerks. The deputy master takes from each of these pounds two pieces which he weighs accurately, and notes any discrepancy from its proper or standard weight, These two pieces are set aside, one for assay before the money leaves the Mint, the other for the public trial. Thus 100 of the selected pieces are given to be

ALL

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The Heyday of the Gold Standard, 1820–1930 assayed, the other 100 are folded in paper, sealed with the private seals of the master, deputy master, and Queen’s Assay Master, and docketed as to contents and date; these packets are then deposited in the iron pyx chest having three locks, the keys being in the custody of the three officers who sealed the packets ; there they remain until the day of ‘trial’ at the Exchequer or public trial. The packets of coin above alluded to are opened by the jury of goldsmiths, the contents counted and examined with the particulars docketed on the outside; from each of these packets one piece is taken by the jury, and after the whole pyx has been examined these pieces are collected by the foreman into one bowl, the standard weight computed, and then they are carefully weighed to ascertain the nearness to the computed weight, in other words, whether within the legal ‘remedy’. This bowl of coins is then melted and poured into a mould forming an ingot, from which a certain number of pieces are cut, flattened by a hammer on an anvil till reduced to the thickness of a sixpence; they are then passed through rollers to further reduce their thickness, and from these pieces a certain portion is cut and adjusted to the weight of the assayer’s pound, a conventional weight, varying from 10 to 1,3 grains troy. Thus far this description is applicable to both gold and silver. A digression must here be made to introduce the test by which the purity is to be ascertained: this is effected by ‘trial plates’, mixtures of pure metal with the legal quantity of alloy. Such plates have been made from time to time, even previously to the reign of Edward the 4th. Of late years, these ‘fiducial pieces’ of gold and silver have been commixed by the Goldsmiths’ Company, but under the strict check of the Queen’s Assay Master and the other Mint assayers, and are now placed in the custody of the chief officer of the Exchequer. To resume the subject of the examination of the gold. Several portions of the ingot, melted from the coin, as well as of the ‘trial plates’ by which they are to be tested, are weighed accurately to the assayer’s pound, and separately placed in cases of sheet lead, the weight of which is regulated to the presumed quantity of alloy in the metal: to each of these portions is added a certain amount of pure silver, free from gold, which amount also depends on the supposed quality of the gold ; these, the silver and gold, being carefully wrapped in the sheet lead, and charged into cupels, which have been brought to sufficient heat in an assay furnace, are melted together, the lead and alloy is oxidized and absorbed by the cupel, which has the peculiar property of absorbing oxides of metal, being made of phosphate of lime or bone ash, and the silver and gold remain as a button on the surface of the cupel. When sufficiently cool. the cupels are removed from the muffle, the buttons flattened by hammering, and rolled to the thickness of an ordinary card; this operation 171

The Monetary History of Gold having rendered the slips or fillets hard, they are annealed by being made red hot, and each is rolled up loosely into what is called a ‘cornet’. The cornets are charged into flasks, with about 1 ½ oz. of nitric acid, and by means of a convenient arrangement of gas-burners they are boiled for a certain number of minutes; the acid is then poured off, and a dose of stronger is substituted, in which they are again boiled; this acid is also removed, and the cornets receive two washings with distilled water. The acid having deprived the gold of all the silver, the cornets are again subjected to the heat of the furnace and annealed to brightness. After this annealing they are accurately weighed, and the plus or minus above or below the standard trial plate is ascertained. The silver is prepared in the same way to the assayer’s pound, subject to cupellation, and the resulting button weighed, and thus the plus or minus from the standard silver trial plate is also shown. Her Majesty’s Mint, 6 February 1866.

(signed) Henry W. Field, Queen’s Assay Master.

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6 August 1866 Standards of Weights, Measures, and Coinage Act, 1866: ‘An Act to amend the Acts relating to the Standard Weights and Measures and to the Standard Trial Pieces of the Coin of the Realm’

The following excerpt reproduces only section thirteen, out of sixteen sections in all, which concerns the standard trial pieces for assessing the fineness of the gold and silver coins issued by the Royal Mint and is the only section that specifically mentions gold. Source: The Statutes of the United Kingdom of Great Britain and Ireland, 29 & 30, Victoria, 1866 (London: Her Majesty’s Publishers, 1866), vol. 84, pp. 221–3.

Be it enacted by the Queen’s most Excellent Majesty, by and with the Advice and Consent of the Lords Spiritual and Temporal, and Commons, in the present Parliament assembled, and by the authority of the same, as follows: 13. The Custody of the Standard Trial Pieces of Gold and Silver used for determining the Justness of the Gold and Silver Coins of the Realm issued from the Royal Mint, and all Books, Documents, and Things used in connexion therewith or relating thereto, deposited in the Office of the Exchequer, shall be and the same is hereby transferred to the Commissioners of Her Majesty’s Treasury, who shall have the Charge thereof, and shall have and perform all such Powers and Duties relative thereto as are at passing of this Act by Law vested in or imposed on the Comptroller General of the Exchequer, and the same shall be deposited and kept in such Place or Places and in such Manner as the Commissioner of Her Majesty’s Treasury from Time to Time by Warrant direct.

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18 February 1868 Royal Commission on International Coinage: ‘Report from the Royal Commission on International Coinage; together with the Minutes of Evidence and Appendix’

The Report is supplemented by thirty-five appendices, covering nearly two hundred pages of text. The appendices contain information about the Paris Conference of 23 December 1865 and much information about gold and gold coinage as the major countries of the world prepared to adopt the gold standard. Listed below are several headings from the contents of the Appendix. Source: House of Commons, House of Commons Parliamentary Papers, 1867–1868 (London: House of Commons, 1868), vol. 27, Cmnd. 4073, pp. 17–18 (IX–X).

We turn now to the more limited subject referred to us, viz., whether it would be desirable to make any and what changes in the coinage of the United Kingdom, in order to establish, either wholly or partially, an uniformity of coin among different nations. There are some questions which seem to be applicable to any system of common coinage, such as that of a single or double standard, what metal is best fitted for the purpose of a standard, the proper proportion of alloy, and others, to the consideration of which we now proceed. The recommendations of the Paris Conference which are so applicable are – I. A single gold standard. II. The proportion of 9/10ths of fine gold in the coins. We entertain no doubt of the necessity for the adoption of a single standard. In the early ages of European States silver was the general coin and standard, but as gold came into more general use, gold coins were more extensively introduced, and the value for which they were to pass current being fixed by the government of each country, from time to time, probably without any anticipation of the effect that would follow from so doing, a double standard of value was generally introduced. It is still retained, according to law, in Belgium, France, Greece, Italy, Russia, Spain, Switzerland, and the United States. 174

The Heyday of the Gold Standard, 1820–1930 In England the double standard ceased practically in 1717, and by law in 1816; and in England, as well as in Portugal, Turkey, and Brazil, a single standard of gold prevails. In Holland, Germany, and the Northern States of Europe there is a single standard of silver. It is indisputable that the first requisite in any standard, by which value, weight, or size is measured is, that it should be as invariable as the nature of the subject will allow, and we are decidedly of opinion that the double standard of value is liable to more frequent variation than a single standard. As with a double standard, of two metals, only coins made of one of them can be retained in circulation, the countries in which it exists are liable, not only to a change in the standard of value, but also to a change in the coins which practically form the great mass of the circulation. Coins of small value cannot be conveniently made of gold, nor large coins of silver. If silver coins form the great mass of the circulation there is generally a deficiency of the means of conveniently paving large sums in coin; and if gold is retained, there is a deficiency of the means of obtaining convenient coin for small payments. Instances of the uncertainty and inconvenience arising from a double or alternative standard may be found in the history of the currency of several countries. In England, under the system of the double standard, (as stated in Lord Liverpool’s treatise on coins,) a considerable rise in the value of gold, as compared with silver, in the reign of James I, led to the general exportation of the gold coin. To obviate the inconvenience which ensued, several royal proclamations were issued raising the value of the gold coin. The gold coin, however, was overvalued in the proclamation of the 9th year of his reign, and this led to the exportation of the silver coin, to the still greater inconvenience of the various dealers. Partly from these causes, and partly from the debased of the silver coin, the greatest uncertainty as to the value of the gold coins prevailed for many years. The guinea, which had been originally struck as a 20s. piece, passed successively for 30s., 26s., 22s., and 21s. 6d. At last an end was put to these mischievous fluctuations by a re-coinage of the silver, and by fixing the value of the guinea at 21s. The proclamation by which this was done was issued in the year 1717, and the effect of it has been practically to establish gold from that time forwards as the single standard of value in England. By the Mint indentures, the pound troy of standard gold was coined into 44 ½ guineas, so long as guineas were coined. Since 1816, when sovereigns were substituted for guineas as the principal gold coin of the country, the Mint indentures provide that 20 lbs. troy of standard gold shall be coined into 934 175

The Monetary History of Gold ½ sovereigns, thus preserving the former proportion between the weight and the value of the coin. An ounce troy is therefore coined into 3 429/480 sovereigns, which amount, expressed in terms of the currency, is 3/. 17s. 10 ½d., and this in common language is called the price of an ounce of gold. In France, by the law of 1803, five grammes of silver 9/10ths fine were constituted the monetary unit, retaining the name of a franc ; but the provisions of the law as to gold, and also as to copper coins, gave them a legal currency and value, independent of their relation to silver. The result of this legislation was that a double standard was created by law in France. Silver, however, remained for many years the practical standard, but when by the increased production of gold in recent years and the increased demand for silver for the East the value of gold was depreciated in relation to silver, gold became practically the standard of value. The silver coins, of which nearly the whole circulation consisted, were melted down and exported, and the country was put to the expense of a large coinage of gold. If, by any future increased production of silver, the value of silver should be depreciated, a new change would take place, in the opposite direction, and similar inconveniences would again be incurred. We are of opinion, therefore, that a single standard should be adopted, and further that this single standard should be gold. Gold has been practically the standard in England for a century and a half. It is so in Portugal, Turkey, and Brazil. It is now practically so in France, Belgium, Italy, Switzerland, and in the United States of America, and in fact wherever by law a double standard exists. In the gold coins of England, Russia, and Portugal the proportion of alloy is 1/12th. In those of the four countries parties to the Convention of 1865, and in the United States, it is 1/10th. The evidence of the officers of Your Majesty’s Mint shows that there is no advantage in the proportion of 11/12ths fine gold over that of 9/10ths in gold coins. […]

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The Heyday of the Gold Standard, 1820–1930 APPENDIX CONTENTS

I. Correspondence preliminary to the PARIS CONFERENCE (a copy of the Convention of the 23rd December 1865 is in this Appendix). II. Note from Baron Baude reporting conclusions of the PARIS CONFERENCE and requesting the cooperation of Great Britain. III. Minutes of PARIS CONFERENCE. IV. Report of English Delegates to PARIS CONFERENCE. Report of French Commision on the Standard (enclosure to No. 4). V. Report to the Department of State by Samuel B. Ruggles, delegate from the United States to the PARIS CONFERENCE. VI. Translation of Report of Committee of EXHIBITION OF 1867 respecting uniformity of coinage. VII. Annual Report of the Director of the MINT OF THE UNITED STATES for the year ending June 30, 1867. VIII. Negotiations for a monetary convention between FRANCE and AUSTRIA. IX. Employment of the remedy in gold coinage in FRANCE. X. A Table of the PRINCIPAL GOLD COINS. XI. Memorandum on the BRITISH coinage, by the Master of the Mint. XII. Returns relative to the GOLD COINAGES and MINT REGULATIONS in FOREIGN COUNTRIES: BADEN OTTOMAN EMPIRE BAVARIA PRUSSIA BELGIUM RUSSIA DENMARK SPAIN FRANCE SWEDEN GREECE SWITZERLAND GUATEMALA TURKEY (see Ottoman Empire) HAMBURG UNITED STATES ITALY URUGUAY MOROCCO WURTEMBURG NETHERLANDS XIII. Correspondence relative to the currency of SWEDEN. XIV. GERMANY. – ‘Projet d’unité monétaire franco-allemande’ extracted from a Prussian newspaper. XV. GERMANY. – Resolution of Federal Parliament in favour of a Decimal System, etc. XVI. GERMANY. – Resolutions relative to Universal Coinage adopted by a Committee of the Federal Parliament.

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The Monetary History of Gold XVII. Despatch with enclosures relative to the adoption in ROUMANIA of the principles of the Monetary Convention of December, 1865, etc. XVIII. Edict for the adoption in the ROMAN STATES of a new monetary system in accordance with the principles of the Monetary Convention of December, 1865, etc. XIX. ITALY. – Information relative to the introduction of Decimal System. XX. Currency Bill introduced into the CANADIAN Parliament, 1868. XXI. UNITED STATES currency bills, 1868. XXII. Opinions of POLITICAL ECONOMISTS on the subject of SEIGNIORAGE. XXIII. Correspondence in 1852 relating to the EPENSE OF GOLD COINAGE and the nature of the BANK CHARGE ON GOLD purchased under the Act of 1844. XXIV. Memorandum by M. LE BARON DE HOCK on uniformity of coinage. XXV. LOI DU 7 GERMINAL, an XI, sur la fabrication et la vérification des monnaies. XXVI. Statement showing the PRICE OF SILVER in London, and the relative value of French five-franc pieces, in the years 1856–1865. XXVII. Value of imports and exports of gold coin into and from the UNITED KINGDOM. XXVIII. Value of gold specie imported and exported into and from NEW SOUTH WALES and VICTORIA. XXIX. Value of gold specie imported and exported from FRANCE. XXX. Value of gold specie imported and exported from the UNITED STATES. XXXI. Value of gold specie imported and exported from RUSSIA. XXXII. Prices of sovereigns in CALCUTTA and BOMBAY. XXXIII. Limits of variation in the course of exchange on PARIS, HAMBURG, and AMSTERDAM, for the years 1865, 1866, and 1867. XXXIV. Returns from Foreign Countries (in continuation of Appendix No. XII). COSTA RICA AUSTRIA PERU PERSIA U. S. of COLUMBIA ARGENTINE REPUBLIC XXXV. Suggestions of POINTS FOR DISCUSSION by the Royal Commission on International Coinage. Index.

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28 June 1869 ‘Report addressed to the Chancellor of the Exchequer by the Master of the Mint and Colonel Smith, late Master of the Calcutta Mint, on the Mintage necessary to cover the Expenses of Establishing and Maintaining the Gold Currency’

Source: House of Commons, House of Commons Parliamentary Papers, 1868–1869 (London: House of Commons, 1869), vol. 34, pp. 275–8.

1. What would it cost, first to manufacture a sovereign, and afterwards to keep it in good condition for all time? The coin is always losing weight by wear, while it passes from hand to hand, and ends by becoming light (after three quarters of a grain have been lost), and is no longer legally current. The individual piece has thus a limited existence, and it must be withdrawn and replaced by a new sovereign of full weight; that again by another in due time; and so on. Now, for what present payment could this succession be maintained? What is the contract price to cover the first construction, and all future restoration? To this interesting question the answer to be given is that 100 sovereigns could be put into circulation and kept always in proper condition for the sum of one pound eight shillings and a penny halfpenny (1l. 8s. 1½d.) paid when the coin was first issued. 2. It will be seen at once how important this datum becomes, if the project be entertained of making the gold coinage of the country self-supporting. It defines the amount of an endowment that would have to be provided, in some way or other, for the permanent maintenance of the coin. 3. The charge stated of 1l. 8s. 1½d. on 100 sovereigns is deduced from several considerations; the cost of producing a single sovereign at the Mint, the total number of gold coins that are believed to be in circulation within the United Kingdom, and the length of time that the sovereigns and half sovereigns last, before becoming light and legally uncurrent. 4. The cost at which a sovereign is produced varies considerably with the number turned out from the Mint within the course of the year. Taking the present annual average production of 5 million sovereigns, the cost of each 179

The Monetary History of Gold sovereign is found to be 0.72 of a penny, or nearly three farthings; while for a production of 25 millions in a year the cost is found to fall to 0.31 penny. For an annual amount approaching to 10 millions, the amount which we have particularly to consider, the cost may be safely taken at about 0.5 penny, or one halfpenny on each sovereign. This will come, on the amount of gold coinage (5 millions) at present required to be issued, to 10,416l. 13s. 4d. 5. This estimate, taken from the experience of the British Mint, of one halfpenny per pound, is almost identical with 2.1 per mille, which is the charge fixed for coining gold in the Mints of France. 6. The expense of an annual renewal of coins that have become light by wear, and have ceased to be legally current, has also to be taken into account. This will depend on the number that annually become light. The quantity of gold coin at present circulating in the United Kingdom is generally estimated at about 80 millions, an estimate which has lately received a valuable confirmation from the researches of Professor Jevons. The observations also recorded by Mr Jevons respecting the loss by wear on sovereigns of various ages, indicate considerable regularity in wear, and that sovereigns fall below the legal weight, on an average, after a circulation of 18 years, and half-sovereigns in 10 years. It is to be presumed, then, that a sovereign which appears by its date to be 18 years old, ought to be withdrawn as being light. If such a regulation was carried into effect, one-eighteenth part of the whole gold currency would be withdrawn annually. On a coinage amounting to 80 millions, the proportion in question would amount to 4,444,444 sovereigns. 7. It must, however, be observed here, that the coinage of 80 millions is made up of 68 millions of whole sovereigns, of which 1-18th part have to be renewed annually, and 24 millions of half-sovereigns, 1-10th part of which have also to be renewed. The annual coinage thus due to renewal would amount to 3,777,777 sovereigns and 2,400,000 half-sovereigns, which would cost, at a half-penny each, 12,870l. 7s. 5d. 8. The loss of metal by wear, which would require to be replaced on re-coining old pieces, is the heaviest item of expenditure. The preceding charges apply only to the mechanical work of coining. 9. Mr Jevon’s experiments and observations furnish the best data we possess for estimating the annual loss by wear on 100 sovereigns. It is 8.371 pence. This is a loss of 0.08371 penny on each sovereign. The number in circulation being again taken at 80 millions, this gives an annual loss on the whole gold currency, amounting to 27,903l. 6s. 8d. 10. The above is calculated upon the assumption that the whole 80 millions consists of sovereigns; but, if the additional wear upon the half-sovereigns is allowed for, the annual loss would be increased, according to Mr Jevons, to 35,000l. 180

The Heyday of the Gold Standard, 1820–1930 11. These three items are the principal, if not the only, grounds upon which a Mint charge can be properly based. They are – I. II.

III.

First coinage, say 4,000,000 bullion at ½d. or 0.21 per cent. Annual 3,777,777 at ½d. 7,870 7 4.88 renewal 2,400,000 ditto 5,000 ———–——— Loss by wear sovereigns 22,000 0 0 half ditto 13,000 0 0 ——— ———–——— 10,177,777

£. 8,400

s. 0

d. 0

12,870

7

4.88

35,000 0 0 ———————— 56,270 7 5

12. What does this amount to on our estimated annual coinage of about 10 millions, made up of 4 millions of first coinage, and 6 millions of renewal? It is 1.40676 (1l. 8s. 1½d.) per cent. 13. The amount of mintage charge which the calculations appear to justify is not far short of 1½ per cent. on the value of the gold coined, and it will be observed that the estimate here made is somewhat lower than the one subjoined which is founded on abstract mathematical calculation. It may be explained that the latter assumes that coins once sent into circulation never leave it, which may be more or less true with a protected currency; but there will never cease to be coins which drop out of circulation annually, owing to shipwrecks, fires, melting losses, etc., and which thereby tend to reduce the number to be renewed. 14. On the other hand, there is a circumstance which, if allowance is made for it, would increase the charge, namely, the number of sovereigns, estimated at about 30 millions, which circulate in foreign countries, and part of which, when they become light, are likely to return again to the United Kingdom, and occasion loss in their renewal. 15. Treating the question rigorously as an actuary’s problem in assurance, it becomes necessary to ascertain what sum of money set aside today will be sufficient, part to pay the immediate expense of first coinage at 0.21 per cent., and the remainder to pay for re-coinage at the end of every 18 years, besides the requisite sum to make good the intervening 18 years’ abrasion of the coin, reckoned at 4.3 grains of gold per 100 sovereigns per annum, and thus amounting to 0.62787l. per cent. at the end of that time. The immediate payment, then, is 0.21l., and the further payment at the end of every 18 years perpetually (0.62787 + 0.21 = ) 0.83787l. per cent.; and to 181

The Monetary History of Gold calculate the sum proper to be invested to meet the regular periodical payment of 0.83787l., it must be observed that, by the well-known formula 1 ------------------------------n ( 1 + rx ) – 1

(where n represents the years of interval, viz. 18 for sovereigns, and 10 years for half sovereigns, and r = .03, or 3 per cent. interest) the sum of money requisite at 3 per cent. to meet payments of 1l. every 18 years is 1.4236231l.; consequently the sum necessary to provide for the periodical payments of 0.83787l. must be (is 1.4236231 × 0.83787 = ) 1.92811l., which, added to the immediate expense of the first coinage (0.21l. per cent.), makes the total charge to the Government 1.402811l. per cent. for bullion coined into sovereigns only. In like manner, with respect to the half-sovereigns, the sum of money requisite at 3 per cent. to meet payments of 1l. every 10 years is 2.90765l., and the loss by wear of each half-sovereign allowed for by Mr Jevons is .512 grains in 10 years, or .8306698l. on the 100l. value; consequently, in order to ascertain the sum to be set aside to meet this loss, and also the re-coinage at the end of every tenth year, we must add the 8306698l. to 0.21l., making 1.0406698l., and multiply by 2.90765, thus making 3.02389354l., the sum to be set aside for every 100l. value; again, adding to this the expense of first coinage at 0.21l. per cent., the total expense to be incurred becomes 3.2358935l. per cent. for halfsovereigns only. From the above it appears that the endowment necessary to be provided for the first coinage and permanent maintenance of – Sovereigns is 1l. 8s. 1½d., or 1.402811l. per cent.; and Half-sovereigns 3l. 4s. 8d., or 3.2358935l. per cent. But the proportions of the sovereigns and half-sovereigns in our currency being as 68-80ths and 12-80ths, it follows that 68-80ths of 1.402811l. added to 12-80ths of 3.2358935l. will be the whole sum required to be set aside to meet the future expenses of our mixed currency. Now 68-80ths of 1.402811l. = 1.192390l. and 12-80ths of 3.235893l. = 0.485384l. ———— Total 1.1677774l. per cent., or 1l. 13s. 6d. for every 100l.

These results are based upon the mere bullion by itself, and are quite independent of all other considerations. Thomas Graham, Master of the Mint. J. T. Smith, late Master of the Calcutta Mint. 6 April 1869. 182

10 February 1870 Coinage Act, 1870: ‘A Bill, to consolidate and amend the Law relating to the Coinage and Her Majesty’s Mint’

Source: House of Commons, House of Commons Parliamentary Papers, 1870 (London: House of Commons, 1870), vol. 1, pp. 275–87. For the final act passed, see The Public General Statutes Passed in the Thirty-Third and Thirty-Fourth Years of the Reign of Her Majesty Queen Victoria, 1870 (London: Her Majesty’s Publishers, 1870), vol. 88, pp. 153–62.

WHEREAS it is expedient to consolidate and amend the law relating to the Coinage and Her Majesty’s Mint: Be it enacted by the Queen’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows: 1. This Act may be cited as ‘The Coinage Act, 1870’. 2. In this Act – The term ‘Treasury’ means the Lord High Treasurer for the time being, or the Commissioners of Her Majesty’s Treasury for the time being, or any two of them; The term ‘the Mint’ means, except as expressly provided, Her Majesty’s Royal Mint in England; and The term ‘British possession’ means any colony, plantation, island, territory, or settlement within Her Majesty’s dominions and not within the United Kingdom. 3. After the passing of this Act, all coins made at the Mint of the denominations mentioned in the first schedule to this Act shall be the weight and fineness specified in that schedule, and the standard pieces of coin shall be made accordingly. If any coin of the same metal, but of any other denomination, is hereafter coined at the Mint, such coin shall be of a weight and fineness bearing the same proportion to the weight and fineness specified in the first schedule as the denomination of such coin bears to the denominations mentioned in that schedule. 183

The Monetary History of Gold No coin of gold, silver, or bronze shall be issued from the Mint except in accordance with the provisions of this section: Provided that in the making of coins a remedy (or variation from the standard mentioned in the first schedule) shall be allowed of an amount not exceeding the amount specified in the said schedule. 4. A tender of payment of money shall be a legal tender if made in coins, either by tale or weight, which have been issued by the Mint in accordance with the provisions of this Act, and have not been called in by any proclamation made in pursuance of this Act, and have not become diminished in weight, by wear or otherwise, so as to be of less weight than the current weight, that is to say, than the weight (if any) specified as the least current weight in the first schedule to this Act, or such weight as may be declared by any such proclamation. Provided that such coins shall not be a legal tender, (1.) In the case of silver coins, if the amount of such payment exceeds forty shillings; (2.) In the case of pence, if the amount exceeds one shilling; (3.) In the case of halfpence or farthings, if the amount exceeds sixpence. All such gold coins shall be a legal tender for a payment of any amount, but nothing in this Act shall prevent any paper currency which under any Act or otherwise is a legal tender from being a legal tender. 5. No piece of gold or silver or bronze, or of any mixed metal, of any value whatever, shall be made or issued, except by the Mint, as a coin or a token for money, or as purporting that the holder thereof is entitled to demand any value denoted thereon. Every person who acts in contravention of this section shall be liable on summary conviction to a penalty not exceeding twenty pounds. 6. Every contract, bargain, sale, agreement, bond, bill, note, draft, acceptance, gift, grant, receipt, payment, acknowledgement, undertaking, and security for money, and every transaction, dealing, matter, and thing whatever relating to money, or involving the payment of or the liability to pay any money, which is made, executed and entered into, done or had, shall be made, executed, entered into, done and had according to the coins which are current and legal tender in pursuance of the Act, and not otherwise, unless the same be made, executed, entered into, done or had according to the currency of some foreign state. 7. Where any gold coin of the realm is below the current weight, every person shall, by himself or others, cut, break, or deface any such coin tendered to him in payment, and the person tendering the same shall bear the loss. 184

The Heyday of the Gold Standard, 1820–1930 If any coin cut, broken, or defaced in pursuance of this section is not below the current weight, the person cutting, breaking, or defacing the same shall receive the same in payment according to its denomination. Any dispute which may arise under this section may be determined by a summary proceeding. 8. Any person may bring to the Mint, or to any person appointed by the Treasury for the purpose, any coin which is judged to by any officer of the Mint appointed by the master of the Mint for the purpose to be old silver coin of the realm, and there shall be delivered from the Mint to such person new silver coin coined in accordance with this Act, equal to the amount so brought, according to the denominations of such coin. 9. Where any person or body brings to the Mint any gold under this Act, any person or body brings to the Mint any silver bullion, such bullion shall be assayed and coined, and delivered out to such person, without any charge for such assay or coining, or for waste in coinage. Where, after the date in that behalf fixed by a proclamation under this Act, any person or body brings to the Mint any silver bullion, such bullion shall be assayed and coined, and delivered out to such person, at the rate of sixty-two shillings for every 5,760 grains imperial weight, or 373.24195 grams metric weight, of silver bullion of standard of fineness so brought, in whatever denomination of the same is coined. Provided that – (1.) If the fineness of the whole of the bullion, whether gold or silver, so brought to the Mint is such that it cannot be brought to the standard fineness under this Act of the coin to be coined thereout, without refining some portion of it, the master of the Mint may refuse to receive, assay, or coin such bullion: (2.) Where the bullion, whether gold or silver, so brought to the Mint is finer than the standard of fineness under this Act of the coin to be coined thereout, there shall be delivered to the person or body taking the same such additional amount of coin as is proportionate to such superior fineness. No undue preference shall be shown to any person or body under this section, and every person or body shall have priority according to the time at which he or they brought such bullion to the Mint. 10. The Treasury may from time to time issue to the Master of the Mint, out of the growing produce of the Consolidated Fund, such sums as may be necessary to enable him to purchase bullion in order to provide supplies of coin for the public service. 11. All sums received by the Master of the Mint, or any deputy master or officer of the Mint, in payment for coin produced from bullion purchased by 185

The Monetary History of Gold him, or by way of Mint charge or seignorage upon the coinage of any coin, and all fees and other payments received by the Master or any deputy master or officer of the Mint as such shall (save as otherwise provided in the case of any branch Mint in a British possession by a proclamation respecting such branch Mint) be paid into the receipt of the Exchequer and carried to the Consolidated Fund. 12. It shall be lawful for Her Majesty, with the advice of Her Privy Council, from time to time by proclamation to do all or any of the following matters; namely, (1.) To determine the dimension of and design for any coin: (2.) To determine the denominations of coins to be coined at the Mint: (3.) To determine the current weight of any coin not being less than the weight (if any) specified in the first schedule to this Act: (4.) To call in all coins, or coins of any date or denomination, or any coins coined before the date in the proclamation mentioned: (5.) To direct that any coin of mixed metal shall be current and be a legal tender for the payment of any amount not exceeding the amount specified in the proclamation, and not exceeding two pounds: (6.) To direct that coins coined in any foreign country shall be current, and be a legal tender, at such rates, up to such amounts, and in such portion of Her Majesty’s dominions as may be specified in the proclamation: (7.) To regulate any matters relative to the coinage and the Mint which are not provided for by this Act: (8.) To direct the establishment of any branch of the Mint in any British possession, and impose a charge for the coinage of gold thereat; determine the application of such charge, and determine the extent to which such branch is to be deemed part of the Mint, and coins issued therefrom are to be current and be a legal tender, and to be deemed to be issued from the Mint: (9.) To direct that the whole or any part of this Act shall apply to and be in force in any British possession, with ot without any modifications contained in the proclamation: (10.) To revoke or alter any proclamation previously made. Every such proclamation shall come into operation on the date therein in that behalf mentioned, and shall have effect as if it were enacted in this Act. 13. The Treasury may from time to time by regulation do all or any of the following things: (1.) Fix the number and duties of the officers of and persons employed in the Mint:

186

The Heyday of the Gold Standard, 1820–1930 (2.) Make regulations and give directions (subject to the provisions of this Act and any proclamation made thereunder) respecting the general management of the Mint: (3.) Make regulations respecting the trial of the pyx. 14. For the purpose of ascertaining that coins issued from the Mint have been coined in accordance with this Act, a trial of the pyx shall be held, and the following provisions shall be made; (1.) Such coins, out of those, out of those issued by the Mint, as the Treasury direct, shall be from time to time, at least once every year, cause the coins so set apart to be examined in manner provided by this Act: (3.) [sic] The Treasury shall issue a warrant to the wardens of the mystery of Goldsmiths of the city of London, requiring them to summon, and they shall accordingly summon, a sufficient number, not less than six, of competent freemen of the company, or other competent persons, to form a jury and attend at the trial of the pyx at the day and place named in the warrant: (4.) The persons so summoned shall attend in accordance with such summons, and the Treasury shall cause the proper officers of the Treasury, the Mint, and the Board of Trade to attend at the same day and place: (5.) Some person appointed for the purpose by the Treasury shall preside at the trial, and shall administer to the jury the oath or affirmation set out in the second schedule to this Act, and shall charge the jury when so sworn: (6.) The master of the Mint shall cause to be produced before the jury the coins set aside in pursuance of this section, and any standard weights and trial pieces in his possession, and the Board of Trade shall cause to be produced before the jury the standard weights and trial pieces, and the jury shall inquire whether the coins so set apart have been coined in conformity with the provisions of the Act: (7.) Subject to the express provisions of this section, the trial shall be conducted and inquiry made in accordance with the regulations made by the Treasury: (8.) The verdict shall be recorded by the person who presides at the trial, and shall be published in the London Gazette, and kept among the records of the Treasury.

187

The Monetary History of Gold Master and Officers of the Mint. 15. The Chancellor of the Exchequer of Great Britain for the time being shall be the master, worker, and warden of Her Majesty’s Royal Mint in England, and governor of the Mint in Scotland. Provided that nothing in this section shall render the Chancellor of the Exchequer incapable of being elected to or of sitting or voting in the House of Commons, or vacate the seat of the person who at the passing of this Act holds the office of Chancellor of the Exchequer. All duties, powers, and authorities imposed on or vested in or to be transacted before the Master of the Mint may be performed and exercised by or transacted before him or his sufficient deputy. 16. The Master of the Mint may from time to time appoint deputy masters and other officers and persons for the purpose of carrying on the business of the Mint in the United Kingdom or elsewhere, and assign them their duties, and award them such salaries as the Treasury may fix. Standard Trial Pieces and Weights. 17. The standard trial pieces of gold and silver used for determining the justness of the gold and silver coins of the realm issued from the Mint, which now exist or may hereafter be made, and all books, documents, and things used in connexion therewith or in relation thereto, shall be in the custody of the Board of Trade, and shall be kept in such places and in such manner as the Board of Trade may from time to time direct; and the performance of all duties in relation to such trial pieces shall be part of the business of the Standard Weights and Measures Department of the Board of Trade. The Board of Trade shall cause such trial pieces to be produced at the trial of the pyx, and on any other occasion on which such production may be lawfully required. The Mystery of Goldsmiths of the City of London, or other competent persons, shall from time to time, when required by the Board of Trade, cause new standard trial pieces to be made and duly verified, of such standard fineness as may be in conformity with the provisions of this Act. 18. The standard weights for weighing and testing the coin of the realm shall be placed in the custody of the Board of Trade, and the business relating to such standard weights shall be part of the business of the Standard weights and measures Department of the Board of Trade. The Board of Trade shall from time to time cause the weights of each coin of the realm for the time being, and of multiples of such weights as may be required, to be made and duly verified; and such weights, when approved by 188

The Heyday of the Gold Standard, 1820–1930 Her Majesty in Council, shall be the standard weights for determining the justness of the weight of and for weighing such coin. The Master of the Mint shall from time to time cause copies to be made of such standard weights, and once at least in every year the Board of Trade and the Master of the Mint shall cause such copies to be compared and duly verified with the standard weights in the custody of the Board of Trade. All the weights used for weighing coin shall be compared with the said standard weights, and if found to be just shall, on payment of such fee, not exceeding one shilling, as the Board of Trade from time to time prescribe, be marked by some officer of the Standard weights and measures Department of the Board of Trade with a mark approved by the Board of Trade, and notified in the London Gazette, and a weight not so marked shall not be deemed a just weight for determining the weight of gold and silver of the realm. If any person forges or counterfeits such mark, or any weight so marked, or knowingly utters or sells or uses any weight with such counterfeit mark, or wilfully increases or diminishes any weight so marked, or knowingly uses or sells any weight so increased or diminished, such person shall be liable to a penalty not exceeding fifty pounds. All fees paid under this section shall be paid into the Exchequer, and carried to the Consolidated Fund. Legal Proceedings. 19. Any summary proceeding under this Act may be taken, and any penalty under this Act may be recovered, – In England, before two justices of the peace in manner directed by the Act of the session of the eleventh and twelfth years of the reign of Her present Majesty, chapter forty-three, intituled ‘An Act to facilitate the performance of the duties of justices of the peace out of sessions within England and Wales with respect to summary convictions and orders’, and any Act amending the same. In Scotland, in manner directed by The Summary Procedure Act, 1864. In Ireland, in manner directed by The Petty Sessions (Ireland) Act, 1851, and any Act amending the same; and in Dublin by the Acts regulating the powers of justices of the peace, or of the police of Dublin metropolis. In any British possession, in the courts, and before such justices, or magistrates, and in the manner in which the like proceedings and penalties may be taken and recovered by the laws of such possession, or in such other courts, or before such other justices or magistrates, or in such other manner as any Act or Ordinance having the force of law in such possession may from time to time provide, or as near thereto as circumstances admit. 189

The Monetary History of Gold Miscellaneous. 20. This Act shall extend to the United Kingdom, the Channel Islands, and the Isle of Man, but save as expressly provided by this Act or by any proclamation made thereunder, shall not extend to any other part of Her Majesty’s dominions. 21. The Acts set out in the third schedule to this Act are hereby repealed to the extent in the third column of such schedule mentioned. Provided that, – (1.) This repeal shall not affect anything already done or suffered, or any right already acquired or accrued: (2.) All weights for weighing coin which have been before the passing of this Act been marked at the Mint or by any proper officer shall be deemed to have been marked under this Act: (3.) Every branch of the Mint which at the passing of this Act issues coins in any British possession shall, until any proclamation is made in pursuance of this Act with respect to such branch Mint, continue in all respects to have the same power of issuing coins and be in the same position as if this Act had not been passed, and coins so issued shall be deemed for the purpose of this Act to have been issued from the Mint: (4.) The said Acts are not repealed so far as they apply to any British possession to which this Act does not extend until a proclamation directing that this Act shall be in force in such British possession comes into operation.

190

The Heyday of the Gold Standard, 1820–1930 SCHEDULES

FIRST SCHEDULE

Standard Weight. Least Current Weight. Denomination Imperial Metric Imperial Metric of Coin. Weight. Weight. Weight. Weight.

Remedy Allowance. Fineness.

Grains. Grams. Grains. Grams. GOLD: Five Pound Two Pound Sovereign Half Sovereign SILVER: Crown Half Crown Florin Shilling Sixpence Groat or Fourpence Threepence Twopence Penny BRONZE: Penny Halfpenny Farthing

Weight per piece. Millesimal Fineness. Imperial Metric Grains. Grams.

Eleven-twelfths 616.372 39.940 612.500 39.690 fine gold, one- 1.000 246.549 15.976 245.000 15.876 twelfth alloy; 0.400 123.274 7.988 122.500 7.938 or millesimal 0.200 61.637 3.994 61.125 3.961 fineness 916.66 0.100

0.06479 0.02592 0.002 0.01296 0.00648

436.364 28.276 – 218.182 14.138 – 174.545 11.310 – 87.273 5.655 – 43.636 2.827 – 29.091 1.885 –

1.818 0.909 0.727 0.364 0.182 0.121

0.11780 0.05890 0.04712 0.02356 0.01178 0.004 0.00785

0.091 0.060 0.030

0.00589 0.00392 0.00196

– – – – – –

21.818 14.545 7.273

1.413 – 0.942 – 0.471 –

– – –

145.883 87.500 43.750

9.450 – 5.670 – 2.835 –

– – –

191

Thirty-sevenfortieths fine silver, threefortieths alloy; or millesimal fineness 925.

Mixed metal, 2.91666 0.18899 copper, tin, and 1.75000 0.11339 None. zinc. 0.87500 0.05669

The Monetary History of Gold SECOND SCHEDULE Oath of the Jury on trial of Pyx. You shall well and truly try whether the coins produced to you are just coins, and have been coined in accordance with the provisions of the law for the time being in force relating to the coinage. So help you God. Note. – Any person authorized by law in any case to make an affirmation or declaration in lieu of an oath may make an affirmation or declaration to the same effect as the above oath.

192

12 February 1873 Coinage Act, 1873, United States: ‘An Act revising and amending the Laws relative to the Mints, Assay, Offices, and Coinage of the United States’

With the passage of this Act, the US Congress demonetised silver and established its participation in the international gold standard. This effectively ended the official bimetallism that had existed in the United States since 1792 and demonetised silver. Initially, the consequences were limited as silver had been undervalued at the old 15:1 ratio; however, as demand for gold rose, a return to silver became increasingly attractive to those who suffered from the subsequent deflation – primarily farmers who witnessed dramatic reductions in commodity prices. Those who blamed the deflation for their financial woes came to refer to the Coinage Act as the ‘Crime of 1873’. Source: The Statutes at Large and Proclamations of the United States of America, Vol. XVII (Washington: Government Printing Office), pp. 424–36.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the Mint of the United States is hereby established as a bureau of the Treasury Department, embracing in its organization and under its control all Mints for the manufacture of com, and all assay offices for the stamping of bars, which are now, or which may be hereafter, authorized by law. The chief officer of the said bureau shall be denominated the director of the Mint, and shall be under the general direction of the Secretary of the Treasury. He shall be appointed by the President, by and with the advice and consent of the Senate, and shall hold his office for the term of five years, unless sooner removed by the President, upon reasons to be communicated by him to the Senate. SECTION 2. That the director of the Mint shall have the general supervision of all Mints and assay offices, and shall make an annual report to the Secretary of the Treasury of their operations, at the close of each fiscal year, and from time to time such additional reports, setting forth the operations and condition of such institutions, as the Secretary of the Treasury shall require, and 193

The Monetary History of Gold shall lay before him the annual estimates for their support. And the Secretary of the Treasury shall appoint the number of clerks, classified according to law, necessary to discharge the duties of said bureau. SECTION 3. That the officers of each Mint shall be a superintendent, an assayer, a melter and refiner, and a coiner, and for the Mint at Philadelphia, an engraver, all to be appointed by the President of the United States, by and with the advice and consent of the Senate. SECTION 4. That the superintendent of each Mint shall have the control thereof, the superintendence of the officers and persons employed therein, and the supervision of the business thereof, subject to the approval of the director of the Mint, to whom he shall make reports at such times and according to such forms as the director of the Mint may prescribe, which, shall exhibit, in detail, and under appropriate heads, the deposits of bullion, the amount of gold, silver, and minor coinage, and the amount of imparted, standard, and refined bars issued, and such other statistics and information as may be required. The superintendent of each Mint shall also receive and safely keep, until legally withdrawn, all moneys or bullion which shall be for the use or the expenses of the Mint. He shall receive all bullion brought to the Mint for assay or coinage, shall be the keeper of all bullion or coin in the Mint, except while the same is legally in the hands of other officers, and shall deliver all coins struck at the Mint to the persons to whom they shall be legally payable. From the report of the assayer and the weight of the bullion, he shall compute the value of each deposit, and also the amount of the charges or deductions, if any, of all which he shall give a detailed memorandum to the depositor, and he shall also give at the same time, under his hand, a certificate of the net amount of the deposit, to be paid in coins or bars of the same species of bullion as that deposited, the correctness of which certificate shall be verified by the assayer, who shall countersign the same, and in all casts of transfer of coin or bullion, he shall give and receive vouchers, stating the amount and character of such coin or bullion. He shall keep and render, quarter-yearly, to the director of the Mint, for the purpose of adjustment, according to such forms as may be prescribed by the Secretary of the Treasury, regular and faithful accounts of his transactions with the other officers of the Mint and the depositors, and shall also render to him a monthly statement of the ordinary expenses of the Mint or assay-office under his charge. He shall also appoint all assistants, clerks, (one of whom shall be designated ‘chief clerk’,) and workmen employed under his superintendence, but no person shall be appointed to employment in the offices of the assayer, melter and refiner, coiner, or engraver, except on the recommendation and nomination in writing of those officers, respectively; and he shall forthwith report to the director of the Mint the names of all persons appointed by him, the duties to be performed, the rate of compensation, the 194

The Heyday of the Gold Standard, 1820–1930 appropriation from which compensation is to be made, and the grounds of the appointment; and if the director of the Mint shall disapprove the same, the appointment shall be vacated. SECTION 5. That the assayer shall assay all metals and bullion, whenever such assays are required in the operations of the Mint; he shall also make assays of coins or samples of bullion whenever required by the superintendent. SECTION 6. That the melter and refiner shall execute all the operations which are necessary in order to form ingots of standard silver or gold, and alloys for minor coinage, suitable for the coiner, from the metals legally delivered to him for that purpose; and shall also execute all the operations which are necessary in order to form bars conformable in all respects to the law, from the gold and silver bullion delivered to him for that purpose. He shall keep a careful record of all transactions with the superintendent, noting the weight and character of the bullion; and shall be responsible for all bullion delivered to him until the same is returned to the superintendent and the proper vouchers obtained. SECTION 7. That the coiner shall execute all the operations which are necessary in order to form coins, conformable in all respects to the law, from the standard gold and silver ingots, and alloys for minor coinage, legally delivered to him for that purpose; and shall be responsible for all bullion delivered to him, until the same is returned to the superintendent and the proper vouchers obtained. SECTION 8. That the engraver shall prepare from the original dies already authorized all the working-dies required for use in the coinage of the several Mints, and, when new coins or devices are authorized, shall, if required by the director of the Mint, prepare the devices, models, moulds, and matrices, or original dies, for the same; but the director of the Mint shall nevertheless have power, with the approval of the Secretary of the Treasury, to engage temporarily for this purpose the services of one or more artists distinguished in their respective departments of art, who shall be paid for such service from the contingent appropriation for the Mint at Philadelphia. […] SECTION 13. That the standard for both gold and silver coins of the United States shall be such that of one thousand parts by weight nine hundred shall be of pure metal and one hundred of alloy; and the alloy of the silver coins shall be of copper, and the alloy of the gold coins shall be of copper, or of copper and silver; but the silver shall in no case exceed one-tenth of the whole alloy. SECTION 14. That the gold coins of the United States shall be a one-dollar piece, which, at the standard weight of twenty-five and eight-tenths grains, shall be the unit of value; a quarter-eagle, or two-and-a-half dollar piece; a three-dollar piece; a half-eagle, or five-dollar piece; an eagle, or ten-dollar piece; and a double eagle, or twenty-dollar piece. And the standard weight of 195

The Monetary History of Gold the gold dollar shall be twenty-five and eight-tenths grains; of the quartereagle, or two-and-a-half dollar piece, sixty-four and a half grains; of the threedollar piece, seventy-seven and four-tenths grams; of the half eagle, or fivedollar piece, one hundred and twenty-nine grains; of the eagle, or ten-dollar piece, two hundred and fifty-eight grains; of the double-eagle, or twenty-dollar piece, five hundred and sixteen grains; which coins shall be a legal tender in all payments at their nominal value when not below the standard weight and limit of tolerance provided in this act for the single piece, and, when reduced in weight, below said standard and tolerance, shall be a legal tender at valuation in proportion to their actual weight; and any gold coin of the United States, if reduced in weight by natural abrasion not more than one-half of one per centum below the standard weight prescribed by law, after a circulation of twenty years, as shown by its date of coinage, and at a ratable proportion for any period less than twenty years, shall be received at their nominal value by the United States treasury and its offices, under such regulations as the Secretary of the Treasury may prescribe for the protection of the government against fraudulent abrasion or other practices; and any gold coins in the treasury of the United States reduced in weight below this limit of abrasion shall be recoined. SECTION 15. That the silver coins of the United States shall be a trade-dollar, a half-dollar, or fifty-cent piece, a quarter-dollar, or twenty-five-cent piece, a dime, or ten-cent piece; and the weight of the trade-dollar shall be four hundred and twenty grains troy; the weight of the half-dollar shall be twelve grams (grammes) and one-half of a gram, (gramme;) the quarter-dollar and the dime shall be respectively, one-half and one-fifth of the weight of said half-dollar; and said coins shall be a legal tender at their nominal value for any amount not exceeding five dollars in any one payment. SECTION 16. That the minor coins of the United States shall be a five-cent piece, a three-cent piece, arid a one-cent piece, and the alloy for the five and three cent pieces shall be of copper and nickel, to be composed of threefourths copper and one-fourth nickel, and the alloy of the one-cent piece shall be ninety-five per centum of copper and five per centum of tin and zinc, in such proportions as shall be determined by the director of the Mint. The weight of the piece of five cents shall be seventy-seven and sixteen-hundredths grains, troy; of the three-cent piece, thirty grains; and of the one-cent piece, forty-eight grains; which coins shall be a legal tender, at their nominal value, for any amount not exceeding twenty-five cents in any one payment. SECTION 17. That no coins, either of gold, silver, or minor coinage, shall hereafter be issued from the Mint other than those of the denominations, standards, and weights herein set forth. 196

The Heyday of the Gold Standard, 1820–1930 SECTION 18. That upon the coins of the United States there shall be the following devices and legends : Upon one side there shall be an impression emblematic of liberty, with an inscription of the word ‘ Liberty ‘ and the year of the coinage, and upon the reverse shall be the figure or representation of an eagle, with the inscriptions ‘United States of America’ and ‘E Pluribus Unum’, and a designation of the value of the coin; but on the gold dollar and threedollar piece, the dime, five, three, and one cent piece the figure of the eagle shall be omitted; and on the reverse of the silver trade-dollar, the weight and fineness of the coin shall be inscribed; and the director of the Mint, with the approval of the Secretary of the Treasury, may cause the motto ‘In God we trust’ to be inscribed upon such coins as shall admit of such motto; and any one of the foregoing inscriptions may be on the rim of the gold and silver coins. SECTION 19. That at the option of the owner, gold or silver may be cast into bars of fine metal, or of standard fineness, or unparted, as he may prefer, with a stamp upon the same designating the weight and fineness, and with such devices impressed thereon as may be deemed expedient to prevent fraudulent imitation, and no such bars shall be issued of a less weight than five ounces. SECTION 20. That any owner of gold bullion may deposit the same at any Mint, to be formed into coin or bars for his benefit; but it shall be lawful to refuse any deposit of less value than one hundred dollars, or any bullion so base as to be unsuitable for the operations of the Mint; and when gold and silver are combined, if either metal be in such small proportion that it cannot be separated advantageously, no allowance shall be made to the depositor for its value. SECTION 21. That any owner of silver bullion may deposit the same at any Mint, to be formed into bars, or into dollars of the weight of four hundred and twenty grains, troy, designated in this act as trade-dollars, and no deposit of silver for other coinage shall be received; but silver bullion contained in gold deposits, and separated therefrom, may be paid for in silver coin, at such valuation as may be, from time to time, established by the director of the Mint. […] SECTION 24. That the assayer shall report to the superintendent the quality or fineness of the bullion assayed by him, and such information as will enable him to compute the amount of the charges hereinafter provided for, to be made to the depositor. SECTION 25. That the charge for converging standard gold bullion into coin shall be one-fifth of one per centum; and the charges for concerting standard silver into trade-dollars, for melting and refining when bullion is below standard, for toughening when metals are contained in it which render it unfit for coinage, for copper used for alloy when the bullion is above standard, for separating the gold and silver when these metals exist together in the bullion, and for the preparation of bars, shall be fixed, from time to time, by the director,

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The Monetary History of Gold with the concurrence of the Secretary of the Treasury, so as to equal but not exceed, in their judgment, the actual average cost to each Mint and assayoffice of the material, labor, wastage, and use of machinery employed in each of the cases aforementioned. […] SECTION 27. That in order to procure bullion for the silver coinage authorized by this act, the superintendents, with the approval of the director of the Mint, as to price, terms, and quantity, shall purchase such bullion with the bullion-fund. The gain arising from the coinage of such silver bullion into coin of a nominal value exceeding the cost thereof shall be credited to a special fund denominated the silver-profit fund. This fund shall be charged with the wastage incurred in the silver coinage, and with the expense of distributing said coins as hereinafter provided. The balance to the credit of this fund shall be from time to time, and at least twice a year, paid into the treasury of the United States. SECTION 28. That silver coins other than the trade-dollar shall be paid out at the several Mints, and at the assay-office in New York city, in exchange for gold coins at par, in sums not less than one hundred dollars; and it shall be lawful, also, to transmit parcels of the same, from time to time, to the assistant treasurers, depositaries, and other officers of the United States, under general regulations proposed by the director of the Mint, and approved by the Secretary of the Treasury; but nothing herein contained shall prevent the payment of silver coins, at their nominal value, for silver parted from gold, as provided in this act, or for change less than one dollar in settlement for gold deposits: Provided, That for two years after the passage of this act, silver coins shall be paid at the Mint in Philadelphia and the assay-office in New York city for silver bullion purchased for coinage, under such regulations as may be prescribed by the director of the Mint, and approved by the Secretary of the Treasury. SECTION 29. That for the purchase of metal for the minor coinage authorized by this act, a sum not exceeding fifty thousand dollars in lawful money of the United States shall be transferred by the Secretary of the Treasury to the credit of the superintendent of the Mint at Philadelphia, at which establishment only, until otherwise provided by law, such coinage shall be carried on. The superintendent, with the approval of the director of the Mint as to price, terms, and quantity, shall purchase the metal required for such coinage by public advertisement, and the lowest and best bid shall be accepted, the fineness of the metals to be determined on the Mint assay. The gain arising from the coinage of such metals into coin of a nominal value, exceeding the cost thereof, shall be credited to the special fund denominated the minor-coinage profit fund; and this fund shall be charged with the wastage incurred in such coinage, and with the cost of distributing said coins as hereinafter provided. The balance remaining to the credit of this fund, and any balance of profits 198

The Heyday of the Gold Standard, 1820–1930 accrued from minor coinage under former acts, shall be, from time to time, and at least twice a year, covered into the treasury of the United States. […] SECTION 31. That parcels of bullion shall be, from time to time, transferred by the superintendent to the melter and refiner; a careful record of these transfers, noting the weight and character of the bullion, shall be kept, and vouchers shall be taken for. the delivery of the same, duly receipted by the melter and refiner, and the bullion thus placed in the hands of the melter and refiner shall be subjected to the several processes which may be necessary to form it into ingots of the legal standard, and of a quality suitable for coinage. SECTION 32. That the ingots so prepared shall be assayed; and if they prove to be within the limits allowed for deviation from the standard, the assayer shall certify the fact to the superintendent, who shall thereupon receipt for the same, and transfer them to the coiner. SECTION 33. That no ingots shall be used for coinage which differ from the legal standard more than the following proportions, namely: In gold ingots, one thousandth; in silver ingots, three thousandths; in minor-coinage alloys, twenty-five thousandths, in the proportion of nickel. SECTION 34. That the melter and refiner shall prepare all bars required for the payment of deposits; but the fineness thereof shall be ascertained and stamped thereon by the assayer; and the melter and refiner shall deliver such bars to the superintendent, who shall receipt for the same. […] SECTION 36. That in adjusting the weights of the gold coins, the following deviations shall not be exceeded in any single piece : In the double-eagle and the eagle, one-half of a grain; in the half-eagle, the three-dollar piece, the quarter-eagle, and the one-dollar piece, one-fourth of a grain. And in weighing a number of pieces together, when delivered by the coiner to the superintendent, and by the superintendent to the depositor, the deviation from the standard weight shall not exceed one-hundredth of an ounce in five thousand dollars in double-eagles, eagles, half-eagles, or quarter-eagles, in one thousand three-dollar pieces, and in one thousand one-dollar pieces. SECTION 37. That in adjusting the weight of the silver coins the following deviations shall not be exceeded in any single piece: In the dollar, the half and quarter dollar, and in the dime, one and one-half grains; and in weighing large numbers of pieces together, when delivered by the coiner to the superintendent, and by the superintendent to the depositor, the deviations from the standard weight shall not exceed two-hundredths of an ounce in one thousand dollars, half-dollars, or quarter dollars, and one-hundredth of an ounce in one thousand dimes. SECTION 38. That in adjusting the weight of the minor coins provided by this act, there shall be no greater deviation allowed than three grains for the five-cent piece and two grains for the three and one cent pieces. 199

The Monetary History of Gold SECTION 39. That the coiner shall, from time to time, as coins are prepared, deliver them to the superintendent, who shall receipt for the same, and who shall keep a careful record of their kind, number, and actual weight; and in receiving coins it shall be the duty of the superintendent to ascertain, by the trial of a number of single pieces separately, whether the coins of that delivery are within the legal limits of the standard weight; and if his trials for this purpose shall not prove satisfactory, he shall cause all the coins of such delivery to be weighed separately, and such as are not of legal weight shall be defaced and delivered to the melter and refiner as standard bullion, to be again formed into ingots and recoined; or the whole delivery may, if more convenient, be remelted. SECTION 40. That at every delivery of coins made by the coiner to a superintendent, it shall be the duty of such superintendent, in the presence of the assayer, to take indiscriminately a certain number of pieces of each variety for the annual trial of coins, the number for gold coins being not less than one piece for each one thousand pieces or any fractional part of one thousand pieces delivered; and for silver coins one piece for each two thousand pieces or any fractional part of two thousand pieces delivered. The pieces so taken shall be carefully sealed up in an envelope, properly labeled, stating the date of the delivery, the number and denomination of the pieces inclosed, and the amount of the delivery from which they were taken. These sealed parcels containing the reserved pieces shall be deposited in a pyx, designated for the purpose at each Mint, which shall be kept under the joint care of the superintendent and assayer, and be so secured that neither can have access to its contents without the presence of the other, and the reserved pieces in their sealed envelopes from the coinage of each Mint shall be transmitted quarterly to the Mint at Philadelphia. A record shall also be kept at the same time of the number and denomination of the pieces so taken for the annual trial of coins, and of the number and denomination of the pieces represented by them and so delivered, a copy of which record shall be transmitted quarterly to the director of the Mint. Other pieces may, at any time, be taken for such tests as the director of the Mint shall prescribe. […] SECTION 44. That it shall also be the duty of the superintendent to forward a correct statement of his balance-sheet, at the close of such settlement, to the director of the Mint, who shall compare the total amount of gold and silver bullion and coin on hand with the total liabilities of the Mint. At the same time a statement of the ordinary expense account, and the moneys therein, shall also be made by the superintendent. SECTION 45. That when the coins or bars which are the equivalent to any deposit of bullion are ready for delivery, they shall be paid to the depositor, or his order, by the superintendent; and the payments shall be made, if

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The Heyday of the Gold Standard, 1820–1930 demanded, in the order in which the bullion shall have been brought to the Mint; but in cases where there is delay in manipulating a refractory deposit, or for any other unavoidable cause, the payment of subsequent deposits, the value of which is known, shall not be delayed thereby; and in the denominations of com delivered, the superintendent shall comply with the wishes of the depositor, except when impracticable or inconvenient to do so. SECTION 46. That unparted bullion may be exchanged at any of the Mints for fine bars, on such terms and conditions as may be prescribed by the director of the Mint, with the approval of the Secretary of the Treasury; and the fineness, weight, and value of the bullion received and given in exchange shall in all cases be determined by the Mint assay. The charge to the depositor for refining or parting shall not exceed that allowed and deducted for the same operation in the exchange of unrefined for refined bullion. SECTION 47. That for the purpose of enabling the Mints and the assay-office in New York to make returns to depositors with as little delay as possible, it shall be the duty of the Secretary of the Treasury to keep in the said Mints and assay-office, when the state of the treasury will admit thereof, such an amount of public money, or bullion procured for the purpose, as he shall judge convenient and necessary, out of which those who bring bullion to the said Mints and assay-office may be paid the value thereof, in coin or bars, as soon as practicable after the value has been ascertained; and on payment thereof being made, the bullion so deposited shall become the property of the United States; but the Secretary of the Treasury may at any time withdraw the fund, or any portion thereof. SECTION 48. That to secure a due conformity in the gold and silver coins to their respective standards of fineness and weight, the judge of the district court of the United States for the eastern district of Pennsylvania, the comptroller of the currency, the assayer of the assay-office at New York, and such other persons as the President shall, from time to time, designate, shall meet as assay-commissioners, at the Mint in Philadelphia, to examine and test, in the presence of the director of the Mint, the fineness and weight of the coins reserved by the several Mints for this purpose, on the second Wednesday in February, annually, and may continue their meetings by adjournment, if necessary; if a majority of the commissioners, shall fail to attend at any time appointed for their meeting, the director of the Mint shall call a meeting of the commissioners at such other time as he may deem convenient; and if it shall appear by such examination and test that these coins do not differ from the standard fineness and weight by a greater quantity than is allowed by law, the trial shall be considered and reported as satisfactory; but if any greater deviation from the legal standard or weight shall appear, this fact shall be certified to the President of the United States; and if, on a view of the circumstances of 201

The Monetary History of Gold the case, he shall so decide, the officer or officers implicated in the error shall be thenceforward disqualified from holding their respective offices. SECTION 49. That for the purpose of securing a due conformity in weight of the coins of the United States to the provisions of this act, the brass troypound weight procured by the minister of the United States at London, in the year eighteen hundred and twenty-seven, for the use of the Mint, and now in the custody of the Mint at Philadelphia, shall be the standard troy pound of the Mint of the United States, conformably to which the coinage thereof shall be regulated. SECTION 50. That it shall be the duty of the director of the Mint to procure for each Mint and assay-office, to be kept safely thereat, a series of standard weights corresponding to the aforesaid troy pound, consisting of a one pound weight and the requisite subdivisions and multiples thereof, from the hundredth part of a grain to twenty-five pounds; and the troy weights ordinarily employed in the transactions of such Mints and assay-offices shall be regulated according to the above standards at least once in every year, under the inspection of the superintendent and assayer; and the accuracy of those used at the Mint at Philadelphia shall be tested annually, in the presence of the assaycommissioners, at the time of the annual examination and test of coins. SECTION 51. That the obverse working-dies at each Mint shall, at the end of each calendar year, be defaced and destroyed by the coiner in the presence of the superintendent and assayer. SECTION 52. That dies of a national character may be executed by the engraver, and national and other medals struck by the coiner of the Mint at Philadelphia, under such regulations as the superintendent, with the approval of the director of the Mint, may prescribe: Provided, That such work shall not interfere with the regular coinage operations, and that no private medal dies shall be prepared at said Mint, or the machinery or apparatus thereof be used for that purpose. SECTION 53. That the moneys arising from all charges and deductions on and from gold and silver bullion and the manufacture of medals, and from all other sources, except as hereinbefore provided, shall, from time to time, be covered into the treasury of the United States, and no part of such deductions or medal charges, or profit on silver or minor coinage, shall be expended in salaries or wages; but all expenditures of the Mints and assay-offices, not herein otherwise provided for, shall be paid from appropriations made by law on estimates furnished by the Secretary of the Treasury. […] SECTION 61. That if any person or persons shall falsely make, forge, or counterfeit, or cause or procure to be falsely made, forged, or counterfeited, or willingly aid or assist in falsely making, forging, or counterfeiting, any com or bars in resemblance or similitude of the gold or silver coins or bars, which have 202

The Heyday of the Gold Standard, 1820–1930 been, or hereafter may be, coined or stamped at the Mints and assay-offices of the United States, or in resemblance or similitude of any foreign gold or silver com which by law is, or hereafter may be made, current in the United States, or are in actual use and circulation as money within the United States, or shall pass, utter, publish, or sell, or attempt to pass, utter, publish, or sell, or bring into the United States from any foreign place, or have in his possession, any such false, forged, or counterfeited coin or bars, knowing the same to be false, forged, or counterfeited, every person so offending shall be deemed guilty of felony, and shall, on conviction thereof, be punished by fine not exceeding five thousand dollars, and by imprisonment and confinement at hard labor not exceeding ten years, according to the aggravation of the offense SECTION 62. That if any person or persons shall falsely make, forge, or counterfeit, or cause or procure to be falsely made, forged, or counterfeited, or willingly aid or assist in falsely making, forging, or counterfeiting, any com in the resemblance or similitude of any of the minor coinage which has been, or hereafter may be, coined at the Mints of the United States, or shall pass, utter, publish, or sell, or bring into the United States from any foreign place, or have in his possession any such false, forged, or counterfeited coin, with intent to defraud any body politic or corporation, or any person or persons whatsoever, every person so offending shall be deemed guilty of felony, and shall, on conviction thereof, be punished by fine not exceeding one thousand dollars and by imprisonment and confinement at hard labor not exceeding three years. SECTION 63. That if any person shall fraudulently, by any art, way, or means whatsoever, deface, mutilate, impair, diminish, falsify, scale, or lighten the gold or silver coins which have been, or which shall hereafter be, coined at the Mints of the United States, or any foreign gold or silver coins which are by law made current, or are in actual use and circulation as money within the United States, every person so offending shall be deemed guilty of a high misdemeanor, and shall be imprisoned not exceeding two years, and fined not exceeding two thousand dollars. SECTION 64. That if any of the gold or silver coins which shall be struck or coined at any of the Mints of the United States shall be debased, or made worse as to the proportion of fine gold or fine silver therein contained, or shall be of less weight or value than the same ought to be, pursuant to the several acts relative thereto, or if any of the weights used at any of the Mints or assayoffices of the United States shall be defaced, increased, or diminished through the fault or connivance of any of the officers or persons who shall be employed at the said Mints or assay-offices, with a fraudulent intent, and it any of the said officers or persons shall embezzle any of the metals which shall at any time be committed to their charge for the purpose of being coined, or any of the coins which shall be struck or coined at the said Mints, or any medals, coins, 203

The Monetary History of Gold or other moneys of said Mints or assay-offices at any time committed to their charge, or of which they may have assumed the charge, every such officer or person who shall commit any or either of the said offenses shall be deemed guilty of felony, and shall be imprisoned at hard labor for a term not less than one year nor more than ten years, and shall be fined in a sum not exceeding ten thousand dollars. […] SECTION 66. That the different Mints and assay-offices authorized by this act shall be known as ‘the Mint of the United States at Philadelphia’, ‘the Mint of the United States at San Francisco’, ‘the Mint of the United States at Carson’, ‘the Mint of the United States at Denver’, ‘the United States assayoffice at New York’, and ‘the United States assay-office at Boise city, Idaho’, ‘the United States assay-office at Charlotte, North Carolina;’ and all unexpended appropriations heretofore authorized by law for the use of the Mint of the United States at Philadelphia, the branch-Mint of the United States in California, the branch-Mint of the United States at Denver, the United States assay-office in New York, the United States assay-office at Charlotte, North Carolina, and the United States assay-office at Boise city, Idaho, are hereby authorized to be transferred for the account and use of the institutions established and located respectively at the places designated by this act. SECTION 67. That this act shall be known as the ‘Coinage act of eighteen hundred and seventy-three;’ and all other acts and parts of acts pertaining to the Mints, assay-offices, and coinage of the United States inconsistent with the provisions of this act are hereby repealed: Provided, That this act shall not be construed to affect any act done, right accrued, or penalty incurred, under former acts, but every such right is hereby saved; and all suits and prosecutions for acts already done in violation of any former act or acts of Congress relating to the subjects embraced in this act may be begun or proceeded with in like manner as if this act had not been passed; and all penal clauses and provisions in existing laws relating to the subjects embraced in this act shall be deemed applicable thereto: And provided further, That so much of the first section of ‘An act making appropriations for sundry civil expenses of the government for the year ending June thirty, eighteen hundred and seventy-one, and for other purposes’, approved July fifteen, eighteen hundred and seventy, as provides that until after the completion and occupation of the branch-Mint building in San Francisco, it shall be lawful to exchange, at any Mint or branch-mint of the United States, unrefined or unparted bullion, whenever, in the opinion of the Secretary of the Treasury, it can be done with advantage to the government, is hereby repealed. Approved, February 12, 1873. 204

14 January 1875 Specie Resumption Act, 1875, United States: ‘An Act to provide for the Resumption of Specie Payments’

This Act provided for the redemption of paper currency in gold or silver and a reduction in the amount of outstanding paper bills, the so-called ‘Greenbacks’, beginning in 1879. Restoring convertibility was a necessary step in the re-establishment of the gold standard. Source: The Statutes at Large and Proclamations of the United States of America, Vol. XVIII, Part 3 (Washington: Government Printing Office), p. 296.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the Secretary of the Treasury is hereby authorized and required, as rapidly as practicable, to cause to be coined at the Mints of the United States, silver coins of the denominations of ten, twentyfive, and fifty cents, of standard value, and to issue them in redemption of an equal number and amount of fractional currency of similar denominations, or, at his discretion, he may issue such silver coins through the Mints, the subtreasuries, public depositaries, and post-offices of the United States; and, upon such issue, he is hereby authorized and required to redeem an equal amount of such fractional currency, until the whole amount of such fractional currency outstanding shall be redeemed. SECTION 2. That so much of section three thousand five hundred and twenty-four of the Revised Statutes of the United States as provides for a charge of one-fifth of one per centum for converting standard gold bullion into coin is hereby repealed, and hereafter no charge shall be made for that service. SECTION 3. That section five thousand one hundred and seventy-seven of the Revised Statutes of the United States, limiting the aggregate amount of circulating-notes of national banking-associations, be, and is hereby, repealed; and each existing banking association may increase its circulating-notes in accordance with existing law without respect to said aggregate limit; and new banking-associations may be organized in accordance with existing law without respect to said aggregate limit; and the provisions of law for the withdrawal 205

The Monetary History of Gold and redistribution of national-bank currency among the several States and Territories are hereby repealed. And whenever, and so often, as circulatingnotes shall be issued to any such banking-association, so increasing its capital or circulating notes, or so newly organized as aforesaid, it shall be the duty of the Secretary of the Treasury to redeem the legal-tender United States notes in excess only of three hundred million of dollars, to the amount of eighty per centum of the sum of national-bank notes so issued to any such banking-association as aforesaid, and to continue such redemption as such circulatingnotes are issued until there shall be outstanding the sum of three hundred million dollars of such legal-tender United States notes, and no more. And on and after the first day of January, anno Domini eighteen hundred and seventynine, the Secretary of the Treasury shall redeem, in coin, the United States legal-tender notes then outstanding on their presentation for redemption, at the office of the assistant treasurer of the United States in the city of New York, in sums of not less than fifty dollars. And to enable the Secretary of the Treasury to prepare and provide for the redemption in this act authorized or required, he is authorized to use any surplus revenues, from time to time, in the Treasury not otherwise appropriated, and to issue, sell, and dispose of, at not less than par, in coin, either of the descriptions of bonds of the United States described in the act of Congress approved July fourteenth, eighteen hundred and seventy, entitled, ‘An act to authorize the refunding of the national debt’, with like qualities, privileges, and exemptions, to the extent necessary to carry this act into full effect, and to use the proceeds thereof for the purposes aforesaid. And all provisions of law inconsistent with the provisions of this act are hereby repealed. Approved. January 14, 1875.

206

5 July 1876 ‘Report from the Select Committee on Depreciation of Silver; together with the Proceedings of the Committee, Minutes of Evidence, and Appendix’

The nearly two hundred pages of appendices that accompany the Report contain a wealth of information on the production and movement of precious metals over the first three quarters of the nineteenth century. There is also a useful index to the Report itself, the minutes of evidence, and the appendices. The list below provides the headings for each of the thirty-six appendices. Source: House of Commons, House of Commons Parliamentary Papers, 1876 (London: House of Commons, 1876), vol. 8, pp. 343–8.

LIST OF APPENDICES

No. Put in by 1 Mr K. D. Hodgson 2

Mr E. Seyd

3

Mr H. Waterfield

4

Mr R. Giffen

SUBJECT. Estimate of Gold Coins in Circulation in the United Kingdom. Estimate of Silver Coins in Circulation in the United Kingdom. Statements as to Dates of Laws determing Valuations of various Nations previously to 1871, Changes introduced and in abeyance, Actual Condition of Metallic Efficiency of each System, and Coinages made. Gold Valuing States. Gold and Silver Valuing States. Silver Valuing States. Nations and Populations under Three Systems in 1871. Changes in Three Systems decided by Law, and in abeyance since 1876. Comparison of various Statements of Production of Gold and Silver throughout the World, 1800 to 1875. Annual Production of Gold and Silver at beginning of 19th Century (Humboldt).

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5A Mr S. Pixley 5B [Idem]

5C [Idem] 6A Sir H. Hay

6B [Idem] 7

Mr G. Pietsch

7* [Idem]

Annual Production of Gold and Silver, 1809 to 1829 (Jacob). Annual Production of Gold and Silver prior to 1848 (Chevalier). Annual Production of Gold and Silver, 1852–75 (Sir H. Hay). Exports of Gold and Silver from United Kingdom, 1800–1810. Exports of Gold and Silver from United Kingdom, 1830–53 Imports of Gold and Silver into and from United Kingdom, 1858–74. Imports of Gold into and from United Kingdom, 1858–75. Imports of Silver into and from United Kingdom, 1858–75. Supplies of Gold from California, Australia, and Russia, 1849– 56. Production of Gold, 1857–75. Production of Gold in Russia, 1819–46. Produce of Gold and Silver Mines of Mexico, Chili, and Peru, 1790–1829. Imports of Silver into United Kingdom from America, 1852–75. Exports of Silver from Southampton to India, China, and the Straits, 1865–76. Monthly Fluctuations in London in Price of Bar Silver, Coinage of Silver in England, Bills drawn on Indian Governments, Exports of Silver to the East, Imports of Silver, and Average Bank Rate Discount, 1833–76. Imports and Exports of Bullion into and from London, 1874–75. Estimated Production of Gold and Silver, Shipments of Silver to India and China from England and the Mediterranean, and Average Price of Silver, 1852–75. Estimated Production of Gold and Silver in various Countries, 1852–75. Coinage of German Silver Coins, by separate States of Germany, to end of 1873, less Withdrawals (Statements presented to the Reichstag). Amount of Old German Silver Coins retired from Circulation, to end of 1876 (Official Statements). Amount of New German Silver Coins coined, from 18 March 1876 (Official Statements). Amount remaining to be coined. of Old German Silver Coins converted into Bars and sold, to end of March 1876. Movement of Silver between London and Hanse Towns, 1861– 75. Memorandum on Alloy in Old German Coins.

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The Heyday of the Gold Standard, 1820–1930 8

Mr H. Waterfield

9

[Idem]

10 [Idem] 11 [Idem] 12 [Idem] 13 [Idem] 13* [Idem] 14 Lord George Hamilton 15 The Chairman 16 Mr H. Waterfield 17 Mr E. Seyd 18 Mr R. Giffen 19 Mr H. Waterfield 20 The Chairman

21 [Idem]

Report of United States Commissioner of Mining Statistics (Mr Raymond), 1874: – History of relative Values of Gold and Silver Estimate of Production of Precious Metals in States West of Rocky Mountains, 1869–74. Report of Director of United States Mint (Dr Linderman), 1874–75. Report of Professor Rogers on Consolidated Virginia and California Mines. Gross Yield of Mines of State of Nevada, 1874–5. Report of Secretary of United States Treasury on State of Finances for 1875. Biennial Report of State Mineralogist for Nevada (Mr Whitehill), for 1873 and 1874. Extract from San Francisco Journal of Commerce and Price Current of 12th of January 1876. Reports by Consul Booker on Trade in California, 1871–5. Production of Mines in the Comstock Lode. Letter from M. Gansl to Messrs. Rothschild on Production in the United States, 1876. Letter from M. Berton to the Director of the Mint at Paris on Production in the United States, 1876. Comparison of Statements of Production of Gold and Silver in the United States, 1848–75. Memorandum on the Coinage of One Dollar Silver Pieces in United States. Imports and Exports of Gold in thr United States, 1864–75. Imports of Silver into United Kingdom from United States, 1865–74. Letters from the Chairman of the Committee to the secretary of State fro Foreign Affairs, asking for information from various Foreign States. Information from France: Movement of Precious Metals, 1815–75. Coinage of Gold, 1803–75. Coinage of Silver, 1795–1875. Coinage of Gold and Silver, 1795–1875. Coinage of Bronze, 1852–75. Projet de Loi to limit and suspend the Coinage of Silver 5franc Pieces (M. Léon Say) Projet de Loi to put an end to the Coining of Silver of Standard Fineness (M. de Parieu).

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The Monetary History of Gold Letter from Mr F. O. Adams, respecting M. Berton. Letter from M. Léon Say, forwarding Procés Verbaux of Monetary Conferences, 1874–6. Stock in Bank of France, 1850–75. Letter from Lord Lyons respecting the Bills of M. Say and M. de Parieu. Information from Belgium: Letter from Mr J. Savile Lumley. Exposé des Motifs of a Bill for proroguing the Law of 1873 (M. Malou). Information from Switzerland: Letter from the President of the Confederation respecting the Coinage, etc. Letter from Mr Corbett, respecting the position of Switzerland with regard to the Latin Union. Information from Italy: Memorandum by Mr Macbean. Information from Greece: Letters from Mr Stuart. Memorandum by Mr Merlin on the Currency of Greece. Royal Decree on Silver Currency. Information from Russia: Exports and Imports of Silver, 1865–74. Coinage of Gold and Silver at St. Petersburgh Mint, 1866– 75. Stock of Gold and Silver at Imperial Bank, 1865–76. Information from Austria-Hungary: Letter from the Minister of Finance. Import and Export of Silver, 1867–75. Coinage of Silver, 1867–75. Letter from Sir A. Buchanan, on the Silver Currency. Information from Germany: Memorandum on the Depreciation of Silver. Letter from Lord Odo Russell, forwarding Official Documents. Sales of Silver on account of the State, 1873–6. Information from Holland: Letter from Sir Ed. Harris. Information from Denmark: Letter from Mr Gosling, on Coinage Operations. Bullion Transactions of Danish National Bank, 1871–5.

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The Heyday of the Gold Standard, 1820–1930 Amount of Silver sold by Danish National Bank, 1873–6. Coinage Operations, 1873–6. Stock of Gold and Silver in Danish National Bank, 1876. Information from Sweden: Letter from General Björnstjerna. Imports and Exports of Silver, Coinage, and Stock in Bank. Information from Norway: Letter from General Björnstjerna. Imports and Exports of Gold and Silver, Production of Silver from the Kongsberg Mines, Coinage at Kongsberg Mint, and Stock in Bank. Information from United States: Letter from Sir Ed. Thornton. Memorandum on Production, Export, Coinage, Circulation, and Stock of Silver (Dr Linderman). Exports of Silver from San Francisco Mint. Draft Act of Congress for Issue of Silver Coin in place of Fractional Currency. Letter from Secretary of Treasury, transmitting Report of Director of Mint. Report from Dr Linderman, Director of the Mint Estimated Production of Gold and Silver in United States, 1845–75. The World’s Production of Gold and Silver, 1852–75 (Journal des Economistes). Estimated Production of Gold and Silver out of the United States, 1845–75 (Mr Raymond). Report on Production of Gold and Silver in United States (Mr Young). Production of Gold and Silver in United States, 1849–75. Imports of Gold and Silver into United States, 1820–75. Foreign Exports of Gold and Silver from United States, 1820–75. Domestic Exports of Gold and Silver from United States, 1820–75. The World’s Production of Gold and Silver, 1849–76. The World’s Production of Gold and Silver by Epochs, 1849–76. Aggregate Production of Precious Metals, distinguishing United States from other Countries, 1849–75.

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22A 22B 22C 23 24A 24B 24C

25

26

27 28

Aggregate Production of Precious Metals, distinguishing United States from other Countries, 1849–75. Mr R. Giffen Imports and Exports of Gold and Silver into and from France, 1848–74. The Chairman Memorandum on French Circulation and Coinage. [Idem] Stock in the Bank of France, 25th April 1876. [Idem] Memorandum on Monetary question in Holland. Mr H. Waterfield Report on Mines of Japan, by Mr Plunkett. Mr P. Campbell Report of Director of Japanese Mint, 1873–4. Mr J. G. Hubbard, M.P. Memorandum on China Trade, by Messrs. Matheson & Co. Imports from China into United Kingdom, and Exports to China from United Kingdom, 1855–74. Exports of Silver to China and Japan, 1860–75. Mr H. Waterfield Imports of Gold and Silver into United Kingdom from various Countries, 1860–75. Imports of Gold and Silver from United Kingdom to various Countries, 1860–75. Movement of Silver in United Kingdom, 1868–75. [Idem] Imports and Exports of Merchandise and Treasure into and from India, and Bills drawn on Governments in India, 1855–6 to 1874–5. Imports and Exports of Gold and Silver into and from India, 1855–6 to 1874–5. Imports and Exports of Gold and Silver into and from India, with surplus of Imports, 1835–6 to 1875–6. Imports of Gold and Silver into India from various Countries, 1869–76. Exports of Gold and Silver from India from various Countries, 1869–76. Coinage of Gold and Silver in Indian Mints, 1855–6 to 1874–5. Receipts of Silver into Indian Mints from Government, 1855–6 to 1874–5. Currency Notes in Circulation, and nature of Reserve, 1863–76. Average Rate of Exchange of Bills drawn on Governments in India, 1835–6 to 1875–6. Lord George Hamilton Disbursement of Home Treasury, and mode of providing for them, 1833–4 to 1875–6. Colonel H. Hyde. Re-coinage of old Rupees, and Coinage of new Rupees and small Silver Coin, 1835–6 to 1874–5. Imports of Silver Bullion, Coinage, and Re-coinage, and Revenue of India, 1835–6 to 1874–5.

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The Heyday of the Gold Standard, 1820–1930 29 Mr H. Waterfield 30 The Chairman 31 [Idem] 32 Mr E. Seyd

33 The Chairman 34 Mr W. Robinson 35 The Chairman 36 Mr S. Seldon

Comparison of Statements of Exports of Gold and Silver to the East, 1851–75. Note on Gold and Silver Plate Duties in United Kingdom (from 13th Report of Commissioners of Inland Revenue). Gold and Silver Plate Duty charged, and Drawback allowed in United Kingdom, 1852–75. Weight of Gold and Silver Plate on which Duty was paid, Drawback allowed, and Net Amount retained for Home use, in United Kingdom, 1852–75. Yield of Gold and Silver Plate Duty in United Kingdom, 1866– 75. Weight of Silver marked at Goldsmith’s Hall, and Amount of Silver Plate Duty received, 1861–75. Returns of Silver Plate assayed at various Assay Offices in the United Kingdom, 1851–75. Imports of Foreign Silver Plate, and duty paid on Import into United Kingdom, 1866–75. Exports of British and Foreign and Silver Plate from United Kingdom, 1866–75.

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27 November 1878 International Monetary Conference, 1878: ‘Report of the Commissioners appointed to represent Her Majesty’s Government at the Monetary Conference held in Paris in August 1878’

The conference convened at the insistence of the United States to consider the adoption of a common ratio between gold and silver. The Report summarises the positions of the United States and most western European countries towards the proposal. Source: House of Commons, House of Commons Parliamentary Papers, 1878–9 (London: House of Commons, 1879), vol. 21, cmnd. 2196, pp. 105–16.

TO THE LORDS COMMISSIONERS OF HER MAJESTY’S TREASURY. May it please your Lordships, We have the honour to forward herewith the Proces Verbaux of the International Monetary Conference, held in Paris under the presidency of M. Leon Say, which we were requested to attend by your Lordships Minute of the 5th August last. The Conference met at the instance of the Government of the United States, in accordance with the second section of the Act passed by Congress early in the present year, ‘to authorise the coinage of the standard silver dollar, and to restore its legal ‘tender character’. The words of this section are as follows: – ‘Immediately after the passage of this Act, the President shall invite the Governments of the countries composing the Latin Union so called, and of such other European nations as he may deem advisable, to join the United States in a Conference to adopt a common ratio as between gold and silver for the purpose of establishing internationally the use of bimetallic money, and securing fixity of relative value between these metals.’ 214

The Heyday of the Gold Standard, 1820–1930 In the letter which your Lordships caused to be addressed to the Foreign Office on the 20th May last, in answer to the invitation of the United States, it was stated that ‘the United Kingdom has, since 1816, or for a period of more than 60 years, confined itself to a single standard of value, viz., gold. The policy of a single standard has been accepted by Governments of all parties, and by the people. It has never in fact been seriously attacked, and without entering on a theoretical discussion, my Lords consider themselves justified in asserting that both Government and people are satisfied with a system which has approved itself to them by long experience, and that there has been and is no expression of public opinion in favour of an endeavour to establish a common ratio between two metals which vary continually, and not simultaneously, in value. The question, therefore, to be submitted to the Conference is not an open question so far as the United Kingdom is concerned.’ […] Your Lordships, however, subsequently received a communication from the Secretary of State for India in Council, in which it was stated that, considering the important bearing of this question on the interests of India, his Lordship would be glad to learn that Her Majesty’s Government had decided to take part in the proposed Conference; and your Lordships, therefore, consented that this country should be represented, provided that the terms of the invitation were so far modified as to allow the free discussion in all its bearings of the subject of the standards of currency used in various countries and the relations which exist or can be established between them, it being clearly understood that England could in no way depart from the policy in respect to currency questions which she has pursued for the last 60 years. The Government of the United States having accepted the representation of Her Majesty’s Government upon these terms, your Lordships were pleaded to request us to proceed to Paris in order to represent Her Majesty’s Government at the International Conference on Bi-metallic Currency which met in August last. The understanding with regard to our taking no part in any vote which would place in question the maintenance of a single gold standard in England was of course embodied in our instructions. The distinct limitation thus imposed on our proceedings at the Conference did not, however, preclude us from taking an active part in its deliberations. For, in the first place, our position with regard to the Indian Empire, where the silver standard prevails, and with regard to which we were not hound as we were in the case of England, gave us a most important locus standi, and the 215

The Monetary History of Gold deepest interest in any discussions involving the future of silver; and in the next place, we found that the representatives of several other Governments were, similarly with ourselves, distinctly precluded from voting on any proposition which would involve changes in the currency laws of the countries which they represented. While, therefore, the United States had called the Conference together with a view to common action being taken, it was clear, at the very commencement of our proceedings, that, with few exceptions, the countries of Europe were convinced, even before our sittings were opened, either of the inexpediency or of the impossibility of the course which was recommended by the United States. Declarations were accordingly soon made by the representatives of various Governments making it at once apparent that the Conference would have no practical result. Dr Broch (Norway) was the first to declare that the Governments of Sweden and Norway, who were committed to the single gold standard, had accepted the invitation of the United States on the same terms as those on which Her Majesty’s Government consented to nominate your Commissioners. M. Pirmez (Belgium) and M. Feer Herzog (Switzerland), representing countries included in the Latin Union where the double standard still exists in a modified form, had received the most stringent instructions not to commit themselves in any way to the ultimate maintenance of silver as a standard in their respective countries. Other Governments, such as that of Austria, had instructed their representatives to state that they intended to maintain an expectant attitude, and when France, the leading country in Europe amongst those where the silver currency has not been demonetized, also declared in favour of an expectant attitude, it was perfectly clear that all prospect of any common action for the ‘rehabilitation of silver’, such as was desired by the United States, was out of the question even among a limited group of nations. Germany was not represented at the Conference. Her abstention (to which we shall have to refer hereafter) naturally increased the difficulty of arriving at any understanding. The representatives of the United States were most loth to recognize this position. To the very close of the Conference, supported by Italy alone, they pleaded on behalf of common action as if it were an open question, and when compelled to acknowledge that action was impossible, urged at least a common theoretical declaration in favour of such action, though the instructions of the majority clearly precluded such a course. But in view of the circumstances which we have detailed, most of the members of the Conference perceived at once that no definite result could be obtained, and that it only remained to exchange opinions, and to collect all possible information as 216

The Heyday of the Gold Standard, 1820–1930 to the intentions and policy of the Governments represented with regard to the monetary circumstances of their respective countries as affected by the fall of silver. We have great satisfaction in stating that in this respect the most perfect frankness prevailed, all members of the Conference vying with each other in contributing materials of common interest, and in stating, without reserve, how their Governments viewed the position. We had the advantage not only of obtaining information during the debates of the Conference, but also of exchanging private communications with the Delegates from the different countries. We trust that the information thus collected, especially as to the probable future policy of various states with regard to the Silver question, may not be without some interest. The present position of most European countries with reference to a metallic currency is well known to your Lordships. Besides the United Kingdom, Germany and the Scandinavian Union, comprising Sweden, Norway, and Denmark, have completely adopted the single gold standard. Holland is in a transition state. By a law passed in 1875, a new monetary system was legalized on the principle of a double standard. Gold was valued in relation to silver at 15.625 to 1. Her object was to provide gold for Europe and silver for her Eastern possessions, keeping the same currency in both divisions; as, however, the depreciation of silver made rapid progress, Holland has, since 1875, suspended the coinage of silver, while nominally retaining the double standard. In the Latin Union, which comprises France, Belgium, Switzerland, Italy, and Greece, the double standard still prevails, gold and silver coins being legal tender for unlimited amounts, though the coinage of silver bullion into coin has been for the present suspended, and Italy, it should be added, having still a forced paper currency, though a member of the Union. Austria and Russia have also a forced paper currency, but the unit of value is nominally a silver coin. Accordingly, at the present moment there is an important group of nations with a single gold standard, an important group of nations with a double standard, and a third group of nations which originally had a silver standard but now have a forced paper currency. No European country represented at the Conference has a metallic currency with a single silver standard at present, but both the United Kingdom and Holland have Eastern possessions in which a silver currency alone exists. The United States of America are in a transition state, about to resume specie payments, and to resume them on the footing of a double standard, but with limitations as to the amount of silver which is to be coined. 217

The Monetary History of Gold Such are the actual circumstances of the various nations.* We proceed to describe the attitude which they appear to have assumed in regard to the silver question. The countries which have adopted a single gold standard, and have no Eastern possessions, have clearly made up their minds. Germany, it was understood, declined even to attend the Conference lest her attendance should be interpreted as a sign of wavering as to the policy to which she had committed herself. In the Scandinavian Union any deviation from the course adopted in 1873 seems equally out of the question. In Holland the position is far more complicated. Her Government are feeling the difficulty caused by the currency of her Eastern provinces most acutely, and are apparently watching the course of the English Government in relation to India, with a view to examine whether it may afford a practical solution for their own adoption under analogous circumstances. Holland is therefore inclined to maintain an expectant attitude, but according to the opinion expressed by her representatives she has become convinced that a single gold standard is most suitable to her as a European nation, although a single silver standard may be right or necessary in her Eastern possessions. Her proximity to Germany, and her intimate commercial relations with that gold-using country, have brought this conviction forcibly home to her. The attitude of the countries comprising the Latin Union is particularly interesting. Though bound together by existing conventions they are at present actuated by the most divergent opinions. Your Lordships are aware that in 1873, in view of the depreciation of silver which then first threatened to deprive the countries forming the Latin Union, whose currency was based on a double standard, of the gold which had for many years been the chief metal in use, the Swiss Government invited the other Powers to join in a Conference. The meetings held in 1874, 1875, and 1876, resulted in a limitation of the coinage of five-franc pieces, which in the latter year was restricted to 120 millions of francs, allotted in various proportions to the five States composing the Union. In 1877, on the proposal of France, it was arranged by correspondence that this quantity should be reduced by one half, and in 1878 the coinage of silver money of full value was entirely stopped, except that Italy was permitted to recoin the demonetized silver of the petty States to the amount of 10 millions of francs. But though these measures have been taken by common accord, the views of the ultimate solu* Spain and Portugal were not represented at the Conference. Spain had adopted the currency of the Latin Union though without entering the Convention, and had suspended the free coinage of silver from 1st May last 1877. The monetary system of Portugal is based on gold alone.

218

The Heyday of the Gold Standard, 1820–1930 tion held by the various members of the Union differ most materially. The French Government appears to believe, and evidently hopes, that after a lapse of time silver may so far recover its value and assume a steady relation to gold, that France may be able to return to the normal action of a double standard, which is at present interrupted by the suspension of the free coinage of silver five-franc pieces. But as it is obvious that it is impossible to allow the free coinage of silver at the ratio of 1 to 15.5 without the certainty of losing all the gold in the country, the present policy of the French Government is to maintain the status quo. It will be observed that the Minister of Finance, at the third meeting of the Conference, stated that while unable to accept the proposals of the representatives of the United States, he would be unwilling positively to reject them, and this statement fairly represents the present attitude of France, and is in accordance with the statements made by M. Dumas, who presided over the meetings of the Latin Union in 1876. At that Conference Switzerland had already advocated the adoption of the single gold standard; Belgium appears to be strongly disposed in the same direction; and it is likely that these countries will take advantage of the first favourable opportunity to legislate in that direction. The Latin Convention continues in force until the 1st January 1880, and is terminable then, and at intervals of 15 years, at one year’s notice. Conferences have however been in progress among the members of the Union since we left Paris, which appear likely to result in some temporary prolongation of existing arrangements, the suspension of the coinage of silver five franc pieces being continued. It is not probable that Belgium or Switzerland will be able to carry out their wish for a single gold standard for some time to come. The Greek Government had directed their Charg d’Affaires to attend the Conference, and to state that Greece was not prepared to depart from the present expectant policy of the Latin Union. The remaining nation which forms part of that Union, viz., Italy, has a forced paper currency. Her opinion appears to be that it would probably be easier to resume specie payments upon the basis of a double standard than upon the basis of gold alone, and upon that ground she is not disinclined to the principles submitted by the United States. The representatives of Italy were indeed the only members of the Conference who gave an eager support to the proposals of the American delegates, and your Lordships will observe that they alone declined to accept the resolutions framed in answer thereto, and that they placed upon record their opinions in favour of the double standard, and of the adoption of an international ratio between gold and silver. It may be worth observing that a large amount of Italian subsidiary silver is said to be held in the Bank of France, and as this token coinage must be redeemed 219

The Monetary History of Gold by the issuing country, it will be seen that France possesses a powerful means of exercising influence over Italy in matters of currency. Austria, though, like Italy, having a forced issue of paper money, appeared to be more inclined to follow an expectant attitude and less disposed to cast in her vote at once with the Bi-metallists. The consideration that it would be obviously cheaper and easier to resume specie payments in silver, which is now at a very small premium as compared with paper, has evidently great weight with her. On the other hand the proximity of Germany, with whom Austria transacts four fifths of her commerce, points to the advantage of the adoption of a monetary system based upon gold alone. Such a transition could not, however, be effected without cost; and the Government appears to be favourably inclined to the use of both metals. One other country which has no metallic circulation was represented at the Conference, viz., Russia. Her monetary system, like that of Austria, is nominally based upon silver, but the opinions expressed by her representative were decidedly opposed to a bi-metallic system. Your Lordships will, therefore, perceive that while Germany and the Scandinavian Union adhere to the principles which they have so recently adopted, Holland, Belgium, and Switzerland appear also to be decidedly in favour of the single gold standard; that France appears to be in favour of a double standard, but is not prepared, under the present circumstances, to resume the free coinage of silver; that Greece maintains a similar attitude; and that, of the countries having a forced paper currency, Austria and Italy appear to be inclined towards the employment of the two metals as being more likely to lead to the resumption of specie payments, while Russia remains faithful to the principle of a single standard.

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2 May 1884 Coinage Act, 1884, United Kingdom: ‘A Bill, for amending the Coinage Act, 1870, so far as relates to Gold Coin and for making the necessary consequential Amendments in the Banking and Weights and Measures Acts’

Source: House of Commons, House of Commons Parliamentary Papers, 1884 (London: House of Commons, 1884), vol. 2, no. 187, pp. 85–90.

Be it enacted by the Queen’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows: 1. There shall be repealed, so far as relates to half-sovereigns coined after the passing of this Act, so much of the First Schedule to the Coinage Act, 1870 (in this Act referred to as the principal Act), and of the note to such First Schedule as relates to half-sovereigns, and in place thereof be it enacted that the weight and fineness of any half-sovereign is in this Act referred to as a tenshilling piece, and the remedy to be allowed in the making of such ten-shilling piece, shall be respectively the weight, fineness, and remedy specified in the schedule to this Act. 2. There shall be added to the fourth section of the principal Act a proviso that ten-shilling pieces shall not be a legal tender for payment of any amount exceeding five pounds. 3. – (1.) Subject as in this Act mentioned, the treasury shall make arrangements for the exchange by the Mint of half-sovereigns coined before the passing of this Act for ten-shilling pieces, and of sovereigns and gold coins of higher denomination which either – (a.) have been called in by proclamation; or (b.) having been in circulation for more than ten years are below the current weight, for new coins of the same denominations; Provided that where a coin tendered for exchange has been illegally dealt with, it shall not be obligatory on the Mint to exchange the same.

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The Monetary History of Gold (2.) A coin shall for the purposes of this Act be deemed to have been illegally dealt with where such coin has been impaired, diminished, or lightened otherwise than by fair wear and tear, or has been defaced by having any names or words stamped thereon, whether the same has or has not been thereby diminished or lightened. (3.) Loss of weight exceeding as follows, that is to say, (a.) three grains in a sovereign, and a proportionate weight in each gold coin of higher denomination; and (b.) two grains in a half-sovereign coined before the passing of this Act; shall be conclusive evidence that such sovereign, coin, or half-sovereign has been impaired, diminished, or lightened otherwise than by fair wear and tear. (4.) Coin shall be deemed to have been in circulation on the last day of the year specified thereon. 4. Section seven of the principal Act shall not apply to such coins as the Mint is required by arrangements made in pursuance of this Act to exchange. 5. Section of the principal Act shall not apply to the coinage of ten-shilling pieces; but ten-shilling pieces, if they have not been illegally dealt with, shall, subject to arrangements made by the Treasury, be exchangeable for gold at the Mint and by the Bank of England on behalf of the Mint at their nominal value, and in the case of bankers issuing bank notes in Scotland and Ireland may be substituted by such bankers respectively for silver coin in the reserve against which bank notes are authorised to be issued. 6. – (1.) Section ten of the principal Act shall not apply to any gold coin coined by the Mint after the passing of this Act. (2.) All profit made by the Mint on the coinage of gold after the passing of this Act shall be paid over to the Commissioners for the Reduction of the National Debt and shall form a separate fund entitled the Coinage Fund, and the money so paid over shall in such manner as the treasury may from time to time direct be invested and applied by the Commissioners for the Reduction of the National Debt towards defraying the expenses incurred by the Mint in the coinage of gold, and the exchange of light gold coin for coin of full weight, with power for the Treasury from time to time to direct that any sum appearing to the Treasury not to be required for the purposes of such expenses shall be applied by the said Commissioners towards the reduction of the National Debt, as if it were part of the new sinking fund. (3.) The accounts of the Coinage fund shall be audited as a public account. 222

The Heyday of the Gold Standard, 1820–1930 7. – (1.) All gold coin which has either before or after the passing of this Act been issued from the Mint or any branch thereof, and is imported into the United Kingdom after the day declared by order of the Treasury in that behalf and published in the ‘London Gazette’ (except gold in such small quantities as may appear to the commissioners of Customs to be brought by passengers for their personal use, and except ten-shilling pieces under this Act) shall be conveyed forthwith to an authorised bank, such conveyance and the landing of the coin, and any interim deposit which may be necessary, being at the risk and expense of the importer, and subject to such regulations as the Commissioners of Customs may from time to time prescribe; and any such gold coin landed, deposited, or conveyed in contravention of this section or any regulation made thereunder shall be deemed to be goods brought into the United Kingdom contrary to the provisions of the Customs laws, and those laws shall apply accordingly, so nevertheless that any forfeiture for an offence under this section, including any penalty, shall not exceed one-tenth part of the nominal value of the coin in relation to which the offence is committed. ‘Authorized Bank’ in this section means such one of the following banks as the importer desires, namely the Bank of England or Ireland or some branch thereof, or such bank or banks in Scotland as may, with the consent of such bank or banks, be appointed by the Treasury. (2.) The bank to which such gold is removed shall examine the same, and shall return to the importer all such coins as are equal to or above the current weight, and shall retain all such coins as are below the current weight, and shall pay for the same at the rate at which the Bank of England is required is required to issue notes in exchange for gold bullion, and in the same manner as if such coin were gold bullion. 8. Section eight of the Weights and Measures Act, 1878, shall extend to require the making of new denominations of standards of weight equivalent to or multiples of a ten-shilling piece. 9. The Isle of Man shall for the purposes of the principal Act and this Act be deemed to be part of the United Kingdom. 10. Whereas by section eleven of the principal Act it is, amongst other things, provided that shall be lawful for Her Majesty by proclamation to direct the establishment of branch Mints and to make regulations with respect to the coinage thereof; and whereas doubts are entertained whether Her Majesty is empowered to make regulations with respect to the branch Mints established before the passing of the principal Act at Sydney and Melbourne; and whereas it is expedient to remove such doubts: Be it enacted that in the construction of 223

The Monetary History of Gold the principal Act, a branch Mint established before the passing of the principal Act shall be deemed to be subject to the provisions contained in section eleven of the principal Act relating to branch Mints in the same manner as if such branch Mint had been directed to be established after the passing of the principal Act, 11. This Act shall, so far as may be consistently with the tenour thereof, be read as one with the principal Act, and expression in the principal Act ‘this Act’ and ‘the First Schedule to this Act’ shall mean respectively the principal Act as amended by this Act; and this Act and the principal Act may be cited together as the Coinage Acts, 1870 and 1884, and this Act may be cited separately as the Coinage Act, 1884. 12. This Act shall not apply to any British possession, but it shall be lawful for Her Majesty by proclamation to direct that any part of this Act is to apply to a British possession with or without modifications, and any such part shall thereupon apply accordingly. Provided that nothing in this Act or the principal Act shall empower Her Majesty to make ten-shilling pieces under this Act a legal tender in any British possession without the assent of such possession, testified in such manner as to Her Majesty may seem met. SCHEDULE

Denomination of Coin.

Ten-shilling piece

Standard Weight. Imperial Metric Weight. Weight. Grains. 55.47351

Grams. 3.59463

Standard Fineness.

Eleven-twelfths fine gold, one-twelfth alloy; or Millesimal fineness, 916.66

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Remedy Allowance. Weight per Millesimal piece. Fineness. Imperial Metric Grains. Grams. 0.2000 0.0130 0.002

6 November 1885 The Monetary Convention of the 6th of November 1885, agreed upon by the Delegates of the Latin Monetary Union

At the urging of the Swiss government, France, Italy, Greece and Switzerland created a monetary union with interchangeable gold and silver currencies. The union existed in incipient form since 1865. Spain, Bulgaria, Romania, and Serbia all adhered to the Union while never officially joining. The role of silver decreased within the system and it effectively became a monometallic system within a few years. The system was suspended during the First World War and eventually ceased to function in 1926. Source: US Congress, 49th Congress, 1st Session, Senate, Executive Document No. 29, Attachment No. 11. ARTICLE I.

France, Greece, Italy, and Switzerland remain constituted a union in respect to the fineness, weight, diameter, and currency of their specie coined of gold and of silver. ARTICLE II.

The types of gold coins bearing the impress of the high contracting parties are those of the 100-franc, 50-franc, 20-franc, 10-franc, and 5-franc pieces, fixed in respect to fineness, weight, tolerance and diameter as follows: Fineness. Denominations. Legal Tolerance standard. above and below. Thousandths. Thousandths. Gold: 100 francs 50 francs

225

Weight. Legal Tolerance standard. above and below. Grams. Thousandths. 32,258.06 16,129.03

1

Diameter.

Millimeters. 35 28

The Monetary History of Gold [table contd.] 20 francs 10 francs 5 francs

900

1

6,451.61 3,225.80 1,612.90

2

21 19 17

3

[Note: In the column for ‘Diameter’, the original mistakenly reads ‘Thousandths’ instead of ‘Millimeters’, but the error has been corrected in this transcription.]

The contracting Governments shall receive, without distinction, at their public treasuries, gold pieces coined in accordance with the foregoing conditions by either of the four states; they may, however, reject coins reduced in weight by abrasion one-half of one per cent. below the above-mentioned tolerances or with inscriptions effaced. ARTICLE III.

The type of silver 5-franc piece bearing the impress of high contracting parties, is fixed in respect to fineness, weight, tolerance, and diameter, as follows: Fineness. Weight. Legal standard. Tolerance above Legal standard. Tolerance above and below. and below. Thousandths. Thousandths. Grams. Thousandths. 900 2 25 3

Diameter. Millimeters. 37

The contracting Governments will receive reciprocally at their public treasuries the said 5-franc pieces. Each of the contracting states is pledged to redeem from the public treasuries of the other states silver 5-franc pieces reduced in weight by abrasion 1 per cent. below the legal tolerance, provided that they have not been fraudulently deteriorated or the stamp effaced. In France, silver 5-franc pieces will be received at the counters of the Bank of France, for account of the Treasury, conformably to the letters exchanged between the French Government and the Bank of France under the date of October 31 and November 2, 1885, and appended to the present convention. This engagement is assumed for the duration of the convention, as fixed by paragraph 1 of Article XIII, and without the bank being bound beyond that time under the tacit extension provided in paragraph 2 of the same article. In case the arrangements concerning the legal currency of silver 5-franc pieces coined by the other states of the union shall be set aside, whether by Greece, or by Italy, or by Switzerland, during the term of the engagement assumed by the Bank of France, the power or the powers that shall have superseded those arrangements engage that their banks of issue shall receive the 226

The Heyday of the Gold Standard, 1820–1930 silver 5-franc pieces of the other states of the union on precisely the same terms as those those under which they receive silver 5-franc pieces struck with the national effigy. Two months before the expiration of the period assigned for the denunciation of the convention, it shall be the duty of the French Government to inform the states of the union whether the Bank of France intends to continue or to conclude the engagement herein set forth. In default of such information, the engagement of the Bank of France will be subject to the provisions of the tacit extension clause. ARTICLE IV.

The high contracting parties agree not to coin any 2-franc, 1-franc, 50-centime or 20-centime pieces, save on the following terms as regards fineness, weight, tolerance, and diameter: Pieces.

Franc.c. 2 1 0.50 0.20

Fineness. Legal Tolerance standard. above and below. Thousandths. Thousandths. 835

3

Weight. Legal Tolerance standard. above and below. Grams. Thousandths. 10 5 5 2.50 7 1 10

Diameter.

Millimeters. 27 23 28 16

These pieces shall be recoined by the Governments that issued them whenever reduced by abrasion 5 per cent. below the tolerances indicated above, or whenever their inscriptions shall have been effaced. ARTICLE V.

Silver pieces coined according to the provisions of Article IV shall be a legal tender between individuals in the state which issued them to an amount not exceeding 50 francs at one payment. The state which put them in circulation shall receive them from its subjects or citizens without limitation as to amount. ARTICLE VI.

The public financial offices of each of the four states shall accept silver money coined by one or more of the contracting state, in accordance with Article IV,

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The Monetary History of Gold to an amount not exceeding 100 francs at each payment made at the said offices. ARTICLE VII.

Each of the contracting Governments agrees to redeem from private parties or from the financial offices of the other states the small silver coins issued by it, and give in exchange therefor a like amount of current money in gold or silver pieces, coined as provided by Articles II and III, on condition that the sum presented for exchange be not less than 100 francs. This obligation shall be extended for one year from the expiration of this convention. ARTICLE VIII.

The coinage of gold pieces under the conditions specified in Article II, excepting that of 5-franc gold pieces, which remains provisionally suspended, is free for each of the contracting states. The coinage of silver 5-franc pieces as provisionally suspended. It shall not be resumed until a unanimous agreement shall have been concluded on this subject between all the contracting states. Nevertheless, if any states should wish to resume the free coinage of silver 5-franc pieces, it can do so on condition of its exchanging or redeeming throughout the continuance of the present convention, in gold and at sight, for the other contracting states, on demand, silver 5 franc pieces coined with its effigy and circulating in their territory. The other states, moreover, are free in that case not to receive any longer the money that of the state resuming the coinage of the said pieces. A state desiring to resume such coinage shall, before doing so, take steps for the convening of a conference with its associates for the purpose of regulating the conditions of such renewal; the privilege mentioned in the foregoing paragraph shall not, however, be dependent upon the conclusion of an agreement, and the terms of exchange and redemption stipulated in the same paragraph shall not be modified. In default of an understanding, and while retaining the benefit of the foregoing stipulations as regards any state resuming the free coinage of silver 5franc pieces, Switzerland reserves the power of withdrawing from the Union before expiration of the present convention. This power shall, however, be subject to the double condition: (1.) That for four years from the taking effect of this convention, Article XIV and the appended arrangement shall not be applicable to those states that have not resumed the free coinage of silver 5franc pieces; (2.) that the silver coins of the said states shall continue during 228

The Heyday of the Gold Standard, 1820–1930 the same period to circulate in Switzerland, in pursuance of the stipulations of this convention; Switzerland, for its part, agreeing not to resume, during the same period of four years, the free coinage of silver 5-franc pieces. The Swiss Federal Government is authorized to proceed with the re-coinage of old issues of Swiss silver 5-franc pieces to the amount of 10,000,000 of francs, but at its own charge effecting the withdrawal of the old coins. ARTICLE IX.

The high contracting parties shall not issue silver 2-franc, 1-franc, 50-centime, and 20-centime pieces coined in pursuance of Article IV, save to an amount not exceeding 6 francs per capita, regard being had to the latest census taken in each state, and to the normal increase of population. This amount is fixed as follows: For France, Algeria, and the colonies For Greece For Italy For Switzerland

Francs. 256,000,000 15,000,000 182,400,000 19,000,000

The sums already issued by the contracting states shall be considered as forming part of the above amounts. The Italian Government is authorized, by way of exception, to coin the sum of twenty millions in fractional pieces, this sum being designed to secure the substitution of pieces coined in pursuance of Article IV of this convention for those previously in use. The Swiss Federal Government is authorized, by way of exception, in view of the needs of the population, to coin the sum of six millions in fractional silver pieces. The French Government is likewise authorized, by way of exception, to go on with the recoinage to an amount not exceeding 8,000,000 francs, in silver franctional pieces, of the pontificial money heretofore withdrawn from circulation. ARTICLE X.

Figures correctly indicating the year of actual coinage shall be stamped upon every gold and silver piece coined in the four states.

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The Monetary History of Gold ARTICLE XI.

The Government of the French Republic accepts the task of gathering together all the administrative and statistical documents relative to the issue of coins, to the production and consumption of precious metals, to monetary circulation, and to the counterfeiting and debasement of coins. It shall communicate them to the other governments, and the contracting countries shall advise in concert, if necessary, as to the measures best adapted to rendering this information as accurate as possible, as well as to preventing the counterfeiting and alteration of coin to securing the repression thereof. ARTICLE XII.

Any request to be allowed to unite in this convention made by a state accepting its obligations and adopting the monetary system of the union can be accorded only by the unanimous consent of the high contracting parties. The high contracting parties pledge themselves to withdraw from the circulation or to refuse legal currency to silver 5-franc pieces of states not belonging to the union. Such pieces shall not be received either by the public treasuries or by the banks of issue. ARTICLE XIII.

The present convention taking effect from the 1st day of January, 1886, shall remain in force until January 1, 1891. If one year before the latter date it has not been denounced, it shall remain in force from year to year, by tacit extension, and shall continue to be binding for one year from the 1st day of January next following its denunciation. ARTICLE XIV.

In case of the denunciation of this convention, each of the contracting states shall be bound to redeem the silver 5-franc pieces which it shall have issued, and which shall be in the circulation or the public treasuries of the other states, by paying to those states a sum equal to the nominal value of the coins redeemed, in such manner as shall be determined by a special arrangement to be appended to this convention.

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The Heyday of the Gold Standard, 1820–1930 ARTICLE XV.

This convention shall be ratified; its ratifications shall be exchanges at Paris as soon as possible. and at the latest, by December 30, 1885. In testimony whereof the respective plenipotentiaries have signed this convention, and have thereunto affixed the seal of their arms. Done in _____ [sic] at Paris this _____ [sic]. ***** Agreement concerning the Execution of Article 14 of the convention of _____ [sic], 1885. The Governments of France, Greece, Italy, and Switzerland, desiring to regulate by a special agreement the execution of the liquidation clause, inserted in Article 14 of the Monetary Convention, concluded between them, of even date, the undersigned, duly authorized for this purpose, have agreed on the following provisions. ARTICLE I.

During the year following the expiration of the Convention, proceedings shall be commenced for the reciprocal exchange and return to the country of origin of the silver 5-franc pieces which may exist in equivalent amounts in the various states. ARTICLE II.

The deliveries of coin or of funds rendered necessary by the execution of the present agreement shall be made: In France, at Paris, Lyon, or Marseilles; In Greece, at Athens; In Italy, at Rome, Genoa, Milan, or Turin; In Switzerland, at Berne, Bâsle, Geneva, or Zurich. ARTICLE III.

Each of the contracting states shall withdraw from circulation the silver 5franc pieces bearing the stamp of the other states of the Union. This withdrawal shall be completed by the first of October of the year following the expiration of the present Convention. 231

The Monetary History of Gold From that date all the silver coins mentioned above may be refused acceptance by the public offices elsewhere than in their country of origin. The states continuing to accept them can receive them only for its own account, and not for that of the state which issued them. On the 15th of January of the following year after the set-off has been made, the account of coins withdrawn from circulation shall be stated according to their nationality, in each of the states, and the others notified reciprocally. The balance, if one exists at that date, shall be kept by the state holding it, at the disposal of the state which coined the pieces. The latter shall withdraw these coins, paying for them at their nominal value. ARTICLE IV.

The payments stipulated in the preceding article shall be made in gold, or in silver 5-franc pieces, coined with the impression of the creditor state, or in drafts payable in that state, either in the same coin or in bank-notes which are current there. This payment may be apportioned into payments made every three months, provided that the account shall be settled inside of a maximum period of five years, counting from the day of the expiration of the Convention. These payments may be always wholly or partially anticipated. A bonus shall be paid on the amount payable of 1 per cent. annually during the second, third, and fourth years, and 1½ per cent. during the fifth year. Interest shall in each case be calculated from the 15th of January, the day of the settlement fixing the balance to be withdrawn, and in case of anticipation of the payments, it shall undergo a proportionate abatement. ARTICLE V.

All the expense of transport, both in the balance of silver coin which is to be returned to its country of origin and of the funds or specie intended to pay for it, is to be borne by each state as far as its own frontiers. ARTICLE VI.

As a partial exception to the preceding provisions, and in view of the exceptional situation of Switzerland, it is agreed: 1. That the 5-franc pieces issued by France, and withdrawn from circulation in Switzerland, shall be transmitted by the Federal Government to the French 232

The Heyday of the Gold Standard, 1820–1930 Government, which shall cause payment to be made for them to Switzerland according to the following conditions: The French Government will pay in succession on sight, in Swiss 5-franc silver pieces, or in gold coins of 10 francs and over, coined in accordance with the conditions of the Convention from the beginning of the year following the expiration of the said Convention, for all the consignments of 5-franc silver pieces issued by France and withdrawn from circulation in Switerland, under the reservation that the amount of each of these consignments shall not be less than 1,000,000 nor more then 10,000,000 francs. The final balance alone may be less than 1,000,000 francs. But the payments to be made in gold by the French Government to the Federal Government on account of the withdrawal of French 5-franc silver pieces, are not to exceed the sum of 60,000,000 francs. 2. That the silver 5-franc pieces issued by Italy, and withdrawn from circulation in Switzerland, shall be transmitted by the Federal Government to the Italian Government, which, from the beginning of the year following the expiration of the convention, shall pay their value, in succession, on sight, in Swiss 5-franc silver pieces, or in gold coins of 10 francs and over, coined in accordance with the conditions of the Convention aforesaid, or in sight-drafts on Berne, Bâsle, Geneva, or Zurich, payable in accordance with the conditions settled in the first paragraph of the fourth article of the present agreement. The amount of each of these consignments of Italian silver 5-franc pieces shall not be less than 500,000 francs, with the exception of the settlement of the final balance, nor more than 2,000,000 francs. The successive payments to be made by the Italian Government to the Federal Government shall be, as a general rule, composed, to the extent of at least two-thirds, of gold coin and of Swiss 5-franc pieces, and, for the remainder, of drafts in accordance with the conditions settled in the preceding paragraph. If any exception is made to this rule, the proportion shall be re-established on the occasion of the next payment. But the Italian Government shall not be held liable to pay in gold or in Swiss silver 5-pieces [sic], to the Federal Government, a total amount greater than 20,000,000, and the total amount of the payments to be made in money and in drafts by the Italian Government for the entire operation of withdrawing and exchanging the Italian 5-franc silver pieces circulating in Switzerland shall not exceed the sum of 30,000,000 francs.

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The Monetary History of Gold ARTICLE VII.

The present agreement shall be ratified and the ratifications thereof shall be exchanges at Paris at the same time as those of the monetary convention concluded, of even date, between the four states. In testimony whereof the undersigned have signed the present agreement, and have affixed the seals of their arms thereto. Done in duplicate at Paris on _____ [sic]. DECLARATION.

1. The Hellenic Government, referring to the several stipulations of article 8 the monetary convention of this date, and desiring to give, on its part, all possible guarantees for the continuance of the union, assumes the following engagement: During the continuance of the forced currency in Greece, the Hellenic Government will not resume the free coinage of silver, nor after the suppresion of the forced currency will it resume free coinage without a previous understanding with France and Italy. 2. The Swiss Federal Government declares that the obligation stipulated in the second paragraph of article 12 of the monetary convention concluded on this day and date, cannot be put into execution in Switerland except within the limits of federal legislation concerning banks of issue. An official certificate of this reservation is accorded to the Swiss Federal Government. In testimony whereof the undersigned plenipotentiaries, duly authorized to this effect, have signed the present declaration, which shall be considered as approved and sanctioned by the respective Governments, without other special ratification, by the simple fact of the exchange of ratifications of the monetary convention to which it has reference. Done in _____ [sic] copies at Paris the _____ [sic].

234

7 January 1886 ‘Message from the President of the United States [Grover Cleveland], transmitting, in response to a Senate Resolution of December 9, 1885, a Report of the Secretary of State, with Information relative to Gold and Silver Coinage in Europe’

This excerpt contains five of the original twelve attachments, including the Senate resolution; reports on the state of the coinage in Great Britain, France, and Germany; the Report of the United States Consul-General on the Conference of the Latin Monetary Union and the full text of the observations of the ConsulGeneral addressed to Union delegates. The reports of the American diplomats reveal the unwillingness of the major European powers – primarily Britain, whose lead was followed by Germany – to accommodate the United States’ desire for an international bimetallic agreement establishing a fixed ratio between gold and silver. Source: US Congress, 49th Congress, 1st Session, Senate, Executive Document No. 29. For the Text of the Monetary Convention, see above under the Date of the Convention.

To the Senate: I transmit herewith, in response to a resolution of the Senate of the 9th ultimo, a report of the Secretary of State in answer to the request for any documents or information received from our consul-general at Paris, or from the special agent sent to the financial centers of Europe in respect to the establishment of an international ratio of gold and silver coinage as would procure the free coinage of both metals at the Mints of those countries and our own. GROVER CLEVELAND. EXECUTIVE MANSION, Washington, January 7, 1886. *****

235

The Monetary History of Gold To the President: In compliance with the Senate resolution of December 9, 1885, I transmit with this letter sundry documents relating to the action taken by you, through this Department, to obtain information at the financial centers of Europe in respect of the practicability of establishing such an international ratio between gold and silver as would permit and induce the free coinage of both of these metals at the Mints of the States and of the leading commercial powers of Europe. As a condition precedent to Congressional action upon this profoundly important subject, the attainment of the knowledge and intention in relation thereto of those charged with the financial conduct and safety of the leading commercial nations of Europe has been sought and, I believe, obtained. Whilst the policy of this Government and the expression of legislative opinion has been fully recognized and amply expressed in the recital of the acts and resolutions of Congress, as will be perceived in the copy of instructions which accompany this letter, and a constant and candid avowal has at all times been made of the earnest desire of this Government to obtain and maintain the unlimited and free coinage of both of the precious metals, at such a ratio and equivalency of their valuation as shall lead to the withholding of neither from the Mint, but to secure a metallic currency whose volume can be supplied from the world’s production of both silver and gold, and to that end to cooperate internationally with foreign governments. Yet it has been the object of this Department and its agents, whilst avowing our own readiness to cooperate, not so much to impress our own opinions and wishes upon others as to obtain a well-considered and independent views from the most influential, responsible, and competent sources in order to lay before Congress. First. The actual status of the metallic currencies in the respective European countries; and Secondly. The intentions and policies of those governments in relation to the subject, with details of their action up to the present time. It is believed that the accompanying letters from the ministers of the United States to Great Britain, France, and Germany, respectively, summarize the and convey the true condition of opinion and intention of the governments and people to whom they have been severally accredited. The more effectually to attain this end a gentleman specially conversant with the question, a thorough and accomplished student of finance, was selected to act in conjunction with the resident envoys, and by personal conference and confidential urgency to ascertain the present opinions and purposes of those governments in respect of the subject in view. Mr Marble has thoroughly availed himself of the unusual opportunities thus afforded, and the information so gathered by him in quarters most authorita236

The Heyday of the Gold Standard, 1820–1930 tive and reliable, and from sources deemed entirely trustworthy, has been canvassed with diligence and care, and the results are plainly and succinctly set forth in the letters now transmitted of the ministers ‘in conjunction’ with whom he was instructed to act, and who were fully possessed of the information so required. No separate report by Mr Marble has been made, because the results of his investigation appear fully in the letters of Messrs. Phelps, McLane, and Pendleton. The convocation at Paris in June last of the monetary congress of the delegates of the European states composing the ‘Latin Union’ was deemed an opportune occasion for an expression of interest by this Government in the questions there considered. Mr George Walker, the consul-general of the United States at Paris, a gentleman well versed in fiscal science, who has on other occasions been selected by this Government to investigate the question of silver coinage in Europe, was requested by me to attend the proceedings of the Latin congress and make report thereupon to this Department. Mr Walker has intelligently performed the duty assigned to him, and his communication to the Department, containing a history of the proceedings of the late congress, and his views in relation thereto, is annexed. From Mr McLane, our minister at Paris, I have received, in its full text, a copy of the late monetary convention settled between the states of France, Italy, Switzerland, and Greece, and also a copy of the supplementary article by which the adhesion of Belgium was given to the alliance. Accurate translations of both of these documents accompany this letter. Respectfully submitted. T. F. BAYARD DEPARTMENT OF STATE, January 7, 1886

ATTACHMENTS No. 1. Resolution of the United States Senate, date 9 December 1885, requesting a communication concerning the possibility of establishing an international ratio between gold and silver. Resolved, That the President of the United States be requested to communicate to the Senate, if not incompatible with the public interest, any documents or information received from our consul-general at Paris, or from the special 237

The Monetary History of Gold agent sent to the financial centers of Europe, in respect to the establishment of an international ratio of gold and silver coinage as would procure the free coinage of both metals at Mints of those countries and our own. […] No. 4. Excerpt of a correspondence of E. J. Phelps, Legation of the United States, to T. F. Bayard, Secretary of State, dated from London on the 20th of October 1885 and concerning the position of Great Britain on bimetallism. […] I am satisfied that the British Government will inflexibly adhere to their past and present policy in respect to coinage; that they will not depart from the gold standard now and so long established; that they will not become party to any international agreement or union for the creation of a bimetallic standard or of a common ratio between gold and silver, for the purpose of making both an unlimited legal tender, nor adopt such double standard or common ratio in Great Britain. On this point both political parties quite concur, and I believe that if either were to attempt to introduce such a departure from the existing money standard it would be driven out of power by the force of public opinion. […] No. 5. Excerpt of a correspondence from Robert M. McLane, Legation of the United States, to T. F. Bayard, Secretary of State, dated from Paris on the 1st of October 1885 and concerning the state of the gold and silver coinage in France. […] Referring to my separate dispatch, under date September 11, I have to renew the opinion therein expressed, that while France would gladly receive the intelligence that the United States would adopt the French ratio of 15½ of silver to 1 of gold, no consideration of future consequences, whether for good or evil, could induce her to adopt the American ratio of 16 to 1; still less would she adopt any higher ratio to assimilate the present commercial or market value of silver with the value of gold, nor would she consent at any ratio now to permit an unrestricted or even a limited coinage of silver at her Mints. The present opinion and purpose of the Government and people being to maintain, if possible, the two metals at their present ratio of 15½ to 1 in domestic circulation and international exchange. How far these views might be modified if Great Britain and Germany were disposed to enter into any international arrangement, it is not necessary for me to consider, and the embarrasments now pressing upon France, caused by the 238

The Heyday of the Gold Standard, 1820–1930 practical results of the treaty between Latin powers, admonish her statesmen to exercise the greatest caution in treating this question upon any other than a purely domestic basis. In the early part of this year, in view of the session of the Monetary Conference of the Latin powers, the minister of finance directed a count of the entire circulation of gold and silver in France, similar to that which was made in 1868 and 1878. The count was made on the 28th of May. All the treasurers, receivers, public cashiers, etc., were ordered at the closing of their respective offices on that day to count all the 10 and 20 franc gold pieces in their possession, and all the 5-franc pieces in silver, and all the notes of the Bank of France, the whole together constituting the legal-tender money of this country, and to classify all the pieces of coin according to their respective nationalities. More than twenty thousand public officers were engaged in this count on that day, and with this count, as a basis, a very close approximation as been reached of the entire amount of gold and silver coin in circulation in France. In comparing it with a similar count made in 1868 and 1878, a very great increase of silver coinage appears. In 1868 the proportion of gold to silver in circulation was as 97.72 to 2.28; in 1878 it was 73.55 to 26.45; and in 1885 it appears to be 69.33 to 30.67. What is very notable in this connection is that in 1865 the use of silver 5-franc pieces was well nigh abandoned, but after the treaty between the Latin powers, which took effect fully in 1868, the silver circulation commenced to increase, especially in all the eastern, southeastern, and southern provinces adjoining Belgium, Switzerland, and Italy, while in the west and center there was no change in the old proportion. It was from this count that I was enabled in my separate and confidential dispatch, under the date of September 11, to inform you that a legal-tender silver coinage of about $600,000,000 in value was maintained in France, but it is conceded that this result is mainly due to the fact the coinage of silver was suspended not only in France, but in the other countries whose coin is allowed to circulate in France, this suspension being complete soon after the German coinage act of 1873. The amount of foreign silver coin in circulation in France under the operation of this treaty is about $200,000,000 in value, and the entire amount of silver coin in the Bank of France at this present time is about one-third of the whole circulation, foreign and domestic, and not one-half, as I stated in my former dispatch. The suspension of the coinage of silver, together with judicious financial administration, enables the bimetallic countries of Europe to maintain their existing circulation of silver coins, though France is greatly embarrassed by the large amount of foreign silver in circulation, that of Belgium amounting to about 465,000,000 francs, and that of Italy to about 435,000,000. 239

The Monetary History of Gold Belgium thus far refuses to redeem this silver coinage in gold and by this refusal is likely to prevent the renewal of the Latin treaty. It is believed in this country that the practical operation of the Latin treaty has been to hasten the fall of silver, and at the commercial value of silver today the 5-franc piece is intrinsically worth only about 4 francs, and at this value France would lose about 600,000,000 on the silver coin in circulation, if the respective countries coining it should refuse to redeem it in gold coin. These facts naturally suggest that the United States, the greatest gold and silver country in the world, should suspend its silver coinage in order to utilize it not only for circulation but as part of its Treasury reserve. […] No. 6. Excerpt of a correspondence from George H. Pendleton, Legation of the United States, to T. F. Bayard, Secretary of State, dated from Berlin on the 19th of October 1885 and concerning the German position on bimetallism. […] The adhesion of Germany to an international bimetallic union, such as was proposed by the United States and France in 1881, can scarcely be expected, it seems to me, within any limit of time now to be predicted. The cooperation of Germany in an international bimetallic union may be sought with fair hopes of success whenever it becomes possible to include in such a union England and Russia, the former of which seems to cleave tenaciously to her fold monometallism, while the latter staggers under the evils of a depreciated and largely fluctuating paper money. The adhesion of England at least is certainly now, and would probably for an indefinite period be, regarded by Germany as a sine qua non. […] No. 10. Correspondence from George Walker, Consul-General of the United States in Paris, to T. F. Bayard, Secretary of State, dated from Paris on the 20th of August 1885 and concerning the state of the gold and silver coinage in Europe. Attached to the correspondence are the observations of the consul-general addressed to the delegates of the Latin Monetary Union, dated from Paris on the 20th of July 1885, which express the position of the United States on bimetallism and the silver question. SIR: The conference of the Latin Union closed its sittings on the 4th instant, having adjourned on that day to meet again on the 1st of October. I had no interview with the conference as a body, in consequence of the absorbing and 240

The Heyday of the Gold Standard, 1820–1930 inharmonious character of its deliberations upon the subjects which had caused the meeting to be convened; but at the suggestion of the Italian delegation, I communicated to its members in writing the views and purposes of the Government of the United States, according to the instructions which I had received from you, as I shall, in a later part of this communication, more fully explain. I have stated in my former dispatches on this subject that the object of the conference was to determine whether the treaty of the Latin Union should be terminated at the end of the present year, pursuant to notice given to that effect by Switzerland, or whether, and for what period, and upon what conditions, it should be renewed. The terms of the ‘liquidation’ were the great stumbling block, and they have as yet prevented any agreement being reached. By the original treaty of 1865 no provision was made for the redemption of the coins emitted by each of the contracting powers, and which were to be freely received into all their public treasuries. The reason for the omission is obvious, and it presents in a nutshell, the singular vicissitudes which have marked the history of the precious metals during the last thirty years. In 1865 Europe was suffering from a drain of silver to the East, principally to India, to pay for cotton, the production of which had been greatly stimulated by the loss of the American supply during the civil war. The sudden growth of the industry in India, and of other industries sympathizing with it, demanded a large increase of the silver circulation, which could only be obtained by taking it from the European stock. A drain of silver from France and other continental countries ensued, which threatened to exhaust the supply of coinage of the then favored metal. The drain was especially felt in the smaller divisional coinage, the currency of the people, and of retail trade. The treaty of 1865 between France, Italy, Belgium, and Switzerland – thenceforth known as the ‘Latin Union’ – accordingly provided that the 5franc pieces of each of the allies, being the only full valued silver coins, should be received into the public treasuries of all of them, and should be a legal tender in their respective countries. At the same time each of those nations reduced the fineness of their smaller silver coins so as to prevent the export of them to the East. No provision was, however, made for liquidating the treaty at the end of its term by the redemption by each of the allies of the silver coins of its own creation. The omission is due to the fact that no one then contemplated the possibility that silver would come to be depreciated as compared with gold – the metal which had so lately, from the placers of California and Australia, flooded the currencies of the world, and which, in Europe, had fallen into serious disrepute. It is unnecessary for me to repeat, at length, the familiar history which records the change sentiment by which gold came to be the favored metal and 241

The Monetary History of Gold the steps by which silver has become degraded in public favor. But a brief summary of the events which led to these results may be useful in explaining the embarrassments which the late conference had to encounter. In 1873 the newly established German Empire resolved to substitute gold for silver in its monetary system. The five milliards of francs paid to Germany by France, as a war indemnity, and paid in gold, made this change of system possible, which otherwise would have been impossible. The Late Union took the alarm, and at first limited and ultimately stopped the coinage of silver. Germany, after sustaining heavy losses in the sale of thalers, and acting as a constantly disturbing force in the London and Continental money markets, ceased to sell silver, and the thaler coinage still remains in circulation. In January 1879, the United States resumed specie payments, and were followed, a few years afterwards, by Italy, which had suspended such payments in May, 1866. Up to the end of 1884 the United States had coined, since resuming specie payments, $550,000,000 in gold, being $150,000,000 more than the total production of her gold mines during that period. I have not the data from which to state the more recent absorption of gold by Italy, but I may state, in general terms, that specie payments were resumed in that country by means of a gold loan, contracted in London; better terms, which could have been obtained in Paris, being rejected, because, under the currency laws of France, the subscriptions might have been paid in silver. In the mean time the use of gold in the arts has been greatly augmented, the last report of the of the Director of the United States Mint showing that half the present American product is now thus absorbed in our country alone. The gold product of the world has, at the same time, seriously declined, and is steadily declining. The consequence of these new conditions has been that for the last seven years the coinage of gold in Europe has been practically suspended, and it is now generally admitted that gold has risen in value throughout the world, not only as measured in silver, but as compared with all commodities which it is the function of money to measure and exchange. Trade and agriculture have taken the alarm, and, for the first time, they are making a serious and determined protest, not only on the continent of Europe, but even in England, against the continued slavery to economic opinion, which has stubbornly resisted facts patent to the rest of the world in obedience to a falsely applied scientific theory. I have deemed this rapid sketch of the monetary situation important, because all the difficulties of liquidating the treaty of the Latin Union, and of facing the results which must follow from its dissolution, hinge upon the changed relations to each other, of gold and silver, in the money of the world. The precise obstacle which stood in the way of the harmonious action of the late monetary conference, and the extension of the period of the alliance, 242

The Heyday of the Gold Standard, 1820–1930 was the refusal by the Belgian delegates to agree that Belgium should redeem her 5-franc pieces in gold whenever the union should be finally dissolved. France, Italy, and Switzerland were willing to enter into such a convention. The Belgian delegates, however, insisted that, as the coins of their country had been struck at the public Mint, for the account of individuals, the Government was in no manner bound to maintain the intrinsic value of the of the silver in these coins by redeeming them when depreciated. It was, on the other side, maintained that from the time when, by the action of the Latin Union silver coinage ceased to be free among the allied powers, and while coins were struck only by the several Governments for the public account, in limited quantity, and out of a depreciated metal, a moral responsibility, at least, devolved upon the coining nations to entail no loss upon their allies by such continued coinage. Neither party to this contention has been willing to yield its opinion. The Belgian Government is understood to sustain its delegates, and France and the allies have, thus far, refused to renew the treaty without a condition of liquidation, such as I have described. The press of Paris and the leading bankers and economists in Belgium are now urging the importance of renewing the treaty, and are pointing out the dangers which must inevitably be met in the event of its dissolution. It is hoped, in both countries, that some ‘modus vivendi’ may be arrived at before the October meeting. As the ‘procès verbaux’ of the conference have not yet been made public, I am unable at present, to give a more detailed account of its deliberations. I have reason, however, to believe that a large part of the discussions were not of a character to interest or instruct the Government or people of the United States, and that the summary which I have already given sufficiently expresses their general purport. As soon as the official report is published I shall hasten to lay it before you in a subsequent dispatch. I have been unofficially informed by delegates that two important measures had been under consideration, and were likely to be adopted, if the treaty of union is renewed. One of them gives to each of the allies liberty to withdraw from the union without consent of its associates, their unanimous consent now being necessary. The other contemplates the establishment, at Paris, of a central bureau, or organ of the union, by which information bearing on the monetary question and situation may be constantly received and disseminated. It is obvious that both of these messages would be advantageous to the cause of an international bimetallic treaty. To return to my own relation to the conference, I beg to recall to your mind that, as the result of diplomatic communications passing between the Government at Washington and the Italian and Belgian Cabinets, permission was accorded to the delegates of Italy and Belgium to confer with me in an offi243

The Monetary History of Gold cious manner upon the monetary question at the time of the meeting of the conference at Paris. […] The minister of the United States at Paris also presented me to the French minister of finance, explaining to him the nature of the instructions with which I was charged. I received from Mr Sadi Cagnot a very courteous response to this introduction, in which he expresses satisfaction that I had been charged by the Government of the United States to take part in the labors of the conference. […] As I subsequently took occasion to state in the observations submitted by me to the conference, these approaches on the part of our Government found their justification in the wish which had been expressed by Italy, when asking for a postponement of the conference in January, to inform itself concerning the intentions of the United States on the subject of coining silver. The French minister of finance, in the debate on the silver question, which took place in the chambers in March last, on the interpellation of M. de Sonbeyran, also expressed the hope that the discussions of the conference would be extended to a consideration of a national rehabilitation of silver. On the day on which the conference had its first meeting I had an interview with the French finance minister, in which it was arranged that I should first address myself to the Italian delegates, with whom I was personally acquainted, all of them having been delegates to the International Monetary Conference of 1881, and that they should submit to the conference the question whether and in what manner I should be received by that body. I accordingly waited upon Mr Luzzatti and his associates, and both at that interview and subsequently had some general conversation with them upon the monetary situation. They advised that I should put into print the observations which I proposed to submit to the conference, in order to [permit] a more careful consideration of them. I complied with this suggestion, and as soon as possible furnished copies of the observations to the Italian delegates. Mr Luzzatti, chairman of the delegation, afterwards conferred informally with the members of the conference as to my being received but was met with the objection that the delegates had no power to act outside of the terms of their mandate, and that in the pressure of the difficult domestic questions which they had to settle, the conference could not, at that time, occupy itself with a more general discussion of the monetary situation. Much as I regretted the answer, I could not, as matters then stood, have expected a more favorable one. As I had already furnished copies of the observations to the Italian delegates at their request, I thought it my duty to place them also in the hands of all the other members of the conference, which I did in a letter addressed to the president of the conference, Mr Duclerc. […] It will be observed that in this paper I have aimed to avoid all academic discussion of the silver question, and have confined myself to a simple reference, 244

The Heyday of the Gold Standard, 1820–1930 first, to the dangerous position in which the United States finds itself as the sole coiner of silver among commercial nations, and, secondly, to the paralysis which has fallen upon the commerce of the world by the concurrent scarcity of gold and degradation of silver. Before entering upon these general considerations, however, I felt it my duty to meet and refute the constantly repeated charge that the efforts of the United States to promote a bimetallic treaty with Europe grow out of the fact that we are producers and sellers of silver. This charge has been very persistently urged by those opposing a treaty, and it has seriously interfered with our efforts in that direction. I was able to make this explanation, which I felt to be called for, the more clearly and unanswerably by reason of the part which I had personally taken in the silver discussion in America, from its beginning, and more particularly because of the missions with which I had been charged by our Government in Europe having in view an international monetary treaty. I was strongly urged to make these explanations by several of our most competent bimetallic allies in Europe, and I have their assurances that the explanations now given by me are a complete and satisfactory answer to the charge of interested and covert motives. It is not necessary for me to repeat, in this dispatch, any part of the argument presented in the observations, which I hope will meet with your approval. I need only now recur to certain features of the European situation which would seem to make the monetary question easier of solution than it has heretofore proved to be. The parliamentary inquiry in England, which has just been initiated by the appointment of a royal commission, distinctly recognizes that the discord at present existing between precious metals is one of the alleged causes of industrial and commercial distress. The appointment of Mr Gibbs, one of the ablest English defenders of the bimetallic system, and of Sir Louis Mallet, who with Lord Reay (now governor of Bombay) represented the Indian office in the international conference of 1881 to lead the inquiry on this subject, gives assurance that the investigation will be intelligent and thorough, and that all the facts which are believed to establish the impossibility of conducting the commerce of the world on a gold basis will be brought out in their true relations. The chambers of commerce of Manchester, Birmingham, Liverpool, and Glasgow, four of the largest towns in the United Kingdom, have adopted resolutions, calling on their members in Parliament to support this branch of the general investigation; and it is very clearly indicated in the debates of the meetings at which these resolutions were passed, that an intelligent majority in those great commercial centers has reached the conclusion that the silver question is largely responsible for the existing distress, and I think I am justi245

The Monetary History of Gold fied in saying that they believe that bimetallism, to be established by international treaty, is the only sufficient monetary remedy. But the ultimate solution of the monetary question must, in all countries, rest with the legislative bodies, because money is the creation of law, and it must always be borne in mind that the Parliament of Great Britain is a very conservative body, and that it is strongly prejudiced in favor of the gold standard. The Liberal party, under the recent extension of the suffrage, is likely to have an increased majority in the new House of Commons, and it unfortunately happens that in England free trade and a gold currency are popularly believed to be indissolubly linked together. But all great commercial reforms in England have begun by popular agitation, and have been forced upon Parliament by the great commercial cities; and if the inquiry about to be instituted should clearly show that the rehabilitation of silver throughout the world, and its admission to full monetary functions in Great Britain are necessary to restore prosperity to the trade of Manchester, Birmingham, Liverpool, and Glasgow, it is hardly possible that so enlightened a body as the British Parliament will refuse to listen to their demand. It is still a more hopeful sign of progress in England that doubts as to the divine origin of the currency law of 1816 have begun to assail the learned universities, and it is not impossible that from a professor’s chair at Cambridge a new monetary doctrine may be enunciated, and shown to be not inconsistent with the national policy of free trade. With the adhesion of Great Britain, the adoption of international bimetallism would be very simple. Without that adhesion it would be equally practicable, safe, and effective if the system were accepted by Germany. Of this there is much reason to hope, inasmuch as the prevailing sentiment of that country is unmistakably in favor of the restoration of silver to full monetary functions. In Germany the learned body has taken the lead in this direction, and it has been followed by all the industrial classes, agricultural and manufacturing, and by the leading commercial houses in Hamburg and elsewhere. It is also asserted that a majority of the national parliament has reached a similar conviction, and may, at any early date, be persuaded to act. I beg to reiterate the opinion which I have expressed in former dispatches, that nothing will so much hasten the adoption in Europe of the monetary policy which we desire to have adopted as the suspension of silver coinage in the United States. Deprived of this artificial support, silver would rapidly find the level to which recent monetary legislation and action of this continent has doomed it: and those who have promoted that legislation and action, as well as those who suffer from it, would thus be brought face to face with its legitimate consequences. I need only refer, in support of this opinion, to the declaration of Mr Goschen, recently made to the Chamber of Commerce of 246

The Heyday of the Gold Standard, 1820–1930 Manchester, ‘that there was no hope of improvement in the commercial situation until it was known what the United States will do with the Bland bill’. Continued coinage under that law, as well as any other monetary use of silver in the United States which tends to uphold its price in the market of the world, will have the effect to postpone a final and satisfactory settlement of the monetary question, and thus to deepen the gangrene which, in all countries, is eating into the vitals of production, industry, and trade. ***** Observations addressed by Mr Walker, Consul-General of the United States, at Paris, to the Delegates of the Latin Monetary Union assembled in conference at Paris, July 20, 1885 [translated from the original French]. MR MINISTER AND GENTLEMEN: I come before you in conformity with the instructions of my Government, and with the assent of most of the powers represented in this conference. I am here for the purpose of explaining to you, briefly, the present attitude of the United States on the monetary question, as well as the policy which the President and his Cabinet intend to pursue in respect to it. The President is of the opinion that, under the circumstances existing at the present moment, it might be useful to make known, beforehand, the views and purposes of the new Government of the United States, in respect to the question which bears so closely upon the well-being both of the Old and of the New World. He addresses himself the more willingly to the distinguished body before which I have the honor to speak, because one of the Governments interested, in asking for an adjournment of the conference in the month of January, expressed a wish to inform itself concerning the intentions of the United States on the subject of coining silver. The French minister of finance, in replying to the interpellation if Mr de Soubeyran, on the 7th of March, also declared that he should be glad to see the discussions of the conference extended to a consideration of the international rehabilitation of silver. I am instructed to say to you that the policy of the new American Government, in respect to the continuance of silver coinage, does not differ from that of its predecessors. The newly elected President, Mr Cleveland, on the 24th of February last, in reply to a letter addressed to him by certain members of the House of Representatives, before his assumption of office, declared his opinions very frankly on the silver question, and showed himself to be in perfect accord with the Presidents who have preceded him, on the essential question now under discussion in the United States – namely, the continuance of silver coinage under the Bland bill. He did not hesitate to avow that it was, in his opinion, the duty of Congress to suspend further coinage. He declared that a 247

The Monetary History of Gold disastrous crisis was close at hand in which gold is likely to siappear from circulation and when we shall be reduced to silver alone; that under the operation of the silver coinage law, the flow of gold into the Federal treasury had been steadily diminished, and that silver and silver certificates had displaced, and were then displacing, gold in the Treasury, and that the sum of gold available for the payment of the gold obligations of the United States, and for the redemption of the circulating notes called ‘greenbacks’, if not already encroached upon, was perilously near encroachment. These being the facts of our present condition, our danger, and our duty to avert the danger seemed to the President to be plain. To maintain and to continue in use the mass of our gold coin is possible by a present suspension of the purchase and coinage of silver, and the President affirmed that he was not aware that by any other method it is possible. If this state of things were not arrested, he predicted a prolonged and disastrous crisis, which would involve every industry in the country, and would bear most heavily of all on the laboring classes. In the closing days of an administration, and of a chamber whose mandate terminated on the 4th of March, it was not possible to secure the desired suspension of silver coinage; but the Senate of the United States on the last day of its late session, and too late to receive the concurrence of the House of Representatives, passed the following resolution: ‘That the President of the United States is hereby requested to enter into negotiations with the states of the Latin Union, and such other foreign powers as he shall deem advisable, with the purpose of securing such treaties with them as shall bind the agreeing thereto to open their respective Mints to the free coinage of silver, with full legal-tender power, at such uniform rate to gold as shall be agreed upon.’ The frank and forcible declarations of the new President explain the whole monetary question, and now it presents itself to the eyes of a large part of my American countrymen. In the presence of a situation so threatening, you cannot doubt that the American Government will do its utmost to be extricated from it. If we are obliged to act alone, there is no other way open to us for averting the danger than by suspending silver coinage. I am authorized to say to you, on behalf of the Government, that it will use its utmost endeavors to prevent the shifting upon our shoulders of the whole burden of depreciated silver. The sentiments of the new Congress, which is to convene on the month of December next, as well as those of the country, which are daily growing more emphatic, encourage us in the hope that before the end of the current year we shall be able to extricate ourselves from the state of isolation in which we now stand. When our situation shall be thus assimilated to that of Europe, the field of discussion will be also simplified. The 248

The Heyday of the Gold Standard, 1820–1930 latest advices from New York indicate that the President’s fears are being fast realized, and that the depletion of gold in the public Treasury has obliged the banks to tender to the Government a portion of their reserves, in order to tide over the difficulty till Congress meets in December, and the New York Clearing House has adopted resolutions in that sense. It is for you to judge how this state of things in America bears upon the silver question in Europe. But before adverting to the particular circumstances which seem to us, more than ever heretofore, to make it necessary to arrive at a solution of this difficult question by international agreement, I must say something in answer to a charge which has always been brought against the United States. The partisans of the single gold standard have always accused us of coming to Europe as vendors of silver, and have asserted that the owners of silver mines have always inspired us our advocacy of the bimetallic system. This charge was made formally by a delegate of the last international conference in 1881, and it has been repeated in so many forms and so many quarters that it seems necessary, at this moment, to explain our true relation to the past two conferences. The conference of 1878 was called on the sole invitation of the United States; the second conference, that of 1881, on the joint invitation of France and the United States. The history of these two invitations is as follows: The invoking of an international conference was imposed as a condition of the Bland bill by the Senate of the United States. The Bland bill was introduced into the House of Representatives under the influence, not of the owners of silver mines, who were neither numerous nor influential in the country, but of the inflationists – the advocates of inconvertible paper money – who having been defeated in their policy by the resumption of specie payments which was to take place on the 1st of January, 1879, sought in the free coinage of silver, a parachute for the fall of prices, imposed upon the debtor class, by the return of coin values. The Bland bill, as it passed the House of Representatives, provided for the unlimited coinage of silver of full legal tender capacity. The Senate opposed the free coinage, and consented to the limited coinage ($2,000,000 in bullion per month) only as provisional measure, and as a concession to the inflationists, and that only on the condition that Europe should be invited to join us in restoring silver to free coinage at a fixed relation with gold. I am able to make this explanation very exactly, because I myself, by request of the Senate committee, drew up the conference clause as it now stands in the law; I was at that time much occupied with banking and currency questions, and had opposed in a New York newspaper all silver coinage without a previous international 249

The Monetary History of Gold arrangement. The inflationists, with whom Mr Jones, Senator for Nevada and a wealthy silver mine owner, sympathized and acted on this question, opposed both the limited coinage and the conference. They did the same, also, in the report of the silver commission, of which Mr Jones was chairman. I am indebted to the Senator who reported the bill and secured its passage for these details. The conference of 1878 was convoked in spite of the owners of American silver mines, and by their influence. They were equally without influence in the joint invitation of the United States and France, in 1881. The history of this latter meeting is as follows: After the failure of the first conference the Government of the United states approached the European powers confidentially on the silver question. I was charged by the President with the execution of this mission. During the summer and autumn of 1879 I visited London, Paris, and Berlin, and conferred semi-officially (‘officieusement’) with the ministers of those countries. Without betraying the confidences of such a mission, I may be permitted to say that the reception which was everywhere extended to me was not unfavorable to its object. On my return to the United States, at the end of 1879, I made a report of my mission. This was on the eve of the Presidential election of 1880, which resulted in the choice of President Garfield, in November of that year. I had then entered upon my duties as consul-general of the United States at Paris. Immediately after the election of President Garfield I received from a French statesman, then occupying a high public position, a personal suggestion for the renewal of negotiations which I had conducted the year before. I acquiesced in this suggestion, and opened correspondence on the subject, not only with the American Government then in power, but also with Mr Garfield himself. In pursuance of these overtures I was instructed to act officially with the French Government, and the joint invitation by these two governments resulted from that intervention. In all these negotiations the owners of American silver mines had not the slightest part or influence. The initiative of the last conference was French and not American. I trust that these necessary explanations will set at rest the suspicion that the United States appears in Europe in the attitude of a seller of silver. We have, it is true, valuable silver mines on our continent, and the product of those mines was, in 1884, about $48,000,000: but we also produced $30,000,000 of gold, and either of these sums is of trivial importance with the volume of our other productions and industries. Mr Howe, one of the American delegates to the conference of 1881, justly asserted that was are a nation of farmers and not of miners; he gave the figures of agricultural products, showing that this production alone then amounted to $2,240,000,000, or more than forty-six times the value of our silver product; and it has since 250

The Heyday of the Gold Standard, 1820–1930 largely increased. If you add the other mineral products, iron, coal, lead, copper, and petroleum, and the products of industry, you will see what a very inconsiderable place silver holds in the aggregate annual production of our country. It cannot, for one moment, be supposed that this inconsiderable industry will be permitted to control the destinies of other interests immeasurably greater. These productions of all classes lead also to a vast domestic and foreign commerce, which is operated only by money, or values expressed in money. Can you suppose that we should be guilty of the folly of sacrificing the vast commerce of our country to our inconsiderable silver-mining industry? We cannot alone determine what the money of the world shall be; it is for that reason that we ask you to agree with us in determining so important a question. Representing a continent and 55,000,000 of people, the request is not unreasonable. Whatever decision Europe may come to, the United States can abide by it with less anxiety than any other country, for we are producers of gold as well as silver. If the complete demonetization of silver should be decreed, this decision will add largely to the $550,000,000 of coined gold which we now have, as against about half that amount of silver, and would, in like degree, increase the value of our annual gold product. During the last seven years the Mints of Europe have coined scarcely any gold. The United States has coined, during the same period, $382,000,000, being $150,000,000 more than her total production, which sum she has drawn from European stock, while you have received nothing from our production. But the important fact, as regards the future of the gold currency is that Europe is now drawing no gold from the American mines, while American has always a considerable sum of her own production with which to aliment her circulation. Nor can you draw any gold from America as long as the balance of foreign trade is, and is likely to remain, in our favor. In point of fact we, in the United States, consume nine-tenths of all that we produce, while Europe depends on us for the produce of our wheat fields, of our cotton fields, of our petroleum wells, and of our animal food in amounts which seem likely to assure to us a favorable balance in future. So long as that balance remains you will continue to send gold to us, as you have done in the last seven years, and the ‘famine of gold’, which for some time has existed, must be seriously accentuated. Is there any doubt that this famine exists? The best statistical authorities in Europe seem to agree that it does exist. The evidence on the subject is resumed, in a most convincing manner, by Professor de Lavelaye, in an article published in the Journal des Economistes in March last, and by M. Allard, director of the Belgian Mint, in his late exhaustive work on the crisis. But it is in England more than anywhere else – the only great commercial 251

The Monetary History of Gold country having a single gold standard – that the state of the gold supply and its future prospects are regarded with the closest and most anxious scrutiny. More than ten years ago the London Economist pointed out the declining product of the mines, and the struggle for gold which the German coinage law of 1873 had established between London and Berlin. It stated the remarkable fact that, for a considerable period, every change in the rate of interest made by the Bank of England had been followed by the German Imperial Bank, and it predicted the very troubles which have since arisen. Two English economists of exceptional authority each have repeated and emphasized, within a few weeks, opinions heretofore expressed by them on the scarcity of gold and its effect on prices (Mr Goschen and Mr Giffen). Mr Goschen, in his address before the London Institute of Bankers, in April, 1884, called attention to the declining production of gold, and to the exceptional demands made upon it, within the last few years, by the adoption of a gold currency in Germany and the resumption of specie payments in the United States and Italy. He also noted that a sum of not less than ten millions sterling was annually absorbed by the arts and industry. Such demands, he said, could not fail to be followed by a general decline of prices, and such, he affirmed, was the general opinion of economists on the subject. Mr Giffen, who spoke at the same meeting, and who, as head of the statistical department of the Board of Trade, enjoys exceptional opportunities for the study of prices, stated in his conclusion that ‘the pound sterling had risen in a permanent manner’, which is only another mode of expressing the fact that gold has grown scarcer and dearer.

252

30 January 1888 Letter from Mr Alfred de Rothschild to the Chairman of the Gold and Silver Commission: ‘Second Report of the Royal Commission appointed to inquire into the recent Changes in the relative Values of the precious Metals; with Minutes of Evidence and Appendices’

Among the appendices is a letter from Mr Alfred de Rothschild to the Chairman of the Commission advising against the introduction of bi-metallism in Great Britain and advocating the retention of the gold standard. The letter, dated from 4 July 1887, is reproduced below. Source: House of Commons, House of Commons Parliamentary Papers, 1888 (London: House of Commons, 1888), vol. 45, cmnd. 5248, p. 222.

APPENDIX I. Mr ALFRED DE ROTHSCHILD to the CHAIRMAN of the COMMISSION. New Court, E.C., 4 July 1887. MY LORD, The Governor of the Bank has communicated to the Court the invitation of the Gold and Silver Commissioners to the Directors to offer evidence on the questions now before the Commission, and I as one of the directors beg to avail myself of that privilege. I trust, however, that your Lordship will excuse me if I do not do so at any great length; to do so would entail entering into a great many statistics, and would likewise mean dealing with details and figures which I would infinitely rather leave in more competent hands. But the broad question of whether the introduction of bi-metallism into this country would be desirable, is one which may be approached even by a humble individual like myself. I am strongly opposed to any radical change as regards the metallic circulation of Great Britain. In the first place, I hold that the progress of civilisation is towards diminishing the requirement of large amounts of bullion instead of 253

The Monetary History of Gold increasing the same, and what better proof can you have in favour of my argument than the existence and perfect working of our Clearing House. That institution shows an average weekly return of one hundred millions sterling, which hundred millions sterling mean bonâ fide transactions to that extent have taken place without the intermediary influence of bullion or even bank notes. In the face of such a perfect banking system, or rather such very simple means for the exchange of sums of such colossal magnitude, does it not seem an anomaly to say there is not sufficient bullion in the country; you must make silver a legal tender so as to enable A, at his option, if he owes B, 50,000l., to discharge his debt by delivering at his door so many tons of silver. As long as the British public has confidence in the notes of the Bank of England, this country will not require any excessive amount of bullion; and the moment that confidence ceases, it is the gold which would be sought and not the silver. What would be the position of the Bank of England if bi-metallism were to be introduced throughout Europe? I venture to think, an extremely dangerous one, and if a financial crisis arose, whether from internal or external causes, the Bank would be unable to protect its stock of gold, and would be inundated with silver. This would not, and does not, apply to other countries, because the laws which regulate the statutes of their State banks are not so clearly defined nor so rigorously enforced. For instance, the Bank of France in ordinary times does not give any really large amounts of gold in exchange its notes, whilst in extraordinary times it adopts, very promptly, the necessary steps to protect its stock of bullion. What took place when the late war broke out between France and Germany? The Bank of France not only did not pay its notes in gold, but a quantity of five-franc notes were immediately printed, in addition to which the Bank was authorised to issue more notes than it was legally entitled according to its charter. This did not prevent, nor would it prevent, the French bankers from drawing bullion away from this market, either by sales of bonds on the Stock Exchange or by getting their bills discounted in the open market here. As regards Germany, that country has also certainly a gold standard, but it would be difficult, if not impossible, to obtain any large amount of gold from Berlin or from any of the branches of the Imperial State Bank. Then again, as to Italy, there is a large amount of gold stored away there, but, as in reality it does not see any daylight, that country might as well not have departed from its paper currency. Therefore, to sum up the situation in a few words, London being the centre of the financial world, we have to be doubly careful to protect our stock of gold; but if bi-metallism were introduced throughout Europe, we should have 254

The Heyday of the Gold Standard, 1820–1930 a much greater difficulty in doing so, and should be obliged to increase our stock of silver, whether it suited us or not. Whilst feeling very strongly on these points, there can be no doubt that there are grievances both in India and China in connexion with the silver question, and if anything could be done towards diminishing those grievances it would be extremely desirable. To find, however, a remedy for both past and present grievances would be difficult, if not impossible, but as regards the former, old contracts in connexion with pensions, etc., might be revised, whilst as regards present grievances, the fact of the rupee having fallen considerably below its original value is not in itself more unfair than the exchange fluctuating between this and any other country. That something ought to be done for India there can be no doubt; but it hardly seems to me a sound argument to say that because a grievance exists in that country it would be advisable to introduce into this country that which might prove a very dangerous experiment. I beg to remain, my Lord, Your Lordship’s very faithful and most obedient servant (Signed) ALFRED DE ROTHSCHILD.

The Right Hon. Lord Herschell, etc., etc., President of the Royal Commission on Gold and Silver Currency

255

October 1888 Gold and Silver Commission: Excerpts from the ‘Final Report of the Royal Commission appointed to inquire into the recent Changes in the relative Values of the Precious Metals; with Minutes of Evidence and Appendices’

Several of the appendices contain information concerning gold movements. Listed below are the titles of several pertinent appendices. Source: House of Commons, House of Commons Parliamentary Papers, 1888 (London: House of Commons, 1888), vol. 45, cmnd. 5512, p. 285.

LIST OF APPENDICES II.

–

IV.

–

VII. IX.

X.

–

–

–

XI. XII.

– –

Proposal for an International Convention fixing a ratio between Silver and Gold, submitted to the Commision by Mr Samuel Montagu, M.P. Note by Sir Thomas Farrer on the use of Gold in railway transactions in the United Kingdom. Memorandum by Mr John Henry Norman on the fall in the Gold price of Silver, and the fall in the prices of commodities generally since 1873. UNITED KINGDOM. – Statistics for the years 1855–1887 of the import, export, and coinage of the precious metals; the Note circulation; the bullion in the Bank of England; the rate of discount; the stamp duty levied on Bills of Exchange; and the amounts cleared at the London Bankers’ clearing house. UNITED KINGDOM. – Movement of Gold bullion and specie from and to foreign countries from 1858 to 1887. UNITED KINGDOM. – Movement of Silver bullion and specie from and to foreign countries from 1858 to 1887. FRANCE. – Statistics of the import, export, and coinage of the precious metals since 1860, and of the bullion, Note circulation, and rate of discount of the Bank of France. 256

The Heyday of the Gold Standard, 1820–1930 XIII.

– BRITISH INDIA. – Tables showing the imports and exports of merchandise, of Gold and Silver, the value of the silver coined; the amount of Council Bills, and of the Government Note Circulation, from 1860–1 to 1886–7. XVI. – Translation of Dr Soetbeer’s ‘Materialien zur Erläuterung und Beurtheilung der wirtschaftlichen Edelmetallverhältnisse und der Währungsfrage [Materials on explanating and evaluating the economical precious metal proportion and the standard quastion]’, Berlin, 1886.

257

9 July 1889 Coinage Act, 1889: ‘A Bill, to amend the Coinage Act, 1870, as respects Light Gold Coins’

The full text of the amendment is given below. Source: House of Commons, House of Commons Parliamentary Papers, 1889 (London: House of Commons, 1889), vol. 1, pp. 365–8.

WHEREAS by section seven of the Coinage Act, 1870, it is enacted as follows: ‘Where any gold coin of the realm is below the current weight, every person shall, by himself or others, cut, break, or deface any such coin tendered to him in payment, and the person tendering the same shall bear the loss:’ And whereas the said section has failed to maintain the integrity of the gold coinage of the realm, and it is expedient to provide for the exchange of a portion of such gold as, owing to fair wear and tear, are below the least current weight without charging the holders thereof for the loss: Be it therefore enacted by the Queen’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows: 1. – (1.) Any gold coin of the realm coined before the reign of Her present Majesty which is below the least current weight as provided by the Coinage Act, 1870, may, within the time and in the manner from time to time directed by Her Majesty the Queen in Council, be tendered for exchange, and, if it has not been illegally dealth with, shall (notwithstanding anything in section seven of the Coinage Act, 1870) be exchanged or paid for by or on behalf of the Mint at its nominal value: (2.) Any expenses incurred by reason of such exchange or payment shall be defrayed out of moneys provided by Parliament.

258

The Heyday of the Gold Standard, 1820–1930 (3.) For the purposes of this Act a gold coin shall be deemed to have been illegally dealth with, where the coin has been impaired, diminished, or lightened otherwise than by fair wear and tear, or has been defaced by having any name, word, device, or number stamped thereon, whether the coin has or has not been thereby diminished or lightened. (4.) In a gold coin loss of weight exceeding the amount specified in that behalf in the schedule of this Act shall be for the purpose of this Act be conclusive evidence that the coin has been impaired, diminished, or lightened otherwise than by fair wear and tear. 2. This Act may be cited as the Coinage Act, 1889. This Act and the Coinage Act, 1870, may be cited together as the Coinage Act, 1870 and 1889. SCHEDULE Loss of Weight which is to be conclusive evidence of Coin being illegally dealt with. Description of Gold Coin.

A sovereign coined before the reign of Her present Majesty. A half-sovereign coined before the reign of Her present Majesty.

Amount of Loss of Weight in each Coin which is to be conclusive evidence the coin has been illegally dealt with. Four grains. Three grains.

Note. – In the case of any coin of higher denomination than a sovereign, a loss on each coin, proportionate to that on the sovereign, shall be conclusive evidence that the coin has been illegally dealt with.

259

30 August 1889 Coinage Act, 1889: ‘A Bill, to amend the Coinage Act, 1870, as respects Light Gold Coins’

This version is virtually identical to the earlier version, given in full above. In subsection 4 of Section 1, however, the term ‘conclusive’ of the earlier version was replaced with the expression ‘prima facie’. In the Schedule to the Act, the term ‘conclusive’ was eliminated wherever it appeared, and the loss of weight from a gold coin to be taken as evidence for illegal tampering was given as four grains for both the sovereign and the half-sovereign. The later version also appended to the note of the Schedule a sentence indicating that ‘[t]he standard weight of a sovereign is 123.27447 grains, and the standard weight of a half-sovereign is 61.63723 grains’. Source: The Public General Acts Passed in the Thirty-Third and Thirty-Fourth Years of the Reign of Her Majesty Queen Victoria, 1889 (London: Her Majesty’s Stationary Office, 1889), pp. 303–4.

260

9 July 1896 William Jennings Bryan’s ‘Cross of Gold’ Speech, delivered to the Democratic National Convention at Chicago, Illinois

Bryan’s speech electrified the delegates to the Convention and won him his party’s Presidential nomination with its Biblical metaphor of the plight of farmers in the United States under the gold standard. Bryan and his ‘Free Silver’ allies wrested control of the convention from the pro-gold forces within the Democratic Party led by the sitting President Grover Cleveland and laid the groundwork for the crucial 1896 Presidential campaign against the Republican William McKinley. A recovery in commodity prices in the summer of 1896 undermined the Democratic campaign and McKinley won a narrow victory. Source: William Jennings Bryan, Speeches of William Jennings Bryan (New York: Funk and Wagnalls Company, 1897), vol. 1, pp. 238–49.

Mr Chairman and Gentlemen of the Convention: It would be presumptuous, indeed, to present myself against the distinguished gentlemen to whom you have listened if this were a mere measuring of abilities; but this is not a contest between persons. The humblest citizen in all the land, when clad in the armor of a righteous cause, is stronger than all the hosts of error. I come to speak to you in defense of a cause as holy as the cause of liberty – the cause of humanity. When this debate is concluded a motion will be made to lay upon the table the resolution offered in commendation of the administration. I shall object to bringing this question down to a level of persons. The individual is but an atom; he is born, he acts, he dies, but principles are eternal and this has been a contest of principles. Never before in the history of this country has there been witnessed such a contest as that through which we have just passed. Never before in the history of American politics has a great issue been fought out as this issue has been, by the voters of a great party. On March 4th, 1895, a few Democrats, most of them members of Congress, issued an address to the Democrats of the nation, asserting that the money question was the paramount issue of the hour; asserting also the right of a majority of the Democratic party to control the position 261

The Monetary History of Gold of the party on this paramount issue, and concluding with the request that all believers in free coinage of silver in the Democratic party should organize and take charge of and control the policy of the Democratic party. Three months later, at Memphis, an organization was perfected, and the silver Democrats went forth openly and boldly and courageously proclaimed their belief, and declaring that if successful they would crystallize in a platform the declaration which they had made. And then began the conflict. With a zeal approaching the zeal which inspired the crusaders who followed Peter the hermit, our silver Democrats went forth from victory unto victory until they are now assembled, not to discuss, not to debate, but to enter up the judgment already rendered by the plain people of this country. In this contest brother has been arrayed against brother, father against son. The warmest ties of love, acquaintance and association have been disregarded; old leaders have been cast aside when they have refused to give expression to the sentiments of those whom they would lead, and new leaders have sprung up to give direction to the cause of truth. Thus has the contest been waged, and we have assembled here under as binding and solemn instructions as were ever imposed upon representatives of the people. Why, as individuals we might have been glad to compliment the gentleman from New York, Senator Hill, but we know that the people for whom we speak would never be willing to put him in a position where he could thwart the will of the Democratic party. I said it was not a question of persons; it was a question of principles, and it is not with gladness, my friends, that we find ourselves brought into conflict with those who are now arrayed on the other side. The gentleman who preceded me [ex-Governor Russell] spoke of the State of Massachusetts; let me assure him that not one present in all this convention entertains the least hostility to the people of the State of Massachusetts, but we stand here representing people who are the equals, before the law, of the greatest citizens in the State of Massachusetts. When you [turning to the gold delegates] come before us and tell us that we are about to disturb your business interests, we reply that you have disturbed our business interests by your course. We say to you that you have made the definition of a business man too limited in its application. The man who is employed for wages is as much a business man as his employer; the attorney in a country town is as much a business man as the corporation counsel in a great metropolis; the merchant at the cross-roads store is as much a business man as the merchant of New York; the farmer who goes forth in the morning and toils all day – who begins in the spring and toils all summer – and who by the application of brain and muscle to the natural resources of the country creates wealth, is as much a business man as the man who goes upon the board of trade and bets upon the price of grain; the miners who go down a thousand feet into the earth, or climb two 262

The Heyday of the Gold Standard, 1820–1930 thousand feet upon the cliffs, and bring forth from their hiding places the precious metals to be poured into the channels of trade are as much business men as the few financial magnates who, in a back room, corner the money of the world. We come to speak for this broader class of business men. Ah, my friends, we say not one word against those who live upon the Atlantic coast, but the hardy pioneers who have braved all the dangers of the wilderness, who have made the desert to blossom as the rose – the pioneers away out there [pointing to the West], who rear their children near to Nature’s heart, where they can mingle their voices with the voices of the birds – out there where they have erected schoolhouses for the education of their young, churches where they praise their Creator, and cemeteries where rest the ashes of their dead – these people, we say, are as deserving of the consideration of our party as any people in this country. It is for these that we speak. We do not come as aggressors. Our war is not a war of conquest; we are fighting in the defense of our homes, our families, and posterity. We have petitioned, and our petitions have been scorned; we have entreated, and our entreaties have been disregarded; we have begged, and they have mocked when our calamity came. We beg no longer; we entreat no more; we petition no more. We defy them. The gentleman from Wisconsin [Senator Vilas] has said that he fears a Robespierre. My friends, in this land of the free you need not fear that a tyrant will spring up from among the people. What we need is an Andrew Jackson to stand, as Jackson stood, against the encroachments of organized wealth. They tell us that this platform was made to catch votes. We reply to them that changing conditions make new issues; that the principles upon which Democracy rests are as everlasting as the hills, but that they must be applied to new conditions as they arise. Conditions have arisen, and we are here to meet those conditions. They tell us that the income tax ought not to be brought in here; that it is a new idea. They criticize us for our criticism of the Supreme Court of the United States. My friends, we have not criticized; we have simply called attention to what you already know. If you want criticisms, read the dissenting opinions of the court. There you will find criticisms. They say that we passed an unconstitutional law; we deny it. The income tax law was not unconstitutional when it was passed; it was not unconstitutional when it went before the Supreme Court for the first time; it did not become unconstitutional until one of the judges changed his mind, and we cannot be expected to know when a judge will change his mind. The income tax is just. It simply intends to put the burdens of government justly upon the backs of the people. I am in favor of an income tax. When I find a man who is not willing to bear his share of the burdens of the government which protects him, I find a man who is unworthy to enjoy the blessings of a government like ours. 263

The Monetary History of Gold They say that we are opposing national bank currency; it is true. If you will read what Thomas Benton said, you will find he said that, in searching history, he could find but one parallel to Andrew Jackson; that was Cicero, who destroyed the conspiracy of Cataline and saved Rome. Benton said that Cicero only did for Rome what Jackson did for us when he destroyed the bank conspiracy and saved America. We say in our platform that we believe that the right to coin and issue money is a function of government. We believe it. We believe that it is a part of sovereignty, and can no more with safety be delegated to private individuals than we could afford to delegate to private individuals the power to make penal statutes or levy taxes. Mr Jefferson, who was once regarded as good Democratic authority, seems to have differed in opinion from the gentleman who has addressed us on the part of the minority. Those who are opposed to this proposition tell us that the issue of paper money is a function of the bank, and that the Government ought to go out of the banking business. I stand with Jefferson rather than with them, and tell them, as he did, that the issue of money is a function of government, and that the banks ought to go out of the governing business. They complain about the plank which declares against life tenure in office. They have tried to strain it to mean that which it does not mean. What we oppose by that plank is the life tenure which is being built up in Washington, and which excludes from participation in official benefits the humbler members of society. Let me call your attention to two or three important things. The gentleman from New York [Senator Hill] says that he will propose an amendment to the platform providing that the proposed change in our monetary system shall not affect contracts already made. Let me remind you that there is no intention of affecting those contracts which according to present laws are made payable in gold; but if he means to say that we cannot change our monetary system without protecting those who have loaned money before the change was made, I desire to ask him where, in law or in morals, he can find justification for not protecting the debtors when the act of 1873 was passed, if he now insists that we must protect the creditors. He says he will also propose an amendment which will provide for the suspension of free coinage if we fail to maintain the parity within a year. We reply that when we advocate a policy which we believe will be successful, we are not compelled to raise a doubt as to our own sincerity by suggesting what we shall do if we fail. I ask him, if he would apply his logic to us, why he does not apply it to himself. He says he wants this country to try to secure an international agreement. Why does he not tell us what he is going to do if he fails to secure an international agreement? There is more reason for him to do that than there is for us to provide against the failure to maintain the parity. Our oppo264

The Heyday of the Gold Standard, 1820–1930 nents have tried for twenty years to secure an international agreement, and those are waiting for it most patiently who do not want it at all. And now, my friends, let me come to the paramount issue. If they ask us why it is that we say more on the money question than we say upon the tariff question, I reply that, if protection has slain its thousands, the gold standard has slain its tens of thousands. If they ask us why we do not embody in our platform all the things that we believe in, we reply that when we have restored the money of the Constitution all other necessary reforms will be possible; but that until this is done there is no other reform that can be accomplished. Why is it that within three months such a change has come over the country? Three months ago, when it was confidently asserted that those who believe in the gold standard would frame our platform and nominate our candidates, even the advocates of the gold standard did not think that we could elect a president. And they had good reason for their doubt, because there is scarcely a State here today asking for the gold standard which is not in the absolute control of the Republican party. But note the change. Mr McKinley was nominated at St. Louis upon a platform which declared for the maintenance of the gold standard until it can be changed into bimetallism by international agreement. Mr McKinley was the most popular man among the Republicans, and three months ago everybody in the Republican party prophesied his election. How is it today? Why, the man who was once pleased to think that he looked like Napoleon – that man shudders today when he remembers that he was nominated on the anniversary of the battle of Waterloo. Not only that, but as he listens he can hear with ever-increasing distinctness the sound of the waves as they beat upon the lonely shores of St. Helena. Why this change? Ah, my friends, is not the reason for the change evident to any one who will look at the matter? No private character, however pure, no personal popularity, however great, can protect from the avenging wrath of an indignant people a man who will declare that he is in favor of fastening the gold standard upon this country, or who is willing to surrender the right of selfgovernment and place the legislative control of our affairs in the hands of foreign potentates and powers. We go forth confident that we shall win. Why? Because upon the paramount issue of this campaign there is not a spot of ground upon which the enemy will dare to challenge battle. If they tell us that the gold standard is a good thing, we shall point to their platform and tell them that their platform pledges the party to get rid of the gold standard and substitute bimetallism. If the gold standard is a good thing, why try to get rid of it? I call your attention to the fact that some of the very people who are in this convention today and who tell us that we ought to declare in favor of international bimetallism – 265

The Monetary History of Gold thereby declaring that the gold standard is wrong and that the principle of bimetallism is better – these very people four months ago were open and avowed advocates of the gold standard, and were then telling us that we could not legislate two metals together, even with the aid of all the world. If the gold standard is a good thing, we ought to declare in favor of its retention and not in favor of abandoning it; and if the gold standard is a bad thing why should we wait until other nations are willing to help us to let go? Here is the line of battle, and we care not upon which issue they force the fight; we are prepared to meet them on either issue or on both. If they tell us that the gold standard is the standard of civilization, we reply to them that this, the most enlightened of all the nations of the earth, has never declared for a gold standard and that both the great parties this year are declaring against it. If the gold standard is the standard of civilization, why, my friends, should we not have it? If they come to meet us on that issue we can present the history of our nation. More than that; we can tell them that they will search the pages of history in vain to find a single instance where the common people of any land have ever declared themselves in favor of the gold standard. They can find where the holders of the fixed investments have declared for a gold standard, but not where the masses have. Mr Carlisle said in 1878 that this was a struggle between ‘the idle holders of idle capital’ and ‘the struggling masses, who produce the wealth and pay the taxes of the country;’ and, my friends, the question we are to decide is: Upon which side will the Democratic party fight; upon the side of ‘the idle holders of idle capital’ or upon the side of ‘the struggling masses?’ That is the question which the party must answer first, and then it must be answered by each individual hereafter. The sympathies of the Democratic party, as shown by the platform, are on the side of the struggling masses who have ever been the foundation of the Democratic party. There are two ideas of government. There are those who believe that, if you will only legislate to make the well-todo prosperous, their prosperity will leak through on those below. The Democratic idea, however, has been that if you legislate to make the masses prosperous, their prosperity will find its way up through every class which rests upon them. You come to us and tell us that the great cities are in favor of the gold standard; we reply that the great cities rest upon our broad and fertile prairies. Burn down your cities and leave our farms, and your cities will spring up again as if by magic; but destroy our farms and the grass will grow in the streets of every city in the country. My friends, we declare that this nation is able to legislate for its own people on every question, without waiting for the aid or consent of any other nation on earth; and upon that issue we expect to carry every State in the Union. I 266

The Heyday of the Gold Standard, 1820–1930 shall not slander the inhabitants of the fair State of Massachusetts nor the inhabitants of the State of New York by saying that, when they are confronted with the proposition, they will declare that this nation is not able to attend to its own business. It is the issue of 1776 over again. Our ancestors, when but three millions in number, had the courage to declare their political independence of every other nation; shall we, their descendants, when we have grown to seventy millions, declare that we are less independent than our forefathers? No, my friends, that will never be the verdict of our people. Therefore, we care not upon what lines the battle is fought. If they say bimetallism is good, but that we cannot have it until other nations help us, we reply that, instead of having a gold standard because England has, we will restore bimetallism, and then let England have bimetallism because the United States has it. If they dare to come out in the open field and defend the gold standard as a good thing, we will fight them to the uttermost. Having behind us the producing masses of this nation and the world, supported by the commercial interests, the laboring interests, and the toilers everywhere, we will answer their demand for a gold standard by saying to them: You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold.

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14 March 1900 Gold Standard Act, 1900, United States: ‘An Act to define and fix the Standard of Value, to maintain the Parity of all Forms of Money issued or coined by the United States, to refund the public Debt, and for other Purposes’

United States notes became redeemable for gold at the historical rate of $20.67 per ounce. While the statute continued to allow for the use of silver coinage and urged an international agreement on bimetallism, this Act secured the primacy of gold in the monetary policy of the United States. Source: The Statutes at Large of the United States of America, Vol. XXXI, 56th Congress, Session I (Washington: Government Printing Office, 1901), pp. 45–50.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the dollar consisting of twenty-five and eight-tenths grains of gold nine-tenths fine, as established by section thirtyfive hundred and eleven of the Revised Statutes of the United States, shall be the standard unit of value, and all forms of money issued or coined by the United States shall be maintained at la parity of value with this standard, and it shall be the duty of the secretary of the Treasury to maintain such parity. SECTION 2. That United States notes, and Treasury notes issued under the Act of July fourteenth, eighteen hundred and ninety when presented to the Treasury for redemption, shall be redeemed in gold coin of the standard fixed in the first section of this Act, and in order to secure the prompt and certain redemption of such notes as herein provided it shall be the duty of the Secretary of the Treasury to see apart in the Treasury a reserve fund of one hundred and fifty million dollars in gold coin and bullion, which fund shall be used for such redemption purposes only, and whenever and as often as any of said notes shall be redeemed from said fund it shall be the duty of the Secretary of the Treasury to use said notes so redeemed to restore and maintain such reserve fund in the manner following, to wit: First, by exchanging the notes so redeemed for any gold coin in the general fund of the Treasury; second, by accepting deposits of gold coin at the Treasury or at any subtreasury in 268

The Heyday of the Gold Standard, 1820–1930 exchange for the United States notes so redeemed; third, by procuring gold coin by the use of said notes, in accordance with the provisions of section thirty-seven hundred of the Revised Statutes of the United States. If the Secretary of the Treasury is unable to restore and maintain the gold coin in the reserve fund by the foregoing methods, and the amount of such gold coin and bullion in said fund shall at any time fall below one hundred million dollars, then it shall be his duty to restore the same to the maximum sum of one hundred and fifty million dollars by borrowing money on the credit of the United States, and for the debt thus inclined to issue and sell coupon 01 registered bonds of the United States, in such form as he may prescribe, in denominations of fifty dollars or any multiple thereof, bearing interest at the rate of not exceeding three per centum per annum, payable quarterly, such bonds to be payable at the pleasure of the United States after one year from the date of their issue, and to be payable, principal and interest, in gold coin of the present standard value, and to be exempt from the payment of all taxes or duties of the United States, as well as from taxation in any form by or under State, municipal, or local authority; and the gold coin received from the sale of said bonds shall first be covered into the general fund of the Treasury and then exchanged, in the manner hereinbefore provided, for an equal amount of the notes redeemed and held for exchange, and the Secretary of the Treasury may, in his discretion, use said notes in exchange for gold, or to purchase or redeem any bonds of the United States, or for any other lawful purpose the public interests may require, except that they shall not be used to meet deficiencies in the current revenues. That United States notes when redeemed in accordance with the provisions of this section shall be reissued, but shall be held in the reserve fund until exchanged for gold, as herein provided; and the gold coin and bullion in the reserve fund, together with the redeemed notes held for use as provided in this section, shall at no time exceed the maximum sum of one hundred and fifty million dollars. SECTION 3. That nothing contained in this Act shall be construed to affect the legal-tender quality as now provided by law of the silver dollar, or of any other money coined or issued by the United States. SECTION 4. That there be established in the Treasury Department, as a part of the office of the Treasurer of the United States, divisions to be designated and known as the division of issue and the division of redemption, to which shall be assigned, respectively, under such regulations as the Secretary of the Treasury may approve, all records and accounts relating to the issue and redemption of United States notes, gold certificates, silver certificates, and currency certificates. There shall be transferred from the accounts of the general fund of the Treasury of the United States, and taken up on the books of said divisions, respectively, accounts relating to the reserve fund for the 269

The Monetary History of Gold redemption of United States notes and Treasury notes, the gold coin held against outstanding gold certificates, the United States notes held against outstanding currency certificates, and the silver dollars held against outstanding silver certificates, and each of the funds represented by these accounts shall be used for the redemption of the notes and certificates for which they are respectively pledged, and shall be used for no other purpose, the same being held as trust funds. SECTION 5. That it shall be the duty of the Secretary of the Treasury, as fast as standard silver dollars are coined under the provisions of the Acts of July fourteenth, eighteen hundred and ninety, and June thirteenth, eighteen hundred and ninety-eight, from bullion purchased under the Act of July fourteenth, eighteen hundred and ninety, to retire and cancel an equal amount of Treasury notes whenever received into the Treasury, either by exchange in accordance with the provisions of this Act or in the ordinary course of business, and upon the cancellation of Treasury notes silver certificates shall be issued against-the silver dollars so coined. SECTION 6. That the Secretary of the Treasury is hereby authorized and directed to receive deposits of gold coin with the Treasurer or any assistant treasurer of the United States in sums of not less than twenty dollars, and to issue gold certificates therefor in denominations of not less than twenty dollars, and the coin so deposited shall be retained in the Treasury and held for the payment of such certificates on demand, and used for no other purpose. Such certificates shall be receivable for customs, taxes, and all public dues, and when so received may be reissued, and when held by any national banking association may be counted as a part of its lawful reserve: Provided, That whenever and so long as the gold coin held in the reserve fund in the Treasury for the redemption of United States notes and Treasury notes shall fall and remain below one hundred million dollars the authority to issue certificates as herein provided shall be suspended: And provided further That whenever and so long as the aggregate amount of United States notes and silver certificates in the general fund of the Treasury shall exceed sixty million dollars the Secretary of the Treasury may, in his discretion, suspend the issue of the certificates herein provided for: And provided further, That of the amount of such outstanding certificates one-fourth at least shall be in denominations of fifty dollars or less: And provided further, That the Secretary of the Treasury may, in his discretion, issue such certificates in denominations of ten thousand dollars, payable to order. And section fifty-one hundred and ninety-three of the Revised Statutes of the United States is hereby repealed. SECTION 7. That hereafter silver certificates shall be issued only of denominations of ten dollars and under, except that not exceeding in the aggregate ten per centum of the total volume of said certificates, in the discretion of the 270

The Heyday of the Gold Standard, 1820–1930 Secretary of the Treasury, may be issued in denominations of twenty dollars, fifty dollars, and one hundred dollars; and silver certificates of higher denomination than ten dollars, except as herein provided, shall, whenever received at the Treasury or redeemed, be retired and cancelled, and certificates of denominations of ten dollars or less shall be substituted therefor, and after such substitution, in whole or in part, a like volume of United States notes of less denomination than ten dollars shall from time to time be retired and cancelled, and notes of denominations of ten dollars and upward shall be reissued in substitution therefor, with like qualities and restrictions as those retired and cancelled. SECTION 8. That the Secretary of the Treasury is hereby authorized to use, at his discretion, any silver bullion in the Treasury of the United States purchased under the Act of July fourteenth, eighteen hundred and ninety, for coinage into such denominations of subsidiary silver coin as may be necessary to meet the public requirements for such coin: Provided, That the amount of subsidiary silver coin outstanding shall not at any time exceed in the aggregate one hundred millions of dollars. Whenever any silver bullion purchased under the Act of July fourteenth, eighteen hundred and ninety, shall be used in the coinage of subsidiary silver coin, an amount of Treasury notes issued under said Act equal to the cost of the bullion contained in such coin shall be cancelled and not reissued. SECTION 9. That the Secretary of the Treasury is hereby authorized and directed to cause all worn and uncurrent subsidiary silver coin of the United States now in the Treasury, and hereafter received, to be recoined, and to reimburse the Treasurer of the United States for the difference between the nominal or face value of such coin and the amount the same will produce in new coin from any moneys in the Treasury not otherwise appropriated. […] SECTION 11. That the Secretary of the Treasury is hereby authorized to receive at the Treasury any of the outstanding bonds of the United States bearing interest at five per centum per annum, payable February first, nineteen hundred and four, and any bonds of the United States bearing interest at four per centum per annum, payable July first, nineteen hundred and seven, and any bonds of the United States bearing interest at three per centum per annum, payable August first, nineteen hundred and eight, and to issue in exchange therefor an equal amount of coupon or registered bonds of the United States in such form as he may prescribe, in denominations of fifty dollars or any multiple thereof, bearing interest at the rate of two per centum per annum, payable quarterly, such bonds to be payable at the pleasure of the United States after thirty years from the date of their issue, and said bonds to be payable, principal and interest, in gold coin of the present standard value, and to be exempt from the payment of all taxes or duties of the United States, 271

The Monetary History of Gold as well as from taxation in any form by or under State, municipal, or local authority: Provided, That such outstanding bonds may be received in exchange at a valuation not greater than their present worth to yield an income of two and one-quarter per centum per annum; and in consideration of the reduction of interest effected, the Secretary of the Treasury is authorized to pay to the holders of the outstanding bonds surrendered for exchange, out of any money in the Treasury not otherwise appropriated, a sum not greater than the difference between their present worth, computed as aforesaid, and their par value, and the payments to be made hereunder shall be held to be payments on account of the sinking fund created by section thirty-six hundred and ninetyfour of the Revised Statutes: And provided further, That the two per centum bonds to be issued under the provisions of this Act shall be issued at not less than par, and they shall be numbered consecutively in the order of their issue, and when payment is made the last numbers issued shall be first paid, and this order shall be followed until all the bonds are paid, and whenever any of the outstanding bonds are called for payment interest thereon shall cease three months after such call; and there is hereby appropriated out of any money in the Treasury not otherwise appropriated, to effect the exchanges of bonds provided for in this Act, a sum not exceeding one-fifteenth of one per centum of the face value of said bonds, to pay the expense of preparing and issuing the same and other expenses incident thereto. SECTION 12. That upon the deposit with the Treasurer of the United States, by any national banking association, of any bonds of the United States in the manner provided by existing law, such association shall be entitled to receive from the Comptroller of the Currency circulating notes in blank, registered and countersigned as provided by law, equal in amount to the par value of the bonds so deposited; and any national banking association now having bonds on deposit for the security of circulating notes, and upon which an amount of circulating notes has been issued less than the par value of the bonds, shall be entitled, upon due application to the Comptroller of the Currency, to receive additional circulating notes in blank to an amount which will increase the circulating notes held by such association to the par value of the bonds deposited, such additional notes to be held and treated in the same way as circulating notes of national banking associations heretofore issued, and subject to all the provisions of law affecting such notes: Provided, That nothing herein contained shall be construed to modify or repeal the provisions of section fiftyone hundred and sixty-seven of the Revised Statutes of the United States, authorizing the Comptroller of the Currency to require additional deposits of bonds or of lawful money in case the market value of the bonds held to secure the circulating notes shall fall below the par value of the circulating notes outstanding for which such bonds may be deposited as security: And provided 272

The Heyday of the Gold Standard, 1820–1930 further, That the circulating notes furnished to national banking associations under the provisions of this Act shall be of the denominations prescribed by law, except that no national banking association shall, after the passage of this Act, be entitled to receive from the Comptroller of the Currency, or to issue or reissue or place in circulation, more than one-third in amount of its circulating notes of the denomination of five dollars: And provided further, That the total amount of such notes issued to any such association may equal at any time but shall not exceed the amount at such time of its capital stock actually paid in: And provided further, That under regulations to be prescribed by the Secretary of the Treasury any national banking association may substitute the two per centum bonds issued under the provisions of this Act for any of the bonds deposited with the Treasurer to secure circulation or to secure deposits of public money; and so much of an Act entitled ‘An Act to enable national banking associations to extend their corporate existence, and for other purposes’, approved July twelfth, eighteen hundred and eighty-two, as prohibits any national bank which makes any deposit of lawful money in order to withdraw its circulating notes from receiving any increase of its circulation for the period of six months from the time it made such deposit of lawful money for the purpose aforesaid, is hereby repealed, and all other Acts or parts of, Acts inconsistent with the provisions of this section are hereby repealed. SECTION 13. That every national banking association having on deposit, as provided by law, bonds of the United States bearing interest at the rate of two per centum per annum, issued under the provisions of this Act, to secure its circulating notes, shall pay to the Treasurer of the United States, in the months of January and July, a tax of one-fourth of one per centum each half year upon the average amount of such of its notes in circulation as are based upon the deposit of said two per centum bonds; and such taxes shall be in lieu of existing taxes on its notes in circulation imposed by section fifty-two hundred and fourteen of the Revised Statutes. SECTION 14:. That the provisions of this Act are not intended to preclude the accomplishment of international bimetallism whenever conditions shall make it expedient and practicable to secure the same by concurrent action of the leading commercial nations of the world and at a ratio which shall insure permanence of relative value between gold and silver.

273

6 August 1914 Currency and Bank Notes Act, 1914: ‘A Bill, to authorise the Issue of Currency Notes, and to make Provision with Respect to the Note Issue of Banks’

Issued one day after Britain declared war on Germany, this Act permitted the government to print notes as legal tender in place of gold sovereigns and halfsovereigns. By withdrawing gold from internal circulation, this Act effectively suspended the gold standard and in practice allowed for an inflationary expansion of the money supply enabling the government to print notes to cover its obligations. Consequently, the Act gave the government, operating through the Bank of England, great latitude in issuing notes beyond the limit authorised by law. The Royal Mint continued to mint gold sovereigns until 1917, although with the issuance of large amounts of paper money, gold coins were soon withdrawn from circulation. Source: House of Commons, House of Commons Parliamentary Papers, 1914 (London: House of Commons, 1914), vol. 1, pp. 867–72.

Be it enacted by the King’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows: – 1. – (1.) The Treasury may, subject to the provisions of this Act, issue currency notes for one pound and for ten shillings, and those notes shall be current in the United Kingdom in the same manner and to the same extent and as fully as sovereigns and half-sovereigns are current and shall be legal tender in the United Kingdom for the payment of any amount. (2.) Currency notes under this Act shall be in such form and of such design and printed from such plate and on such paper and be authenticated in such manner as may be directed by the Treasury. (3.) The holder of a currency note shall be entitled to obtain on demand during office hours at the Bank of England payment for the

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The Heyday of the Gold Standard, 1820–1930 note at its face value in gold coin, which is for the time being legal tender in the United Kingdom. (4.) The Treasury may, subject to such conditions at to time, manner, and order of presentation as they think fit call in any currency notes under this Act on paying for those notes at their face value in gold. (5.) Currency notes under this Act shall be deemed to be bank notes within the meaning of the Forgery Act, 1913, and any other enactment relating to offences in respect of bank notes which is for the time being in force in any part of the British Islands, and to be valuable securities within the meaning of the Larceny Act, 1861, and any other law relating to stealing which is for the time being in force in any part of the British Islands, and to be current coin of the realm for the purpose of the Acts relating to truck and any other enactment. (6.) For the purpose of meeting immediate exigencies all postal orders issued either before or after the passing of this Act shall temporarily be current and legal tender in the United Kingdom in the same manner and to the same extent and as fully as current coins, and shall be legal tender in the United Kingdom for the payment of any amount. The holder of any such postal order shall be entitled to obtain on demand during office hours at the Bank of England payment for the postal order at its face value in any coin which is for the time being legal tender in the United Kingdom for the amount of the note. Provisos (b) and (c) to subsection (1.) of section twenty-four of the Post Office Act, 1908, shall not apply to any such postal orders. This subsection shall have effect only until His Majesty by proclamation revokes the same, and any proclamation revoking this subsection may provide for the calling in or exchange of any postal orders affected thereby. 2. Currency notes may be issued to such persons and in such manner as the Treasury direct, but the amount of any notes issued to any person shall, by virtue of this Act, and without registration or further assurance, be a floating charge in priority to all other charges, whether under statute or otherwise, on the assets of that person. 3. The governor and company of the Bank of England and any persons concerned in the management of any Scottish or Irish Bank of issue may, so far as temporarily authorised by the Treasury and subject to any conditions attached to that authority, issue notes in excess of any limit fixed by law; and those persons are hereby indemnified, freed, and discharged from any liability, penal or civil, in respect of any issue of notes beyond the amount fixed by law which has been made by them since the first day of August nineteen hundred and fourteen in pursuance of any authority of the Treasury or of any letter from the 275

The Monetary History of Gold Chancellor of the Exchequer, and any proceedings taken to enforce any such liability shall be void. 4. Any bank notes issued by a bank of issue in Scotland or Ireland shall be legal tender for a payment of any amount in Scotland or Ireland respectively, and any such bank of issue shall not be under any obligation to pay its notes on demand except at the head office of the bank, and may pay its notes, if thought fit, in currency notes issued under this Act: Provided that notes which are legal tender under this section shall not be legal tender for any payment by the head office of the bank by whom they are issued for the purpose of the payment of notes issued by that bank. This section shall have effect only until His Majesty by proclamation revokes the same, and any proclamation revoking this section may provide for the calling in or exchange of notes affected thereby. 5. – (1.) In this Act, the expression ‘bank of issue’ means any bank having power for the time being to issue bank notes. (2.) This Act may be cited as the Currency and Bank Notes Act, 1914. (3.) This Act shall apply to the Isle of Man as if it were part of the United Kingdom, but shall not apply to any other British possession.

276

25 August 1914 ‘A Bill, to amend the Currency and Bank Notes Act, 1914’, United Kingdom

Source: House of Commons, House of Commons Parliamentary Papers, 1914 (London: House of Commons, 1914), vol. 1, pp. 873–6.

Be it enacted by the King’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows: – 1. The power of the Treasury to call in currency notes under subsection (4) of section one of the Currency and Bank Notes Act, 1914, shall be extended so as to include a power to call in currency notes on exchanging the notes so called in for other notes of the same face value issued under that Act. 2. The Treasury may, if they think fit, instead of issuing any notes to any person, give to that person a certificate entitling him to the issue on demand from the Treasury of the notes mentioned in the certificate; and the notes covered by the certificate shall, for the purposes of section two of the Currency and Bank Notes Act, 1914, be deemed to be notes issued by that person. 3. This Act may be cited as the Currency and Bank Notes (Amendment) Act, 1914.

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15 August 1918 Interim Report of the Cunliffe Committee, 1918: Report on Currency and Foreign Exchanges after the War

As the First World War drew to an end, the British government commissioned a Report on the war’s consequences for the currency and foreign exchange markets. The Committee, reflecting the consensus opinion of British financial and commercial sectors, unanimously recommended a return to the gold standard, the reduction of government debt and borrowing, and the accumulation of sufficient reserves to underpin the system. The excerpts below include the analysis of the pre-war situation and the disturbances caused by the war as well as the recommendations of the Committee. Source: House of Commons, House of Commons Parliamentary Papers, 1918 (London: House of Commons, 1918), vol. 7, cmnd. 9182, pp. 852–64.

Introduction My Lords and Sir, 1. We have the honour to present herewith an interim report on certain of the matters referred to us in January last. In this report we attempt to indicate the broad lines on which we think the serious currency difficulties which will confront this country at the end of the war should be dealt with. The difficulties which will arise in connection with the foreign exchanges will be no less grave, but we do not think that any recommendations as to the emergency expedients which may have to be adopted in the period immediately following the conclusion of peace can usefully be made until the end of the war is clearly in sight and a more definite opinion can be formed as to the conditions which will then prevail. We have had the advantage of consultation with the Bank of England, and have taken oral evidence from various banking and financial experts, representatives of certain chambers of commerce and others who have particularly interested themselves in these matters. We have also had written evidence from certain other representatives of commerce and industry. Our conclusions upon the subjects dealt with in this report are unanimous, and we cannot too strongly emphasize our opinion that the application, at the 278

The Heyday of the Gold Standard, 1820–1930 earliest possible date, of the main principles on which they are based is of vital necessity to the financial stability and well-being of the country. Nothing can contribute more to a speedy recovery from the effects of the war, and to the rehabilitation of the foreign exchanges, than the re-establishment of the currency upon a sound basis. Indeed, a sound system of currency will, as is shown in paragraphs 4 and 5, in itself secure equilibrium in those exchanges, and render unnecessary the continued resort to the emergency expedients to which we have referred. We should add that in our inquiry we have had in view the conditions which are likely to prevail during the ten years immediately following the end of the war, and we think that the whole subject should be again reviewed not later than the end of that period. The currency system before the war 2. Under the Bank Charter Act of 1844, apart from the fiduciary issue of the Bank of England and the notes of Scottish and Irish Banks of Issue (which were not actually legal tender), the currency in circulation and in Bank reserves consisted before the war entirely of gold and subsidiary coin or of notes representing gold. Gold was freely coined by the Mint without any charge. There were no restrictions upon the import of gold. Sovereigns were freely given by the Bank in exchange for notes at par value, and there were no obstacles to the export of gold. Apart from the presentation for minting of gold already in use in the arts (which under normal conditions did not take place) there was no means whereby the legal tender currency could be increased except the importation of gold from abroad to form the basis of an increase in the note issue of the Bank of England or to be presented to the Mint for coinage, and no means whereby it could be diminished (apart from the normal demand for the arts, amounting to about £2,000,000 a year, which was only partly taken out of the currency supply) except the export of bullion or sovereigns. 3. Since the passing of the Act of 1844 there has been a great development of the cheque system. The essence of that system is that purchasing power is largely in the form of bank deposits operated upon by cheque, legal tender money being required only for the purpose of the reserves held by the banks against those deposits and for actual public circulation in connection with the payment of wages and retail transactions. The provisions of the Act of 1844 as applied to that system have operated both to correct unfavourable exchanges and to check undue expansions of credit. 4. When the exchanges were favourable, gold flowed freely into this country and an increase of legal tender money accompanied the development of trade. When the balance of trade was unfavourable and the exchanges were adverse, it became profitable to export gold. The would-be exporter bought his gold from the Bank of England and paid for it by a cheque on his account. The 279

The Monetary History of Gold Bank obtained the gold from the Issue Department in exchange for notes taken out of its banking reserve, with the result that its liabilities to depositors and its banking reserve were reduced by an equal amount, and the ratio of reserve to liabilities consequently fell. If the process was repeated sufficiently often to reduce the ratio in a degree considered dangerous, the Bank raised its rate of discount. The raising of the discount rate had the immediate effect of retaining money here which would otherwise have been remitted abroad and of attracting remittances from abroad to take advantage of the higher rate, thus checking the outflow of gold and even reversing the stream. 5. If the adverse condition of the exchanges was due not merely to seasonal fluctuations, but to circumstances tending to create a permanently adverse trade balance, it is obvious that the procedure above described would not have been sufficient. It would have resulted in the creation of a volume of shortdated indebtedness to foreign countries which would have been in the end disastrous to our credit and the position of London as the financial centre of the world. But the raising of the Bank’s discount rate and the steps taken to make it effective in the market necessarily led to a general rise of interest rates and a restriction of credit. New enterprises were therefore postponed and the demand for constructional materials and other capital goods was lessened. The consequent slackening of employment also diminished the demand for consumable goods, while holders of stocks of commodities carried largely with borrowed money, being confronted with an increase of interest charges, if not with actual difficulty in renewing loans, and with the prospect of falling prices, tended to press their goods on a weak market. The result was a decline in general prices in the home market which, by checking imports and stimulating exports, corrected the adverse trade balance which was the primary cause of the difficulty. 6. When, apart from a foreign drain of gold, credit at home threatened to become unduly expanded, the old currency system tended to restrain the expansion and to prevent the consequent rise in domestic prices which ultimately causes such a drain. The expansion of credit, by forcing up prices, involves an increased demand for legal tender currency both from the banks in order to maintain their normal proportion of cash to liabilities and from the general public for the payment of wages and for retail transactions. In this case also the demand for such currency fell upon the reserve of the Bank of England, and the Bank was thereupon obliged to raise its rate of discount in order to prevent the fall in the proportion of that reserve to its liabilities. The same chain of consequences as we have just described followed and speculative trade activity was similarly restrained. There was therefore an automatic machinery by which the volume of purchasing power in this country was continuously adjusted to world prices of commodities in general. Domestic prices 280

The Heyday of the Gold Standard, 1820–1930 were automatically regulated so as to prevent excessive imports; and the creation of banking credit was so controlled that banking could be safely permitted a freedom from state interference which would not have been possible under a less rigid currency system. 7. Under these arrangements this country was provided with a complete and effective gold standard. The essence of such a standard is that notes must always stand at absolute parity with gold coins of equivalent face value, and that both notes and gold coins stand at absolute parity with gold bullion. When these conditions are fulfilled, the foreign-exchange rates with all countries possessing an effective gold standard are maintained at or within the gold specie points. Changes which have affected the gold standard during the war 8. It will be observed that the fall in a number of the foreign exchanges below the old export specie points which has taken place since the early part of 1915 is not by itself a proof that the gold standard has broken down or ceased to be effective. During the present war the depredations of enemy submarines, high freights, and the refusal of the government to extend state insurance to gold cargoes have greatly increased the cost of sending gold abroad. The actual export specie point has, therefore, moved a long way from its old position. In view of our enormous demands for imports, coupled with the check on our exports due to the war, it was natural that our exchanges with neutrals should move towards the export specie point. Consequently, the fall in the export specie point would by itself account for a large fall in our exchange rates. Such a fall must have taken place in the circumstances, even though all the conditions of an effective gold standard had been fully maintained. 9. The course of the war has, however, brought influences into play in consequence of which the gold standard has ceased to be effective. In view of the crisis which arose upon the outbreak of war it was considered necessary, not merely to authorize the suspension of the Act of 1844, but also to empower the Treasury to issue currency notes for one pound and for ten shillings as legal tender throughout the United Kingdom. Under the powers given by the Currency and Bank Notes Act 1914, the Treasury undertook to issue such notes through the Bank of England to bankers, as and when required, up to a maximum limit not exceeding for any bank 20 per cent of its liabilities on current and deposit accounts. The amount of notes issued to each bank was to be treated as an advance bearing interest at the current Bank Rate. 10. It is not likely that the internal demand for legal tender currency which was anticipated at the beginning of August 1914 would by itself have necessitated extensive recourse to these provisions. But the credits created by the Bank of England in favour of its depositors under the arrangements by which 281

The Monetary History of Gold the Bank undertook to discount approved bills of exchange and other measures taken about the same time for the protection of credit caused a large increase in the deposits of the Bank. Further, the need of the government for funds wherewith to finance the war in excess of the amounts raised by taxation and by loans from the public has made necessary the creation of credits in their favour with the Bank of England. Thus, the total amount of the Bank’s deposits increased from, approximately, £56,000,000 in July 1914 to £273,000,000 on 28 July 1915 and, though a considerable reduction has since been effected, they now (15 August) stand as high as £171,870,000. The balances created by these operations passing by means of payments to contractors and others to the joint stock banks have formed the foundation of a great growth of their deposits which have also been swelled by the creation of credits in connection with the subscriptions to the various war loans. Under the operation of these causes the total deposits of the banks of the United Kingdom (other than the Bank of England) increased from £ 1,070,681,000 on 31 December 1913, to £1,742,902,000 on 31 December 1917. 11. The greatly increased volume of bank deposits, representing a corresponding increase of purchasing power and, therefore, leading in conjunction with other causes to a great rise of prices, has brought about a corresponding demand for legal tender currency which could not have been satisfied under the stringent provisions of the Act of 1844. Contractors are obliged to draw cheques against their accounts in order to discharge their wages bill – itself enhanced on account of the rise of prices. It is to provide this currency that the continually growing issues of currency notes have been made. The Banks instead of obtaining notes by way of advance under the arrangements described in paragraph 9 were able to pay for them outright by the transfer of the amount from their balances at the Bank of England to the credit of the currency note account and the circulation of the notes continued to increase. The government subsequently, by substituting their own securities for the cash balance so transferred to their credit, borrow that balance. In effect, the banks are in a position at will to convert their balances at the Bank of England enhanced in the manner indicated above into legal tender currency without causing notes to be drawn, as they would have been under the prewar system, from the banking reserve of the Bank of England, and compelling the Bank to apply the normal safeguards against excessive expansion of credit. Fresh legal tender currency is thus continually being issued, not, as formerly, against gold, but against government securities. Plainly, given the necessity for the creation of bank credits in favour of the government for the purpose of financing war expenditure, these issues could not be avoided. If they had not been made, the banks would have been unable to obtain legal tender with which to meet cheques drawn for cash on their customers’ accounts. The unlimited issue of 282

The Heyday of the Gold Standard, 1820–1930 currency notes in exchange for credits at the Bank of England is at once a have found necessary to adopt in order to meet their war expenditure. 12. The effect of these causes upon the amount of legal tender money (other than subsidiary coin) in bank reserves and in circulation in the United Kingdom are shown in the following paragraph. 13. The amounts on 30 June 1914, may be estimated as follows: Fiduciary Issue of the Bank of England Bank of England notes issued against gold coin or bullion Estimated amount of gold coin held by banks (excluding gold coin held in the Issue Department of the Bank of England) and in public circulation Grand Total

£18,450,000 £38,476,000 £123,000,000 £179,926,000

The corresponding figures of 10 July 1918, as nearly as they can be estimated, were: Fiduciary Issue of the Bank of England £18,450,000 Currency notes not cover by gold £230,412,000 Total Fiduciary Issues £248,862,000 Bank of England notes issued against coin and bullion £65,368,000 Currency notes covered by gold £28,500,000 Estimated amount of gold coin held by banks (excluding gold £40,000,000 coin held by Issue Department of Bank of England), say Grand Total £382,730,000

There is also a certain amount of gold coin still in the hands of the public which ought to be added to the last-mentioned figure, but the amount is unknown. 14. As Bank of England notes and currency notes are both payable at the Bank of England in gold coin on demand this large issue of new notes, associated, as it is, with abnormally high prices and unfavourable exchanges, must have led under normal conditions to a rapid depletion, threatening ultimately the complete exhaustion, of the Bank’s gold holdings. Consequently, unless the Bank had been prepared to see all its gold drained away, the discount rate must have been raised to a much higher level, the creation of banking credit (including that required by the government) would have been checked, prices would have fallen and a large portion of the surplus notes must have come back for cancellation. In this way an effective gold standard would have been maintained in spite of the heavy issue of notes. But during the war conditions have not been normal. The public are content to employ currency notes for internal purposes, and, notwithstanding adverse exchanges, war conditions interpose effective practical obstacles against the export of gold. Moreover, the legal prohibition of the melting of gold coin, and the fact that the importation 283

The Monetary History of Gold of gold bullion is reserved to the Bank of England, and that dealings in it are limited have severed the link which formerly existed between the values of coin and of uncoined gold. It is not possible to judge to what extent legal tender currency may in fact be depreciated in terms of bullion. But it is practically certain that there has been some depreciation, and to this extent therefore the gold standard has ceased to be effective. Restoration of conditions necessary to the maintenance of the gold standard recommended 15. We shall not attempt now to lay down the precise measures that should be adopted to deal with the situation immediately after the war. These will depend upon a variety of conditions which cannot be foreseen, in particular the general movements of world prices and the currency policy adopted by other countries. But it will be clear that the conditions necessary to the maintenance of an effective gold standard in this country no longer exist, and it is imperative that they should be restored without delay. After the war our gold holdings will no longer be protected by the submarine danger, and it will not be possible indefinitely to continue to support the exchanges with foreign countries by borrowing abroad. Unless the machinery which long experience has shown to be the only effective remedy for an adverse balance of trade and an undue growth of credit is once more brought into play, there will be very grave danger of a credit expansion in this country and a foreign drain of gold which might jeopardize the convertibility of our note issue and the international trade position of the country. The uncertainty of the monetary situation will handicap our industry, our position as an international financial centre will suffer and our general commercial status in the eyes of the world will be lowered. We are glad to find that there was no difference of opinion among the witnesses who appeared before us as to the vital importance of these matters. Cessation of government borrowings 16. If a sound monetary position is to be re-established and the gold standard to be effectively maintained, it is in our judgement essential that government borrowings should cease at the earliest possible moment after the war. A large part of the credit expansion arises, as we have shown, from the fact that the expenditure of the government during the war has exceeded the amounts which they have been able to raise by taxation or by loans from the actual savings of the people. They have been obliged therefore to obtain money through the creation of credits by the Bank of England and by the joint stock banks, with the result that the growth of purchasing power has exceeded that of purchasable goods and services. As we have already shown, the continuous issue of uncovered currency notes is inevitable in such circumstances. 284

The Heyday of the Gold Standard, 1820–1930 This credit expansion (which is necessarily accompanied by an evergrowing foreign indebtedness) cannot continue after the war without seriously threatening our gold reserves and, indeed, our national solvency. 17. A primary condition of the restoration of a sound credit position is the repayment of a large portion of the enormous amount of government securities now held by the banks. It is essential that as soon as possible the state should not only live within its income but should begin to reduce its indebtedness. We accordingly recommend that at the earliest possible moment an adequate sinking fund should be provided out of revenue, so that there may be a regular annual reduction of capital liabilities, more especially those which constitute the floating debt. We should remark that it is of the utmost importance that such repayment of debt should not be offset by fresh borrowings for capital expenditure. We are aware that immediately after the war there will be strong pressure for capital expenditure by the state in many forms for reconstruction purposes. But it is essential to the restoration of an effective gold standard that the money for such expenditure should not be provided by the creation of new credit, and that, in so far as such expenditure is undertaken at all, it should be undertaken with great caution. The necessity of providing for our indispensable supplies of food and raw materials from abroad and for arrears of repairs to manufacturing plant and the transport system at home will limit the savings available for new capital expenditure for a considerable period. This caution is particularly applicable to far-reaching programmes of housing and other development schemes. The shortage of real capital must be made good by genuine savings. It cannot be met by the creation of fresh purchasing power in the form of bank advances to the government or to manufacturers under government guarantee or otherwise, and any resort to such expedients can only aggravate the evil and retard, possibly for generations, the recovery of the country from the losses sustained during the war. Use of Bank of England discount rate 18. Under an effective gold standard all export demands for gold must be freely met. A further essential condition of the restoration and maintenance of such a standard is therefore that some machinery shall exist to check foreign drains when they threaten to deplete the gold reserves. The recognized machinery for this purpose is the Bank of England discount rate. Whenever before the war the Bank’s reserves were being depleted, the rate of discount was raised. This, as we have already explained, by reacting upon the rates for money generally, acted as a check which operated in two ways. On the one hand, raised money rates tended directly to attract gold to this country or to keep here gold that might have left. On the other hand, by lessening the 285

The Monetary History of Gold demands for loans for business purposes, they tended to check expenditure and so to lower prices in this country, with the result that imports were discouraged and exports encouraged, and the exchanges thereby turned in our favour. Unless this twofold check is kept in working order the whole currency system will be imperilled. To maintain the connection between a gold drain and a rise in the rate of discount is essential to the safety of the reserves. When the exchanges are adverse and gold is being drawn away, it is essential that the rate of discount in this country should be raised relatively to the rates ruling in other countries. Whether this will actually be necessary immediately after the war depends on whether prices in this country are then substantially higher than gold prices throughout the world. It seems probable that at present they are on the whole higher, but, if credit expansion elsewhere continues to be rapid, it is possible that this may eventually not be so. […] Legal limitation of note issue necessary 20. The foregoing argument has a close connection with the general question of the legal control of the note issue. It has been urged in some quarters that in order to make possible the provision of a liberal supply of money at low rates during the period of reconstruction further new currency notes should be created, with the object of enabling banks to make large loans to industry without the risk of finding themselves short of cash to meet the requirements of the public for legal tender money. It is plain that a policy of this kind is incompatible with the maintenance of an effective gold standard. If it is adopted there will be no check upon the outflow of gold. Adverse exchanges will not be corrected either directly or indirectly through a modification in the general level of commodity prices in this country. On the contrary, as the issue of extra notes stimulates the conditions which tend to produce an advance of prices, they will become steadily more and more adverse. Hence the processes making for the withdrawal of our gold will continue and no counteracting force will be set in motion. In the result the gold standard will be threatened with destruction through the loss of all our gold. 21. The device of making money cheap by the continued issue of new notes is thus altogether incompatible with the maintenance of a gold standard. Such a policy can only lead in the end to an inconvertible paper currency and a collapse of the foreign exchanges, with consequences to the whole commercial fabric of the country which we will not attempt to describe. This result may be postponed for a time by restrictions on the export of gold and by borrowing abroad. But the continuance of such a policy after the war can only render the remedial measures which would ultimately be inevitably more painful and protracted. No doubt it would be possible for the Bank of England, with the help 286

The Heyday of the Gold Standard, 1820–1930 of the joint stock banks, without any legal restriction on the note issue, to keep the rate of discount sufficiently high to check loans, keep down prices, and stop the demand for further notes. But it is very undesirable to place the whole responsibility upon the discretion of the banks, subject as they will be to very great pressure in a matter of this kind. If they know that they can get notes freely, the temptation to adopt a lax loan policy will be very great. In order, therefore, to ensure that this is not done, and the gold standard thereby endangered, it is, in our judgement, imperative that the issue of fiduciary notes shall be, as soon as practicable, once more limited by law, and that the present arrangements under which deposits at the Bank of England may be exchanged for legal tender currency without affecting the reserve of the Banking Department shall be terminated at the earliest possible moment. Additional demands for legal tender currency otherwise than in exchange for gold should be met from the reserves of the Bank of England and not by the Treasury, so that the necessary checks upon an undue issue may be brought regularly into play. Subject to the transitional arrangements as regards currency notes which we later propose, and to any special arrangements in regard to Scotland and Ireland which we may have to propose when we come to deal with the questions affecting those parts of the United Kingdom, we recommend that the note issue (except as regards existing private issues) should be entirely in the hands of the Bank of England; the notes should be payable in gold in London only, and should be legal tender throughout the United Kingdom. […] Summary of conclusions 47. Our main conclusions may be briefly summarized as follows: Before the war the country possessed a complete and effective gold standard. The provisions of the Bank Act 1844, operated automatically to correct unfavourable exchanges and to check undue expansions of credit. During the war the conditions necessary to the maintenance of that standard have ceased to exist. The main cause has been the growth of credit due to government borrowing from the Bank of England and other banks for war needs. The unlimited issue of currency notes has been both an inevitable consequence and a necessary condition of this growth of credit. In our opinion it is imperative that after the war the conditions necessary to the maintenance of an effective gold standard should be restored without delay. Unless the machinery which long experience has shown to be the only effective remedy for an adverse balance of trade and an undue growth of credit is once more brought into play, there will be grave danger of a progressive credit expansion which will result in a foreign drain of gold menacing the con287

The Monetary History of Gold vertibility of our note issue and so jeopardizing the international trade position of the country. The prerequisites for the restoration of an effective gold standard are: (a) The cessation of government borrowing as soon as possible after the war. We recommend that at the earliest possible moment an adequate sinking fund should be provided out of revenue, so that there may be a regular annual reduction of capital liabilities, more especially those which constitute the floating debt. (b) The recognized machinery, namely the raising and making effective of the Bank of England discount rate, which before the war operated to check a foreign drain of gold and the speculative expansion of credit in this country, must be kept in working order. This necessity cannot, and should not, be evaded by any attempt to continue differential rates for home and foreign money after the war. (c) The issue of fiduciary notes should, as soon as practicable, once more be limited by law, and the present arrangements under which deposits at the Bank of England may be exchanged for legal tender currency without affecting the reserve of the Banking Department should be terminated at the earliest possible moment. Subject to transitional arrangements as regards currency notes and to any special arrangements in regard to Scotland and Ireland which we may have to propose when we come to deal with the questions affecting those parts of the United Kingdom, we recommend that the note issue (except as regards existing private issues) should be entirely in the hands of the Bank of England. The notes should be payable in London only and should be legal tender throughout the United Kingdom. As regards the control of the note issue, we make the following observations: 1. While the obligation to pay both Bank of England notes and currency notes in gold on demand should be maintained, it is not necessary or desirable that there should be any early resumption of the internal circulation of gold coin. 2. While the import of gold should be free from all restrictions, it is convenient that the Bank of England should have cognizance of all gold exports and we recommend that the export of gold coin or bullion should be subject to the condition that such coin and bullion has been obtained from the Bank for the purpose. The Bank should be under obligation to supply gold for export in exchange for its notes. 3. In view of the withdrawal of gold from circulation we recommend that the gold reserves of the country should be held by one central institution and that all banks should transfer any gold now held by them to the Bank of England. 288

The Heyday of the Gold Standard, 1820–1930 Having carefully considered the various proposals which have been placed before us as regards the basis of the fiduciary note issue […], we recommend that the principle of the Bank Charter Act 1844, should be maintained, namely that there should be a fixed fiduciary issue beyond which notes should only be issued in exchange for gold. We recommend, however, that provision for an emergency be made by the continuance in force, subject to the stringent safeguards recommended in the body of the report, of section 3 of the Currency and Bank Notes Act 1914, under which the Bank of England may, with the consent of the Treasury, temporarily issue notes in excess of the legal limit. We have come to the conclusion that it is not practicable to fix any precise figure for the fiduciary note issue immediately after the war. We think it desirable, therefore, to fix the amount which should be aimed at as the central gold reserve, leaving the fiduciary issue to be settled ultimately at such amount as can be kept in circulation without causing the central gold reserve to fall below the amount so fixed. We recommend that the normal minimum of the central gold reserve to be aimed at should be, in the first instance, £150 million. Until this amount has been reached and maintained concurrently with a satisfactory foreign exchange position for at least a year, the policy of cautiously reducing the uncovered note issue should be followed. When reductions have been effected, the actual maximum fiduciary circulation in any year should become the legal maximum for the following year, subject only to the emergency arrangements previously recommended. When the exchanges are working normally on the basis of a minimum reserve of £ 150 million, the position should again be reviewed in the light of the dimensions of the fiduciary issue as it then exists. We do not recommend the transfer of the existing currency note issue to the Bank of England until the future dimensions of the fiduciary issue have been ascertained. During the transitional period the issue should remain a government issue, but new notes should be issued, not against government securities, but against Bank of England notes, and, furthermore, when opportunity arises for providing cover for existing uncovered notes, Bank of England notes should be used for this purpose also. Demands for new currency would then fall in the normal way on the Banking Department of the Bank of England. When the fiduciary portion of the issue has been reduced to an amount which experience shows to be consistent with the maintenance of a central gold reserve of £150 million, the outstanding currency notes should be retired and replaced by Bank of England notes of low denomination.

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28 June 1919 The Treaty of Versailles

After Germany’s defeat in the First World War, the Peace Treaty imposed severe financial obligations. The Allies ensured that all the monetary conditions they imposed upon Germany were denominated in gold. The excerpted articles of the Treaty indicate gold’s central role in the financial settlement of the First World War. Source: The full text can be found in The Treaties of Peace, 1919–1923 (New York: Carnegie Endowment for International Peace, 1924). Other copies can be found in Hugh J. Schonfield (ed.), The Treaty of Versailles: The Essential Text and Amendments (London: Peace Book Company, 1940).

ANNEX […] 36. If the League of Nations decides in favour of the union of the whole or part of the territory of the Saar Basin with Germany, France’s rights of ownership in the mines situated in such part of the territory will be repurchased by Germany in their entirety at a price payable in gold. The price to be paid will be fixed by three experts, one nominated by Germany, one by France, and one, who shall be neither a Frenchman nor a German, by the Council of the League of Nations; the decision of the experts will be given by a majority. The obligation of Germany to make such payment shall be taken into account by the Reparation Commission, and for the purpose of this payment Germany may create a prior charge upon her assets or revenues upon such detailed terms as shall be agreed to by the Reparation Commission. If, nevertheless, Germany after a period of one year from the date on which the payment becomes due shall not have effected the said payment, the Reparation Commission shall do so in accordance with such instructions as may be given by the League of Nations, and, if necessary, by liquidating that part of the mines which is in question. […]

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The Heyday of the Gold Standard, 1820–1930 ARTICLE 232 The Allied and Associated Governments recognise that the resources of Germany are not adequate, after taking into account permanent diminutions of such resources which will result from other provisions of the present Treaty, to make complete reparation for all such loss and damage. The Allied and Associated Governments, however, require, and Germany undertakes, that she will make compensation for all damage done to the civilian population of the Allied and Associated Powers and to their property during the period of the belligerency of each as an Allied or Associated Power against Germany by such aggression by land, by sea and from the air, and in general all damage as defined in Annex l hereto. In accordance with Germany’s pledges, already given, as to complete restoration for Belgium, Germany undertakes, in addition to the compensation for damage elsewhere in this Part provided for, as a consequence of the violation of the Treaty of 1839, to make reimbursement of all sums which Belgium has borrowed from the Allied and Associated Governments up to November 11, 1918, together with interest at the rate of five per cent (5 per cent) per annum on such sums. This amount shall be determined by the Reparation Commission, and the German Government undertakes thereupon forthwith to make a special issue of bearer bonds to an equivalent amount payable in marks gold, on May 1, 1926, or, at the option of the German Government, on the 1st of May in any year up to 1926. Subject to the foregoing, the form of such bonds shall be determined by the Reparation Commission. Such bonds shall be handed over to the Reparation Commission, which has authority to take and acknowledge receipt thereof on behalf of Belgium. […] ARTICLE 235 In order to enable the Allied and Associated Powers to proceed at once to the restoration of their industrial and economic life, pending the full determination of their claims, Germany shall pay in such instalments and in such manner (whether in gold, commodities, ships, securities or otherwise) as the Reparation Commission may fix, during 1919, 1920 and the first four months Of 1921 , the equivalent of 20,000,000,000 gold marks. Out of this sum the expenses of the armies of occupation subsequent to the Armistice of November 11, 1918, shall first be met, and such supplies of food and raw materials as may be judged by the Governments of the Principal Allied and Associated Powers to be essential to enable Germany to meet her obligations for reparation may also, with the approval of the said Governments, be paid for out of the above sum. The balance shall be reckoned towards liquidation of the amounts due for reparation. Germany shall further deposit bonds as prescribed in paragraph 12 (c) Of Annex II hereto. […] 291

The Monetary History of Gold ANNEX II […] 12. The Commission shall have all the powers conferred upon it, and shall exercise all the functions assigned to it, by the present Treaty. The Commission shall in general have wide latitude as to its control and handling of the whole reparation problem as dealt with in this Part of the present Treaty and shall have authority to interpret its provisions. Subject to the provisions of the present Treaty, the Commission is constituted by the several Allied and Associated Governments referred to in paragraphs 2 and 3 above as the exclusive agency of the said Governments respectively for receiving, selling, holding, and distributing the reparation payments to be made by Germany under this Part of the present Treaty. The Commission must comply with the following conditions and provisions: (a) Whatever part of the full amount of the proved claims is not paid in gold, or in ships, securities and commodities or otherwise, Germany shall be required, under such conditions as the Commission may determine, to cover by way of guarantee by an equivalent issue of bonds, obligations or otherwise, in order to constitute an acknowledgment of the said part of the debt. (b) In periodically estimating Germany’s capacity to pay, the Commission shall examine the German system of taxation, first, to the end that the sums for reparation which Germany is required to pay shall become a charge upon all her revenues prior to that for the service or discharge of any domestic loan, and secondly, so as to satisfy itself that, in general, the German scheme of taxation is fully as heavy proportionately as that of any of the Powers represented on the Commission. (c) In order to facilitate and continue the immediate restoration of the economic life of the Allied and Associated countries, the Commission will as provided in Article 235 take from Germany by way of security for and acknowledgment of her debt a first instalment of gold bearer bonds free of all taxes and charges of every description established or to be established by the Government of the German Empire or of the German States, or by any authority subject to them; these bonds will be delivered on account and in three portions, the marks gold being payable in conformity with Article 262 of Part IX (Financial Clauses) of the present Treaty as follows: (1.) To be issued forthwith, 20,000,000,000 Marks gold bearer bonds, payable not later than May l, 1921, without interest. There shall be specially applied towards the amortisation of these bonds the payments which Germany is pledged to make in conformity with Article 235, after deduction of the sums used for the reimbursement of expenses of the armies of occupation and for payment of foodstuffs and raw materials. 292

The Heyday of the Gold Standard, 1820–1930 Such bonds as have not been redeemed by May l, 1921, shall then be exchanged for new bonds of the same type as those provided for below (paragraph l2, C, (2). (2.) To be issued forthwith, further 40,000,000,000 Marks gold bearer bonds, bearing interest at 2 ½ per cent. per annum between 1921 and l926, and thereafter at 5 per cent. per annum with an additional l per cent. For amortisation beginning in 1926 on the whole amount of the issue. (3.) To be delivered forthwith a covering undertaking in writing to issue when, but not until, the Commission is satisfied that Germany can meet such interest and sinking fund obligations, a further instalment of 40,000,000,000 Marks gold 5 per cent. bearer bonds, the time and mode of payment of principal and interest to be determined by the Commission. The dates for payment of interest, the manner of applying the amortisation fund, and all other questions relating to the issue, management and regulation of the bond issue shall be determined by the Commission from time to time. Further issues by way of acknowledgment and security may be required as the Commission subsequently determines from time to time. (d) In the event of bonds, obligations or other evidence of indebtedness issued by Germany by way of security for or acknowledgment of her reparation debt being disposed of outright, not by way of pledge, to persons other than the several Governments in whose favour Germany’s original reparation indebtedness was created, an amount of such reparation indebtedness shall be deemed to be extinguished corresponding to the nominal value of the bonds, etc., so disposed of outright, and the obligation of Germany in respect of such bonds shall be confined to her liabilities to the holders of the bonds, as expressed upon their face. (e) The damage for repairing, reconstructing and rebuilding property in the invaded and devastated districts, including reinstallation of furniture, machinery and other equipment, will be calculated according to the cost at the dates when the work is done. (f) Decisions of the Commission relating to the total or partial cancellation of the capital or interest of any verified debt of Germany must be accompanied by a statement of its reasons. […] 19. Payments required to be made in gold or its equivalent on account of the proved claims of the Allied and Associated Powers may at any time be accepted by the Commission in the form of chattels, properties, commodities, businesses, rights, concessions within or without German territory, ships, bonds, shares or securities of any kind, or currencies of Germany or other 293

The Monetary History of Gold States, the value of such substitutes for good being fixed at a fair and just amount by the Commission itself. […] PART IX FINANCIAL CLAUSES ARTICLE 248 Subject to such exceptions as the Reparation Commission may approve, a first charge upon all the assets and revenues of the German Empire and its constituent States shall be the cost of reparation and all other costs arising under the present Treaty or any treaties or agreements supplementary thereto or under arrangements concluded between Germany and the Allied and Associated Powers during the Armistice or its extensions. Up to May 1, 1921, the German Government shall not export or dispose of, and shall forbid the export or disposal of, gold without the previous approval of the Allied and Associated Powers acting through the Reparation Commission. ARTICLE 249 There shall be paid by the German Government the total cost of all armies of the Allied and Associated Governments in occupied German territory from the date of the signature of the Armistice of November 11, 1918, including the keep of men and beasts, lodging and billeting, pay and allowances, salaries and wages, bedding, heating, lighting, clothing, equipment, harness and saddlery, armament and rolling-stock, air services, treatment of sick and wounded, veterinary and remount services, transport service of all sorts (such as by rail, sea or river, motor lorries), communications and correspondence, and in general the cost of all administrative or technical services the working of which is necessary for the training of troops and for keeping their numbers up to strength and preserving their military efficiency. The cost of such liabilities under the above heads so far as they relate to purchases or requisitions by the Allied and Associated Governments in the occupied territories shall be paid by the German Government to the Allied and Associated Governments in marks at the current or agreed rate of exchange. All other of the above costs shall be paid in gold marks. ARTICLE 250 Germany confirms the surrender of all material handed over to the Allied and Associated Powers in accordance with the Armistice of November 11, 1918, 294

The Heyday of the Gold Standard, 1820–1930 and subsequent Armistice Agreements, and recognises the title of the Allied and Associated Powers to such material. There shall be credited to the German Government, against the sums due from it to the Allied and Associated Powers for reparation, the value, as assessed by the Reparation Commission, referred to in Article 233 of Part VIII (Reparation) of the present Treaty, of the material handed over in accordance with Article VII of the Armistice of November 11, 1918, or Article III of the Armistice Agreement of January l6, 1919, as well as of any other material handed over in accordance with the Armistice of November 11, 1918, and of subsequent Armistice Agreements, for which, as having non-military value, credit should in the judgment of the Reparation Commission be allowed to the German Government. Property belonging to the Allied and Associated Governments or their nationals restored or surrendered under the Armistice Agreements in specie shall not be credited to the German Government. […] ARTICLE 259 (1.) Germany agrees to deliver within one month from the date of the coming into force of the present Treaty, to such authority as the Principal Allied and Associated Powers may designate, the sum in gold which was to be deposited in the Reichsbank in the name of the Council of the Administration of the Ottoman Public Debt as security for the first issue of Turkish Government currency notes. (2.) Germany recognises her obligation to make annually for the period of twelve years the payments in gold for which provision is made in the German Treasury Bonds deposited by her from time to time in the name of the Council of the Administration of the Ottoman Public Debt as security for the second and subsequent issues of Turkish Government currency notes. (3.) Germany undertakes to deliver, within one month from the coming into force of the present Treaty, to such authority as the Principal Allied and Associated Powers may designate, the gold deposit constituted in the Reichsbank or elsewhere, representing the residue of the advance in gold agreed to on May 5, 1915, by the Council of the Administration of the Ottoman Public Debt to the Imperial Ottoman Government. (4.) Germany agrees to transfer to the Principal Allied and Associated Powers any title that she may have to the sum in gold and silver transmitted by her to the Turkish Ministry of Finance in November, 1918, in anticipation of the payment to be made in May, 1919, for the service of the Turkish Internal Loan. (5.) Germany undertakes to transfer to the Principal Allied and Associated Powers, within a period of one month from the coming into force of the 295

The Monetary History of Gold present Treaty, any sums in gold transferred as pledge or as collateral security to the German Government or its nationals in connection with loans made by them to the Austro-Hungarian Government. (6.) Without prejudice to Article 292 of Part X (Economic Clauses) of the present Treaty, Germany confirms the renunciation provided for in Article XV of the Armistice of November 11, 1918, of any benefit disclosed by the Treaties of Bucharest and of Brest-Litovsk and by the treaties supplementary thereto. Germany undertakes to transfer, either to Roumania or to the Principal Allied and Associated Powers as the case may be, all monetary instruments, specie, securities and negotiable instruments, or goods, which she has received under the aforesaid Treaties. (7.) The sums of money and all securities, instruments and goods of whatsoever nature, to be delivered, paid and transferred under the provisions of this Article, shall be disposed of by the Principal Allied and Associated Powers in a manner hereafter to be determined by those Powers. […] ARTICLE 262 Any monetary obligation due by Germany arising out of the present Treaty andexpressed in terms of gold marks shall be payable at the option of the creditorsin pounds sterling payable in London; gold dollars of the United States ofAmerica payable in New York; gold francs payable in Paris; or gold lire payablein Rome. For the purpose of this Article the gold coins mentioned above shall be definedas being of the weight and fineness of gold as enacted by law on January 1, 1914.

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4 November 1920 Gold and Silver (Export Control) Act, 1920, United Kingdom: ‘A Bill, to control the Exportation of Gold and Silver Coin and Bullion, and to prohibit the Melting or improper Use of Gold and Silver Coin’

This Act allowed for the prohibition on the export of gold and kept Britain off the gold standard in the immediate post-war era. Source: House of Commons, House of Commons Parliamentary Papers, 1920 (London: House of Commons, 1920), vol. 2, no. 226, p. 183.

Be it enacted by the King’s most Excellent Majesty, by and with the advice of the Lords Spiritual and Temporal, and commons, in this present Parliament assembled, and by the authority of the same: – 1.

2.

(1.) Section eight of the Customs and Inland Revenue Act, 1879 (which enables the exportation of certain articles to be prohibited), shall have effect as if, in addition to the articles therein mentioned, there were included the following articles, that is to say, gold or silver and gold or silver bullion. (2.) If any person acts in contravention of or fails to comply with any condition attached to a licence authorising the exportation of any goods prohibited to be exported by virtue of this section, he shall for each offence, without prejudice to any other liability, be liable to a Customs penalty of one hundred pounds. (3.) In this Act the expression ‘gold or silver bullion’ includes gold or silver partly manufactured and any mixture or alloy containing gold or silver. (1.) It shall not be lawful for any person, except under and in pursuance of a licence granted by the Treasury to melt down, break up, or use otherwise than as currency any gold or silver coin which is for the time being

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3.

current in the United Kingdom or in any British possession or foreign country. (2.) If any person acts on contravention of this section, or acts in contravention of or fails to comply with any condition attached to a licence granted under this section, he shall for each offence be liable on summary conviction to a fine not exceeding one hundred pounds, or to imprisonment with or without hard labour for a term not exceeding two years, or to both such fine and imprisonment, and in addition to any other punishment the court dealing with the case may order the articles in respect of which the offence was committed to be forfeited. This Act may be cited as the Gold and Silver (Export Control, etc.) Act, 1920.

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7 April 1921 National Bank Law, Switzerland, 1921

The Federal legislation on the Central Bank provides for a ‘metallic’ (gold and silver) coverage of the notes in circulation. The Federal Council is also precluded from renouncing the gold obligations of the Swiss National Bank’s notes unless in times of war. This statutory commitment was circumvented in 1936. Source: League of Nations, Legislation on Gold (Geneva: League of Nations, 1930), p. 338.

Article 14. The National Bank is a bank effecting the issue of notes and transfer and discount operations, and is only authorised to carry out the following transactions: 1. To issue bank-notes in accordance with the provisions of the present law. 2. To discount bills of exchange and order cheques drawn on Swiss banks, and bearing not less than two independent signatures of known solvency, and likewise to discount bonds drawn upon Swiss banks, which can be accepted as collateral security. The date of maturity may not exceed three months. Bills of exchange and order cheques drawn by agriculturists and based upon commercial transactions shall be treated in the same manner as other bills of exchange. 3. To purchase and sell bills of exchange, order cheques and credits payable at sight in foreign countries, and likewise Treasury bills issued by foreign States. The date of maturity may not exceed three months. Bills must bear not less than two independent signatures of known solvency. 4. To make interest-bearing loans against the deposit of bonds (advances against collateral security): (a) For a fixed period not exceeding three months; (b) On current account at not more than ten days’ notice. Shares shall not be accepted as collateral security. 5. To accept the deposit of funds on which no interest is payable, and the deposit on current account, with interest, of funds appertaining to the 299

The Monetary History of Gold Confederation and to the administrations and establishments under its supervision. 6. To effect transfers and clearings, deal with bank drafts and the collection of outstanding debts. 7. To purchase for its own account bonds issued by the Confederation or Cantons and by foreign States, which are made out to bearer and can find a ready market; such transactions may only be carried out in order to provide for the temporary investment of Bank balances. 8. To purchase and sell for its own account and for the account of third parties precious metal in bullion or in coin, and to make advances against such metal. 9. To issue certificates for gold and silver. 10. To take into custody and administer securities and articles of value, to purchase and sell securities and subscribe to issues on behalf of third parties. 11. To cooperate in the issue of loans by the Confederation and to accept subscriptions to Confederation and Cantonal loans, without however taking part in the underwriting of the said loans. […] Article 19. The total value of the notes in circulation must be covered : By gold or silver currency of legal tender or of value recognised by agreement, excluding subsidiary silver coin; By gold bullion reckoned at Mint parity allowing for coinage charges; By foreign gold coin; By bills of exchange, cheques, securities, treasury bonds, assets payable at sight on foreign countries; By loans resulting from advances on current account : (a) Against bonds in accordance with the stipulations of Article 14, 4,b; (b) Against precious metals (Article 14, 8). The metallic cover must amount to at least forty per cent of the value of the notes circulation. Article 20. The National Bank shall be required to pay its notes on presentation at par and in specie which is legal tender : (a) At its Berne office up to any amount; (b) At its Zurich office and at its branches and agencies to the extent to which the reserve and their own requirements permit; payment in full shall, however, be made if sufficient time is allowed to obtain the cash from the head office. The note repayment service must be organised so as to meet local requirements. […] 300

The Heyday of the Gold Standard, 1820–1930 Article 22. The Federal Council may not decree that the notes are legal tender and release the Nation lank from the obligation to repay its notes in specie which is legal tender unless this is necessary; in time of war.

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30 August 1924 Bank Law, Germany, 1924

After the period of tremendous hyperinflation (1922–3), the German government re-organized its finances and issued a currency backed by all the land and industry owned by the government. This was replaced with a gold guarantee contained in the Weimar Republic’s Bank Law, excerpted below. The German Reichsbank was obligated to maintain a 40 per cent gold cover for the currency in circulation. Source: League of Nations, Legislation on Gold (Geneva: League of Nations, 1930), pp. 233–4.

Article 22. The Reichsbank is under obligation to take bar gold at the fixed rate of 1,392 Reichsmarks for one pound fine in exchange against its notes. The Bank is authorised to cause such bar gold to be examined and assayed by any technical experts to be appointed by the Bank in that behalf, at the vendor’s expense. Article 28. The Bank shall be compelled to keep at all times in respect of its notes in circulation : (a) A cover of at least 40 per cent in gold or ‘Devisen’ (gold cover). This cover must at least as to three-quarters consist of gold. The expression ‘gold’ within the meaning of this direction connotes bar gold as well as German or foreign gold coins (the pound fine being calculated at 1,392 Reichs marks) in so far as such gold is in the possession of any office of the Bank or deposited with any foreign central noteissuing bank in a manner to be at all times at the free disposal of the Reichsbank. ‘Devisen’ are bank-notes, or bills of exchange having not more than fourteen days to run, cheques and claims due from day to day payable in

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The Heyday of the Gold Standard, 1820–1930 foreign currency by a bank of known solvency in foreign financial centres. They are to be taken at their gold value for the time being; (b) For the remaining amount, discounted bills of exchange or cheques satisfying the requirements specified in Article 21. Article 29. In exceptional circumstances the cover referred to in Article 28 under (a) may be reduced below 40 per cent on the proposal of the Managing Board by a resolution of the General Board; such a resolution of the General Board requires unanimity except as to one vote. In the case of such a reduction of the cover extending over more than one ‘Bank return week’, the Bank has to pay to the Reich in respect of the amount by which the prescribed cover of 40 per cent falls short a percentual note tax computed in accordance with the following directions : In the case of a cover between 37 and 40 per cent : 3 per cent per annum; In the case of a cover between 35 and 37 per cent : 5 per cent per annum; In the case of a cover between 33 and 35 per cent : 8 per cent per annum; In the case of a cover of less than 33 per cent : 8 per cent per annum, with the addition of 1 per cent per annum in respect of each 1 per cent by which the percentage of the reserve falls short of 33 per cent. The rate of discount must in any case in which the cover during a bank return week or during a longer period remains uninterruptedly below 40 per cent amount to at least 5 per cent. Whenever a note tax is payable the rate of discount shall be raised by at least one-third of the percentage of the tax which is payable, and this increase shall be in addition to the increase of the said rates of discount required for the purpose of satisfying the requirements of the third paragraph of this section. […] Article 31. The Bank is under obligation to pay its notes to the bearer thereof : (a) At its principal office in Berlin immediately on presentation; (b) At any branch establishment in so far as its available cash and its cash requirements admit of such payment Payment at the Bank’s option may be made : 1. In German gold coins of the weight and fineness authorised by law for the time being at their par value; 2. In gold bars in pieces of not less than 1,000 Reichsmarks and not more than 35,000 Reichsmarks, at their value in pure gold in German gold coins of the weight and fineness authorised by law for the time being; 303

The Monetary History of Gold 3. In cheques or orders to pay in foreign currency equivalent in value to the market value of the currency concerned in the matter as expressed in gold. The ‘Satzung’ enumerates the foreign banks on which the cheques 01 orders to pay may be drawn. The Reichsbank may in such a case charge a commission. The said commission may, however, not exceed the amount representing the share apportionable to the amount paid in the cost of transmission of larger sums of gold to the place of business of the foreign bank concerned in the matter, together with interest. […] Article 35. In addition to the cover of its note issue provided for in Article 28, the Bank shall at times hold a special cover of at least 40 per cent of the liabilities falling due from day to day; this cover must consist of deposits at call (money due from day to day) in Germany or abroad, cheques on other banks, bills of exchange having not more than thirty days to run or claims recoverable at call arising from debts covered by pledges. The requirements as to special cover provided for above shall not apply to the account opened by virtue of Article 26 (reparations account). […] Article 52. The date for the coming into force of this Law shall be determined by the Reich Government. The coming into force of the rules of Article 31 requires in addition concurrent resolutions of the Reichsbank Managing Board and of the General Board. Such resolutions are to be published in the Reichsgesetzblatt. Up to that date the rules contained in Article 2 of the Law of August 4th, 1914 (Reichsgesetzblatt, page 347) concerning Reichskassenscheme and banknotes, shall remain in force, in so far as it relates to Reichsbank notes.

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28 April 1925 Winston Churchill’s 1925 Budget Speech

As Chancellor of the Exchequer in 1925, Winston Churchill announced the British government’s intention to return to the international gold standard at its pre-war parity. The level of reserves deemed necessary to support a return to the gold standard (£150 million) was the amount indicated as necessary by the Cunliffe Commission in 1918 (see document above, paragraph 47). Importantly, this did not include the reintroduction of gold coins into the domestic money supply. Britain’s return to international financial orthodoxy coincided with the return of Holland, Australia and several other major trading nations and briefly re-established the international gold standard. However, the return at an exchange rate of £1 to $4.66 proved to be at too high a level and the British economy was soon caught in the grip of a deflation that lasted until the country was forced off gold in 1931. Source: House of Commons, Parliamentary Debates: Official Report (London: HMSO, 1925), vol. 183, col. 52–8.

RETURN TO GOLD STANDARD. But before I come to the prospects of 1925 I have an important announcement to make to the Committee It is something in the nature of a digression, and yet it is an essential part of our financial policy Ever since the Spring of 1919, first under War powers and later under the Gold and Silver (Export Control) Act, 1920, the export of gold coin and bullion from this country, except under licence, has been prohibited By the express decision of the Parliament of 1920 the Act which prohibits the export was of a temporary character That Act expires on the 31st December of the present year, and Great Britain would automatically revert to the pre-War free market for gold at that date Now His Majesty’s Government have been obliged to decide whether to renew or prolong that Act on the one hand, or to let it lapse on the other That is the issue which has presented itself to us. We have decided to allow it to lapse. I am quite ready to argue the important currency controversies which are naturally associated with a decision of that kind, but not today – not in a Budget speech. 305

The Monetary History of Gold Today I can only announce and explain to the Committee what it is that the Government have decided to do, and I will do that as briefly as I can. A return to an effective gold standard has long been the settled and declared policy of this country. Every Expert Conference since the War – Brussels, Genoa – every expert Committee in this country, has urged the principle of a return to the gold standard. No responsible authority has advocated any other policy. No British Government – and every party has held office – no political party, no previous holder of the Office of Chancellor of the Exchequer has challenged, or so far as I am aware is now challenging, the principle of a reversion to the gold standard in international affairs at the earliest possible moment. It has always been taken as a matter of course that we should return to it, and the only questions open have been the difficult and the very delicate questions of how and when. […] So much for the principle. There remain the questions of time and of method. There is a general agreement, even among those who have taken what I think I am entitled to call the heterodox view – at any rate, it is the view which we on this bench do not accept – that we ought not to prolong the uncertainty, that whatever the policy of the Government, it should be declared, and that, if we are not going to renew the Act which prohibits the export of gold com and bullion, now is the moment when we ought to say so. It is the moment for which the House of Commons has patiently waited at my request – and I express my obligation because I have not been pressed on this matter before – the moment at which it was, after long consideration, judged expedient that decisions should be made and actions taken. This is the moment most favourable for action. Our exchange with the United States has for some time been stable, and is at the moment buoyant. We have no immediate heavy commitments across the Atlantic. We have entered a period on both sides of the Atlantic when political and economic stability seems to be more assured than it has been for some years. If this opportunity were missed, it might not soon recur, and the whole finance of the country would be overclouded for a considerable interval by an important factor of uncertainty. Now is the appointed time. We have therefore decided, although the prohibition on the export of gold will continue in form on the Statute Book until the 31st December, that a general licence will be given to the Bank of England for the export of gold bullion from today. We thus resume our international position as a gold standard country from the moment of the declaration that I have made to the Committee. That is an important event, but 1 hasten to add a qualification. Returning to the international gold standard does not mean that we are going to issue gold coinage. That is quite unnecessary for the purpose of the gold standard, 306

The Heyday of the Gold Standard, 1820–1930 and it is out of the question in present circumstances. It would be an unwarrantable extravagance which our present financial stringency by no means allows us to indulge in. Indeed, I must appeal to all classes in the public interest to continue to use notes and to make no change in the habits and practices they have become used to for the last ten years. The practice of the last ten years has protected the Bank of England and other banks against any appreciable demand for sovereigns or half-sovereigns. But now that we are returning publicly to the gold standard in international matters with a free export of gold, I feel that it will be better for us to regularise what has been our practice by legislation I shall therefore propose to introduce a Bill which among other things, will provide the following : First, That until otherwise provided by Proclamation the Bank of England and Treasury Notes will be convertible into coin only at the option of the Bank of England; Secondly, That the right to tender bullion to the Mint to be coined shall be confined in the future by law, as it has long been confined in practice to the Bank of England. Simultaneously with these two provisions, the Bank of England will be put under obligations to sell gold bullion in amounts of not less than 400 fine ounces in exchange for legal tender at the fixed price of £3 17s. 10 ½d. per standard ounce. If any considerable sum of legal tender is presented to the Bank of England the bank will be under obligation to meet it by bullion at that price. The further steps which are recommended by the Currency Committee, such as the amalgamation of the Bank of England and Treasury Note issues, will be deferred, as the Committee suggest, until we have sufficient experience of working a free international gold market on a gold reserve of, approximately, £150,000,000. It is only in the light of that experience that we shall be able to fix by permanent statute the ultimate limits of the fiduciary issue. All that will be in the Bill. The Bill also has another purpose We are convinced that our financial position warrants a return to the gold standard under the conditions that I have described. We have accumulated a gold reserve of £153,000,000. That is the amount considered necessary by the Cunliffe Committee, and that gold reserve we shall use without hesitation, if necessary with the Bank Rate, in order to defend and sustain our new position. To concentrate our reserves of gold in the most effective form, I have arranged to transfer the £27,000,000 of gold which the Treasury hold against the Treasury Note issue to the Bank of England in exchange for bank notes. The increase of the gold reserve of the Bank of England will, of course, figure in their accounts. Further, the Treasury have succeeded in discreetly accumulating dollars, and we have already accumulated the whole of the 166 million dollars which 307

The Monetary History of Gold are required not only for the June payment but also for the December payment of our American debt and for all our other American debt obligations this year. Therefore – and it is important – the Treasury will have no need to go on the market as a competitor for the purchase of dollars. Finally, although we believe that we are strong enough to achieve this important change from our own resources, as a further precaution and to make assurance doubly sure, 1 have made arrangements to obtain, if required, credits in the United States of not less than 300 million dollars, and of course there is the possibility of expansion if need be. These credits will only be used if, as, and when they are required. We do not expect to have to use them, and we shall freely use other measures in priority. These great credits across the Atlantic Ocean have been obtained and built up as a solemn warning to speculators of every kind and of every hue and in every country of the resistance which they will encounter and of the reserves with which they will be confronted if they attempt to disturb the gold parity which Great Britain has now established. To confirm and regularise these credit arrangements, which I have had to make provisionally in the public interest, and to deal with the other points that I have mentioned, a short three-clause Bill will be required. The text of it will be issued to-morrow, and we shall ask the House to dispose of it as a matter of urgency. These matters are very technical, and, of course, I have to be very guarded in every word that I use in regard to them. I have only one observation to make on the merits. In our policy of returning to the gold standard we do not move alone. Indeed, I think we could not have afforded to remain stationary while so. many others moved. The two greatest manufacturing countries in the world on either side of us, the United States and Germany, are in different ways either on or related to an international gold exchange. Sweden is on the gold exchange. Austria and Hungary are already based on gold, or on sterling, which is now the equivalent of gold. I have reason to know that Holland and the Dutch East Indies – very important factors in world finance – will act simultaneously with us today. As far as the British Empire is concerned – the self-governing Dominions – there will be complete unity of action. The Dominion of Canada is already on the gold standard. The Dominion of South Africa has given notice of her intention to revert to the gold standard as from 1st July. I am authorised to inform the Committee that the Commonwealth of Australia, synchronising its action with ours, proposes from today to abolish the existing restrictions on the free export of gold, and that the Dominion of New Zealand will from today adopt the same course as ourselves in freely licensing the export of gold. […] Thus over the wide area of the British Empire and over a very wide and important area of the world there has been established at once one uniform 308

The Heyday of the Gold Standard, 1820–1930 standard of value to which all international transactions are related and can be referred. That standard may, of course, vary in itself from time to time, but the position of all the countries related to it will vary together, like ships in a harbour whose gangways are joined and who rise and fall together with the tide. I believe that the establishment of this great area of common arrangement will facilitate the revival of international trade and of inter-Imperial trade. Such a revival and such a foundation is important to. all countries and to no country is it more important than to this island, whose population is larger than its agriculture or its industry can sustain – [HON. MEMBERS: ‘No!’] – which is the centre of a wide Empire, and which, in spite of all its burdens, has still retained, if not the primacy, at any rate the central position, in the financial systems of the world.

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28 April 1925 Gold Standard Act, 1925, United Kingdom: ‘A Bill, to facilitate the Return to a Gold Standard and for Purposes connected therewith’

Although this Act restored convertibility, Britain no longer minted gold coins and would only redeem its currency for gold in the form of 400 oz. bars of gold. Source: House of Commons, House of Commons Parliamentary Papers, 1924–5 (London: House of Commons, 1925), vol. 1, no. 163, pp. 1167–70.

Be it enacted by the King’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows: – 1. (1.) Unless and until His Majesty by Proclamation otherwise directs – (a) The Bank of England, notwithstanding anything in any Act, shall not be bound to pay any note of the Bank (in this Act referred to as ‘a bank note’) in legal coin within the meaning of section six of the Bank of England Act, 1833, and bank notes shall not cease to be legal tender by reason that the Bank do not continue to pay bank notes in such legal coin: (b) Subsection (3) of section one of the Currency and Bank Notes Act, 1914 (which provides that the holder of a currency note shall be entitled to obtain payment for the note at its face value in gold coin) shall cease to have effect: (c) Section eight of the Coinage Act, 1870 (which entitles any person bringing gold bullion to the Mint to have it assayed, coined and delivered to him) shall, except as respects gold bullion brought to the Mint by the Bank of England, cease to have effect. (2.) So long as the preceding subsection remains in force the Bank of England shall be bound to sell to any person who makes a demand in that behalf at the head office of the Bank during the office hours of the Bank, and pays the purchase price in any legal tender, gold bullion at the price of three pounds, seventeen shillings and ten pence halfpenny per 310

The Heyday of the Gold Standard, 1820–1930 ounce troy of gold of the standard of fineness prescribed for gold coin by the Coinage Act, 1870, but only in the form of bars containing approximately four hundred ounces troy of fine gold. 2. (1.) Any money required for the purpose of exchange operations in connection with the return to a gold standard may be raised within two years after the passing of this Act in such manner as the Treasury think fit, and for that purpose they may create and issue, either within or without the United Kingdom and either in British or in any other currency, such securities bearing such rate of interest and subject to such conditions as to repayment, redemption or otherwise as they think fit, and may guarantee in such manner and on such terms and conditions as they think proper the payment of interest and principal of any loan which may be raised for such purpose aforesaid: Provided that any securities created or issued under this section shall be redeemed within two years of their date of issue, and no guarantee shall be given under this section so as to be in force after two years from the date upon which it is given. (2.) The principal and interest of any money raised under this Act, and any sums payable by the Treasury in fulfilling any guarantee given under this Act, together with any expense incurred by the Treasury in connection with, or with a view to the exercise of, their powers under this section shall be charged on the Consolidated Fund of the United Kingdom or the growing produce thereof. (3.) Where by any Appropriation Act passed after the commencement of this Act power is conferred on the Treasury to borrow money up to a specified amount, any sums which may at the time of the passing of that Act have been borrowed or guaranteed by the Treasury in pursuance of this section and are then outstanding shall be treated as having been raised in exercise of the power conferred by the said Appropriation Act and be the amount which may be borrowed under that Act shall be reduced accordingly. 3. This Act may be cited as the Gold Standard Act, 1925.

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21 August 1925 Decree-Law Creating the Central Bank of Chile, 1925

The dominance of Britain and the United States in terms of trade and finance led many countries to arrange for the exchange of their currencies and notes for gold through banks in London and New York. This excerpt is from Chilean legislation and includes two articles that indicate this practice. Source: League of Nations, Legislation on Gold (Geneva: League of Nations, 1930), p. 189.

Article 69. Notes of the Central Bank shall be payable to bearer on demand at the head office of the Bank in Santiago, and payment shall be made in any of the following forms at the option of the (a) In Chilian gold coins of the weight and fineness provided for in the monetary law; (b) In gold bars of approximately 100 per cent fineness and of weight not less than 500 grammes; (c) In demand drafts or three-days-sight drafts on London or New York payable in gold and drawn on funds deposited in banks of high standing in those cities. The premiums charged by the Bank above the gold par of the Chilian gold peso as compared with the gold pound sterling and the gold dollar respectively shall not exceed the sum necessary to cover the cost of shipping gold bars in bulk from Santiago to the foreign centre on which the drafts are drawn. […] Article 71. To avoid appreciation of the monetary unit above the gold value stipulated in the monetary law, the Central Bank of Chile shall at its head office in Santiago pay out its own notes in exchange : (a) At par for unworn gold coins of the Chilian Republic; or for coins minted after the promulgation of the present law and not worn below the 312

The Heyday of the Gold Standard, 1820–1930 limit fixed by law; or at the rate of one peso in bank-notes for 0.183057 gramme of fine gold for other gold coins of the Chilian Republic; (b) For foreign gold coin or its equivalent in paper money payable on demand, and deposits payable on demand in the same coin, also at the rate of one peso per 0.183057 gramme of fine gold, provided the said deposits have been credited to the account of the legal reserve of the Central Bank of Chile in banks in London or New York where the said Central Bank maintains reserves of that kind. On paying out notes in Santiago against gold deposits abroad, the Bank shall be entitled to charge a premium equivalent to the cost of shipping gold in bulk from the foreign city concerned to Santiago, plus the costs that will be incurred for minting the said gold into Chilian coin at the Santiago Mint and the interest accruing during the time of transit.

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25 June 1928 Monetary Law, France, 1928

It took several years after the end of the First World War before France restored convertibility between the franc and gold in 1926. This excerpt from the Monetary Law of 1928 includes a list of several pieces of wartime legislation that restricted the export and holding of gold in France during and immediately after the war. Source: League of Nations, Legislation on Gold (Geneva: League of Nations, 1930), pp. 229–30.

Article 1. The provisions of Article 3 of the Law of August 5th, 1914, which order, temporarily, the forced circulation of the notes of the Bank of France and the Bank of Algeria, are repealed. Article 2. The franc, the monetary unit of France, is composed of 65.5 milligrammes of gold of a fineness of nine hundred thousandths. This definition is not applicable to international payments which, before the promulgation of the present Law, were stipulated to be in gold francs. Article 3. The Bank of France shall be bound to make provision for the conversion of its notes into gold to bearer and at sight. It shall have the option of so doing either by redeeming its notes in gold currency accepted as legal tender, or by exchanging them for gold at the rate of 65.5 milligrammes of gold of the fineness of nine hundred thousandths per franc. It shall have the option of effecting such redemption or exchange exclusively at its central registered office and in respect of minimum quantities to be fixed by agreement between the Minister of Finance and the Bank of France.

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The Heyday of the Gold Standard, 1820–1930 Provision shall be made for the conversion under like conditions of notes of the Bank of Algeria, by agreement between the Minister of Finance and the Bank of Algeria. The Bank of France shall be bound to purchase gold of the fineness of nine hundred thousandths at the pay-desks of its central registered office and of such subsidiary offices as it may select, without deducting interest. It shall have the right to deduct from the price paid to the seller the cost of minting at the tariff established by the Paris Mint. The costs of assaying shall be borne by the seller. Article 4. The Bank of France shall be bound to keep a cash balance in gold bullion and coin equal to not less than thirty-five per cent (35 per cent) of the total sum of the bearer notes in circulation and the current credit accounts. All previous legal provisions fixing a maximum for the sum of Bank of France notes in circulation are hereby abrogated. Article 5. There will be made by the Administration of the Mint one-hundred-franc gold coins of a fineness of nine hundred thousandths. The legal tolerance as regards the fineness is fixed at one thousandth above or below. The legal tolerance as regards the weight is fixed at two thousandths above or below. These coins will be legal tender for an unlimited amount. Article 6. A decree of the Council of Ministers will fix the date after which the Administration of the Mint will resume the free coinage of gold for private persons. This decree will determine the conditions under which gold will be accepted for minting on the basis laid down in Article 2, an will fix the coinage fees. Until this decree is published, the Administration of the Mint may coin gold only for the account of the Bank of France, and the fee shall be 40 francs per kilogramme of gold of a fineness of nine hundred thousandths. […] Article 12. The Law of the 17 Germinal of the year XI concerning the making and verifying of coins is repealed. 315

The Monetary History of Gold Are and remain repealed : The Law of November 15th, 1915, prohibiting the export of gold bullion and of gold and silver coin; The Law of April 12th, 1916, prohibiting the export of silver bullion; The Decrees of April 1st, 1915, and December 2nd, 1921, prohibiting the export of nickel and copper coins as well as those of aluminiumbronze; The Laws of February 12th, 1916, and October 16th, 1919, suppressing the traffic in the national moneys; The Law of October 20th, 1919, prohibiting the melting and the demonitisation [sic] of the national coin; The provisions of the Law of April 3rd, 1918, and of the succeeding Laws relating to the prohibition on the export of French bank-notes over a certain sum; The Law of August 7th, 1926, concerning the steps preparatory to the stabilisation of the currency, as well as all other Laws whose provisions are contrary to the present text.

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20 December 1929 Amendment to the National Bank Law, Switzerland, 1929

As the Great Depression took hold, the Swiss government made some modest changes to its banking laws. Most notably, it removed silver from the list of acceptable currency reserves (Article 14, paragraph 9; and Article 19) and obliged the Bank to purchase interest-bearing bonds (Article 14, paragraph 7) as a component of its reserves. The amendment also expanded the gold repayment options of the Swiss National Bank (Article 20bis). Source: League of Nations, Legislation on Gold (Geneva: League of Nations, 1930), p. 348–9.

Article 1. Articles 14, 19, 20 and 22 of the Federal Law of April 7th, 1921, concerning the National Bank of Switzerland are hereby abrogated and replaced by the following provisions : […] Article 14. The National Bank is a bank effecting the issue of notes and transfer and discount operations, and is only authorised to carry out the following transactions: […] 7. To purchase for its own account interest-bearing bonds issued by the Confederation or Cantons and by foreign States, which are made out to bearer and can find a ready market; such transactions may only be carried out in order to provide for the temporary investment of Bank balances. […] 9. To issue certificates for gold. […]

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The Monetary History of Gold Article 19. The total value of the notes in circulation must be covered : By Swiss gold coin; By gold bullion reckoned at Mint parity allowing for coinage charges; By foreign gold coin; By bills of exchange and cheques drawn on Swiss banks, and by Swiss bonds; By bills of exchange and cheques on foreign countries ; By the Treasury bills of foreign States and by assets payable at sight on foreign countries; By loans resulting from advances on current account : (a) Against bonds, in accordance with the stipulations of Article 14, 4(b); (b) Against precious metals (Article 14, 8). The metallic cover must amount to at least 40 per cent of the value of the notes in circulation. The minimum metallic cover of 40 per cent must be maintained exclusively in Switzerland. Article 20. The National Bank shall be required to pay its notes on presentation in Swiss gold coin : (a) At its Berne office up to any amount; (b) At its Zurich office, and at its branches and agencies under the direct management of the Bank, to the extent to which the reserve and their own requirements permit; payment in full shall, however, be made if sufficient time is allowed to obtain cash from the head office. The note repayment service must be organised so as to meet local requirements. Article 20bis. As long as the banks of issue in the countries designated as important by the Bank authorities do not themselves repay their notes in gold coin, the Bank shall have the option to repay its notes on presentation in one or other of the following forms : In Swiss gold coin; In gold bullion of the usual commercial weight (approximately 12 kilogrammes) on the basis of the Mint parity; In gold foreign exchange (bank remittance or cheque), that is to say, in foreign exchange on countries having a free gold market. The rate for converting these currencies shall be calculated on the basis of the exchange rate of the foreign currency at the time of the transaction. It may not, however, under any circumstances exceed the export point of Swiss gold coin consigned to the foreign banking centre on which the 318

The Heyday of the Gold Standard, 1820–1930 payment is to be drawn. The National Bank reserves the right to designate these foreign currencies. Repayment-shall be effected: In gold coin and bin gold bullion at its Berne office up to any amount, and at its Zurich office and the branches and agencies under the direct management of the Bank to the extent to which the reserve and their own requirements permit; payment in full shall, however, be made if sufficient time is allowed to obtain the cash from the head office; In gold foreign exchange at all the afore-mentioned establishments of the Bank up to any amount. The note repayment service must be organised so as to meet local requirements. […] Article 22. The Federal Council may not decree that the notes are legal tender and release the National bank from the obligation to reply its notes in the manner prescribed in Articles 20 and 20bis, unless this is necessary in time of war.

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29 March 1930 Paper issued by the Statistical Section of the Bank of England, entitled ‘Terms on which the Bank of England buys Bar Gold’

This paper, drafted just over a year before Britain abandoned the gold standard, spells out the minimum terms under which the Bank of England would supply gold in exchange for currency. Note that an individual needed to present over £1,500 in currency to receive the minimum 400 ounces of bar gold. Source: London, Bank of England Archives, C52/15, 3324/3, No. 8, ‘Terms on which the Bank of England buys Bar Gold’.

The ‘Gold Standard Act 1925’ released the Bank from the obligation to redeem its own Notes or Currency Notes in specie. It also reserved to the Bank alone the right to present Gold Bars to the Mint for converting into Gold Coin, though this was already the practice. The Bank, on the other hand, was obliged by this Statute to sell (at its Head Office) against ‘any legal tender’ Gold Bars each ‘containing approximately 400 ounces troy’ at the price of £3:17:10½ per ounce standard. The Bank has, however, continued to supply sovereigns for export, when required, though not obliged to do so by the Act. It may be added that under the Currency and Bank Notes Act 1928 anyone owning Gold in excess of £10,000 is bound, on request from the Bank, to furnish particulars of the Gold owned, and shall, if so required, sell to the Bank all that Gold which is not being held for immediate export or for industrial purposes. No Gold, however, has so far been dealt with under this provision.

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Section III.

After the Gold Standard, 1931–1999

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Section III. After the Gold Standard, 1931–1999

The return to the gold standard after the First World War was short-lived. The façade of the pre-war monetary system was reconstructed from the wreckage of the war, but it was a weak structure that lacked many of the institutional features that supported its predecessor. The stability of the traditional gold standard had depended upon the existence of a set of domestic political and economic institutions that limited the political participation of the working class and prevented governments from implementing counter-cyclical fiscal and monetary policies. Under the gold standard, the domestic economy bore the brunt of the costs of adjustment as exchange rates were fixed among gold standard participants. As a result, domestic prices and workers’ wages all needed to be reduced during an economic downturn in order to bring the national economy back into equilibrium. Under this system, higher unemployment served a social purpose in pushing wages downward. Governments concentrated on running balanced budgets and pursued fiscal policies that limited the role of the state in the economy.1 The extension of the franchise and the subsequent movement towards universal suffrage brought an end to this system of political economy, although it took until the 1930s before the gold standard ultimately collapsed. Working class political parties – in particular, socialist parties – challenged the prevailing political system to provide social benefits for workers through expanded government support and programmes of income redistribution. The expanded electorates increasingly came to hold governments and politicians responsible for the growth of the economy and the alleviation of unemployment. This responsibility extended not simply to newer parties advocating revisions in national economic policies so that they reflected popular preferences, but also to those that resisted making changes to long-standing strategies.2 1. Karl Polanyi, The Great Transformation (Boston: Beacon Press, 1957 [1944]), pp. 20–30, 135–43. 2. Barry Eichengreen, Golden Fetters: The Gold Standard and the Great Depression, 1919– 1939 (New York: Oxford University Press, 1992), pp. 30–1.

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The Monetary History of Gold In this new era, the functioning of the gold standard and the decentralised system of international monetary policy suddenly became objects of domestic political debate in ways that they had not been in the past. The re-introduction of the gold standard in Britain in 1925 (modified into a gold bullion standard without the free minting of gold) led to heightened unemployment and triggered the country’s first General Strike. Although the strike failed, it revealed the extent of labour disaffection with the status quo and the willingness of unions to hold the government responsible for economic outcomes. Torn apart by the war and re-ordered to meet new social realities, the political and economic institutions which supported the gold standard were ill-prepared to withstand political demands that burst forth during the Great Depression. The worldwide economic depression that began in 1929 exacerbated existing domestic social tensions across the world as unemployment rose and output dropped. Social unrest led to calls for additional government assistance and the prospect of substantial budget deficits drove many debtor countries off the gold standard. The crisis affected countries at the core of the international financial system as well. Britain became the first major creditor country to be forced off gold on 21 September 1931. Although it pledged a return to the gold standard at an undesignated future date and other central banks made resurrection of the gold standard the centrepiece of international financial orthodoxy, the list of countries abandoning the gold standard grew throughout the 1930s. Shortly after his inauguration as President of the United States in 1933, Franklin Roosevelt issued a series of Executive Orders banning the exportation of gold and silver from the United States and effectively nationalised private gold holdings in the United States, and ultimately devalued the dollar by 40 per cent. When France and Switzerland suspended gold convertibility in 1936, there were no longer any major financial powers in the world adhering to the gold standard. That same year, the Tripartite Agreement between Britain, France and the United States (and several other European powers) signalled the re-establishment of international monetary cooperation in the midst of worldwide economic chaos. The Second World War briefly interrupted attempts at further monetary cooperation. While the war threw the international financial and monetary systems back into chaos, it also provided an impetus for deeper integration for the Western economies, particularly those of the United States and the United Kingdom. The two countries promoted efforts to provide a stable framework for international trade and monetary relations in the post-war world. Fuelled in large measure by a desire to avoid a repetition of the economic dislocations of the 1930s and the subsequent political radicalisation that had contributed to the rise of fascism in Europe, the Allied powers negoti324

After the Gold Standard, 1931–1999 ated the Bretton Woods agreement in order to establish a system of semi-fixed exchange rates organised under the auspices of the newly-created International Monetary Fund (IMF). Unlike the pre-war gold standard, the Bretton Woods System allowed for the alteration of any currency’s par value in the event of a ‘fundamental disequilibrium’ in its external accounts. The post-war international financial system was centred around gold and the US dollar, which itself was linked to gold at a rate of $35.00 per troy ounce. Along with the General Agreement on Tariffs and Trade, the Bretton Woods System provided the international economic component to the Western post-war system. Like the nineteenth century system that preceded it, this system was entrenched in a robust series of economic and political institutions at both the national and international level. A free market economy operating through the insulation of the Keynesian welfare state provided the domestic economic structures necessary to offer profitable economic activity while at the same time providing some degree of social protection for those disadvantaged by the vagaries of the marketplace. Domestic political institutions reinforced the welfare state and offered political outlets for popular concerns. At the international level, the Cold War divide and the North Atlantic Treaty Organisation (NATO) provided the political and military security within which the economic system could safely function. The dollar’s central position under Bretton Woods reflected the United States’ position as the principal economic and financial power in the post-war era and the possessor of three-quarters of the world’s gold supplies. For the international economy to operate efficiently, there needed to be enough liquidity to facilitate trade without fear of a sudden monetary contraction.1 The finite quantity of gold in the world and memories of the liquidity squeeze of the 1920s and 1930s meant that gold was an unattractive contender for such a role. On the other hand, the dollar was an attractive candidate as an international reserve currency and the United States was taking responsibility for ensuring that dollars were readily available in the system. Under Bretton Woods, gold reserves remained locked in central banks – although they exchanged gold to settle accounts between themselves – and the dollar became the international reserve currency of choice. The United States came to possess additional monetary privileges and responsibilities that other countries did not possess. As many other countries had use of the dollar for transactions not involving counterparts in the United States, the United States could run substantial trade account and budget deficits without experiencing the same 1. Charles Kindleberger, The World in Depression, 1929–1939 (Berkeley: University of California Press, 1986 [1973]), pp. 294–5.

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The Monetary History of Gold consequences of countries whose currency was not the international reserve currency. In addition, it could insulate itself to some degree from inflation by ‘exporting’ its own inflationary tendencies to other countries who had to hold dollars, an ‘exorbitant privilege’, the exercise of which was not always popular outside the United States.1 The expansionary and counter-cyclical policies necessary to support the Bretton Woods system were counter-productive to monetary stability over the long-term. While the international economy demanded dollars for liquidity purposes, a sustained policy of providing dollar liquidity in times of potential crisis served to increase the supply of dollars in circulation relative to the amount of gold held by the United States. This undermined the American government’s ability to maintain the official dollar–gold parity of $35.00 per ounce. If the United States made economic adjustments to bring its external obligations in line with its domestic gold holdings, then it would not be able to provide the necessary liquidity for the international economy. On the other hand, if it persisted in running balance of payments deficits, then the foreign supply of dollars would begin to exceed the United States’ supply of gold and foreign countries would start to question the United States’ commitment to its gold parity, undermining these countries’ willingness to accept dollars as an international unit of exchange, and thus threatening the very foundations of the international monetary system. This policy quandary, the so-called ‘Triffin Dilemma’, named after the first economist to identify the problem, plagued American governments throughout the 1960s and early 1970s.2 The large American trade deficits that began in the 1960s and the budget deficits of the 1970s undermined the international monetary position of the United States, until Richard Nixon unilaterally suspended the dollar’s convertibility into gold on 15 August 1971 and imposed a series of wage and price controls, tax cuts and other measures designed to control inflation and redress the imbalance in the United States’ current account. The closure of the gold window led to the dollar’s devaluation in terms of gold in both 1972 and 1973. In order to prevent further devaluations, the tie to gold was broken and the IMF’s articles were amended so as to prohibit members from denominating their currencies in terms of gold.3 Ironically, although it was the weakness of the dollar relative to gold that brought about the collapse of the Bretton 1. See de document below, ‘Excerpt from a Press Conference of French President Charles de Gaulle at the Palais de l’Élysée calling for the return of a “gold exchange standard”.’ 2. Robert Triffin, Gold and the Dollar Crisis: The Future of Convertibility (New Haven: Yale University Press, 1960). 3. Dick Ware, The IMF and Gold: Revised Edition (London: World Gold Council, 2001), pp. 21–3.

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After the Gold Standard, 1931–1999 Woods System, it was gold that was removed from its primary position as a monetary asset while the devalued dollar became even more central to the smooth operation of the international economy. After the Bretton Woods System ended, the United States auctioned off a portion of its gold reserves; however, it kept the vast majority of its reserves and other central banks also retained their large existing stockpiles of gold. Gold’s attractiveness as a monetary asset continued to wane during the 1980s and 1990s as stock market gains in the United States and Europe routinely returned over 10 per cent per annum. Gold, a non-interest bearing asset, appeared a rather dull prospect in comparison to such dramatic gains. Even traditional advocates of gold as a reserve asset, such as the Swiss National Bank, began having second thoughts about the size of national central bank gold holdings. However, the stock market’s decline since 1999, as well as the increase in international tensions as a result of the terrorist attack on the World Trade Center in New York on 11 September 2001 and the second Gulf War in 2003, brought a resurgence in the gold market as investors returned to gold as a traditional safe-haven in troubled times. The international financial story of the last two-thirds of the twentieth century has been about the rise of fiat currencies and their gradual, but steady, eclipse of gold as the unit of exchange in domestic and international financial transactions. Gold, which well into the twentieth century had circulated as currency in many countries, ceased to have a role in day-to-day transactions by the start of the twenty-first century. The international financial system still had gold as its centrepiece at the start of 1931; however, by 1999 gold was increasingly marginalised as a monetary asset and – despite the protestations from some central banks regarding its ongoing utility – was no longer used in transactions even amongst central banks. Central banks’ concerns about the effects of their own sales of gold on the gold market led the major gold holding central banks to agree to limit their sales of gold to 400 tonnes a year for five years. This agreement was renewed in 2004 with an expanded limit of 500 tonnes of gold per year through 2009. Under these two agreements, the central banks of Western Europe have begun to coordinate a gradual reduction in their aggregate gold holdings.

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June 1931 Macmillan Committee Report, 1931: Committee on Finance and Industry

As Britain plunged deep into economic crisis in 1929, the Macmillan Committee, which included John Maynard Keynes among its members, was established to report on the deteriorating financial and industrial situation. The excerpts here discuss the status of the international gold standard and raise the issue of devaluation. They provide a wide-ranging critique of the international monetary system as it had (mal)functioned during the interwar period. While the Committee rejected devaluing the pound as a policy option for a creditor nation, Britain was nevertheless forced off the gold standard two months after the Report was issued. Source: House of Commons, House of Commons Parliamentary Papers, 1930–1 (London: House of Commons, 1931), vol. 13, cmnd. 3897.

The recent working of the gold standard 242. Unfortunately, the anticipations of those who were responsible for our return to the gold standard in 1925 have to a large extent not been fulfilled. Whether these anticipations were justified at the time, and what other course was practically possible, are questions on which we do not all agree, but which it would be unfruitful now to discuss. The six years since that act of policy have, for the reasons stated below, proved to be of a very abnormal character and the sacrifices which a return to gold at the old parity involved have not been compensated by the advantages of international price stability which were anticipated. 243. The accomplished fact of the restoration of our currency to the prewar gold parity and its maintenance there for a period of six years creates, however, an entirely new situation; and it by no means follows, even if the view be held, as it is by some of us, that a mistake was made in 1925, that the consequences can be repaired by a reversal of policy in 1931. 244. Apart from the more general considerations relating to the gold standard which we discuss below, there have been two sets of difficulties in the way 329

The Monetary History of Gold of its working to advantage in recent years, one of which we may expect, and the other of which we may hope, to be temporary. 245. The first set of difficulties has been caused by the fact that the various gold parities established by the countries returning to the gold standard did not bear by any means the same relation in each case to the existing levels of incomes and costs in terms of the national currency. For example, Great Britain established a gold parity which meant that her existing level of sterling incomes and costs was relatively too high in terms of gold, so that, failing a downward adjustment, those of her industries which are subject to foreign competition were put at an artificial disadvantage. France and Belgium, on the other hand, somewhat later established a gold parity which, pending an upward adjustment of their wages and other costs in terms of francs, gave an artificial advantage to their export industries. Other countries provide examples of an intermediate character. Thus the distribution of foreign trade, which would correspond to the relative efficiencies of different countries for different purposes, has been seriously disturbed from the equilibrium position corresponding to the normal relations between their costs in terms of gold. This, however, has been a consequence of the manner in which the postwar world groped its way to back to gold, rather than of the permanent characteristics of the gold standard itself when once the equilibrium of relative costs has been re-established, though, even after six years, this is not yet the case. 246. The second set of difficulties has resulted from the international lending power of the creditor countries being redistributed, favourably to two countries, France and the United States, which have used this power only spasmodically, and adversely to the country, Great Britain, which was formerly the leader in this field and has the most highly developed organisation for the purpose. This redistribution of lending power has been largely due to the character of the final settlement of the war debts in which this country has acquiesced. For although Great Britain suffered during the war a diminution of her foreign assets of some hundreds of millions, she has agreed to a postwar settlement by which she has resigned her own net creditor claims, with the result, that on a balance of transactions, virtually the whole of the large annual sums due from Germany accrues to the credit of France and of the United States. This has naturally had the effect of greatly increasing the surplus of these two countries, both absolutely and relatively to the surplus of Great Britain. The diminution in Great Britain’s international surplus, due to her war sacrifices remaining uncompensated by postwar advantages, has, however, been further aggravated recently by the adverse effect on her visible balance of trade of the first set of difficulties just mentioned, namely, the differing relationships between gold and domestic money-costs on which different countries returned to the gold standard. 330

After the Gold Standard, 1931–1999 247. This redistribution of lending power need not, however, in itself have interfered with the working of the gold standard. The difficulties have arisen through the partial failure of the two recipients, during the last two or three years, to employ the receipts in the way in which Great Britain had always employed hers, namely, either in the purchase of additional imports or in making additional foreign loans on long-term. On the contrary, they have required payment of a large part of their annual surplus either in actual gold or in shortterm liquid claims. This is a contingency which the normal working of the international gold standard does not contemplate and for which it does not provide. 248. But this set of difficulties, too, one may hope, though with less confidence, to be a temporary phenomenon. Should it not prove so, we can scarcely expect the international gold standard to survive in its present form. If for any reason, however plausible from its own point of view, a creditor country, after making all the purchases it desires, is unwilling to lend its remaining surplus to the rest of the world, there can be no solution except the ultimate destruction of the export trade of the country in question through a relative reduction in the gold costs of other countries. If there were no international standard, but each country had its own domestic currency subject to fluctuating exchanges, this solution would come about at once. For in this event the exchanges of France and the United States, for example, would by now have risen to so high a level relatively to the rest of the world that their exporters would have been driven out of business, so that their unlent surplus would have disappeared. According to the classical theory of the gold standard, the same result should ensue, though more slowly and painfully, as a result of movements of gold inflating costs in those countries and deflating costs elsewhere. But in the modern world, where, on the one hand, inflows of gold are liable to be sterilised and prevented from causing an expansion of credit, whilst on the other hand the deflation of credit set up elsewhere is prevented by social causes from transmitting its full effect to money-wages and other costs, it may be that the whole machine will crack before the reaction back to equilibrium has been brought about. 249. Unfortunately upon these two sets of abnormal difficulties there has supervened, starting in the United States, a business slump of a more normal type though of quite unusual dimensions, further aggravated, in the opinion of some, by being associated with the necessity for a transition from the high rates of interest appropriate to the war and postwar period back towards the lower rates which were typical before the war. 250. Naturally the total result leads some people to question the desirability of adhering to an international standard. 331

The Monetary History of Gold The question of an international standard 251. This brings us to the question whether adherence to an international standard may involve the payment of too heavy a price in the shape of domestic instability. Many countries, both today and at former times, have found that such continued adherence involves a strain greater than they can bear. But these are generally debtor countries, the trade of which is concentrated on a narrow range of primary products subject to violent disturbances of prices. If we leave aside the position today, experience does not show that a creditor country with diversified trade is liable to suffer undue domestic strain merely as the result of adherence to an international standard. We are of opinion, therefore, that we should not be influenced merely by the exigencies of the moment, if there is reason to believe that there may be important countervailing advantages on a longer view. If we need emergency measures to relieve the immediate strain, we should seek them in some other direction. 252. In the particular case of Great Britain we believe that there are such advantages. One of our most valuable sources of income, indeed one of our most important export industries, is the practice of international banking and associated services. Along with our shipping and our staple export industries this has been for a long period past one of our main sources of wealth. It is by no means clear that the possible advantages to our export activities from the fact that a fluctuating exchange would automatically offset the rigidity of money-incomes would balance the unquestionable loss to the first named; and we might be a poorer country on balance. It is not necessary, in order to reach this conclusion, to exaggerate the benefits which accrue to us from our international financial business. They are not so enormous as to outweigh all other considerations. For example, it is not likely that they have gone even a fraction of the way towards compensating the losses of wealth through unemployment in recent years. It is not our case that industry should be sacrificed to finance. It is, rather, that the benefits to industry from a fluctuating exchange would be inadequate to compensate the losses in other directions. For whilst a fluctuating exchange would have undoubted advantages in certain conditions, it would often be merely substituting one form of instability for another. It would not be possible for a country so intricately concerned with the outside world as Great Britain is to escape so simply from the repercussions of instability elsewhere. 253. There is, moreover, a further reason which cannot easily be weighed merely in the balance of our own direct economic advantage and which weighs more heavily with us than any other. There is, perhaps, no more important object within the field of human technique than that the world as a whole should achieve a sound and scientific monetary system. But there can be little or no hope of progress at any early date for the monetary system of the world 332

After the Gold Standard, 1931–1999 as a whole, except as the result of a process of evolution starting from the historic gold standard. If, therefore, this country were to cut adrift from the international system with the object of setting up a local standard with a sole regard to our domestic situation, we should be abandoning the larger problem – the solution of which is certainly necessary to a satisfactory solution of the purely domestic problem – just at the moment, maybe, when, if we were able to look a little further forward, the beginnings of general progress would be becoming visible. 254. We conclude, therefore, that we shall best serve the purpose for which we were set up, and have the greatest hope of securing a sufficient general agreement to lead to action, if we base our recommendations on the assumption, which we hold justified, that the next phase of monetary policy must consist of a wholehearted attempt to make the existing international standard work more satisfactorily. It is possible – though we believe that hard experience will teach them otherwise – that some countries may be unable or may fail to work an international standard in a satisfactory way. But this is not yet proved, and it would be unwise for us, who have so much to gain by it, to give up the attempt to secure a sound international currency. Devaluation 255. It has been represented to us that, without in any way departing from the principle or the practice of adherence to an international standard, it is desirable for us in the national interest to do now what might have been accomplished with much less difficulty in 1925, namely, to revise the gold parity of sterling. Such a step is urged on the ground that, if we diminished the gold equivalent of the pound sterling by 10 per cent thereby reducing our gold costs automatically by the same percentage, this would restore to our export industries and to the industries which compete with imported goods what they lost by the return to gold at a figure which was inappropriate to the then existing facts, and that it would also have the great advantage of affecting all sterling costs equally, whether or not they were protected by contract. 256. We have no hesitation in rejecting this course. It is no doubt true that an essential attribute of a sovereign state is a power at any time to alter the value of its currency for any reasons deemed to be in the national interest, and that legally, therefore, there is nothing to prevent the British Government and Parliament from taking such a step. The same may be said of a measure writing down all debts, including those owed by the state itself, by a prescribed percentage – an expedient which would in fact over a considerable field have precisely the same effect. But, while all things may be lawful, all things are not expedient, and in our opinion the devaluation by any government of a currency standing at its par value suddenly and without notice (as must be the case to prevent foreign creditors removing their property) is emphatically one 333

The Monetary History of Gold of those things which are not expedient. International trade, commerce and finance are based on confidence. One of the foundation stones on which that confidence reposes is the general belief that all countries will seek to maintain so far as lies in their power the value of their national currency as it has been fixed by law, and will only give legal recognition to its depreciation when that depreciation has already come about de facto. It has frequently been the case – we have numerous examples of recent years – that either through the misfortunes of war, or mistakes of policy, or the collapse or prices, currencies have fallen so far below par that their restoration would involve either great social injustices or national efforts and sacrifices for which no adequate compensation can be expected. The view may be held that our own case in 1925 was of this character. The British currency had been depreciated for some years. It was obvious to the whole world that it was an open question whether its restoration to par was in the national interest and there is no doubt in our minds as to our absolute freedom at that time to fix it, if it suited us, at a lower par value corresponding to the then existing exchange. But it would be to adopt an entirely new principle, and one which would undoubtedly be an immense shock to the international financial world, if the government of the greatest creditor nation were deliberately and by an act of positive policy to announce one morning that it had reduced by law the value of its currency from the par at which it was standing to some lower value. 257. Moreover, considering the matter from another point of view, in the environment of the present world slump the relief to be obtained from a 10 per cent devaluation might prove to be disappointing. It is not certain that, with world demand at its present low ebb, such a measure would serve by itself to restore our export trades to their former position or to effect a radical cure of unemployment. On the contrary, in the atmosphere of crisis and distress which would inevitably surround such an extreme and sensational measure as the devaluation of sterling, we might well find that the state of affairs immediately ensuing on such an event would be worse than that which had preceded it. The prospects of the gold standard 258. The course of events in the last two years has had the effect of forcing a number of countries off the gold standard. But these are all debtor countries; and if matters continue as at present, it will be the debtor countries of the world, and not a creditor country such as Great Britain, which will be the first to find the strain unbearable. We consider that the leading creditor countries of the world should consult together to prevent matters from continuing as at present. In order that Great Britain may speak with authority in such discussions, it is essential that her financial strength should be beyond criticism. This 334

After the Gold Standard, 1931–1999 largely depends in the near future on an increase of her surplus available for new foreign lending. […] 263. It seems probable, therefore, that in spite of the reduction of our surplus, the whole of our net purchases of foreign securities have been paid for out of our currently accruing surplus on income account. It is possible, we think, that this surplus may be somewhat larger than the usual estimate. 264. As regards the immediate situation, it is also interesting to note that the trade returns, unsatisfactory though they are, bear out the conclusion that the worst strain of a situation such as the present falls on the raw-material countries. During the first quarter of this year the quantity of our exports fell off by more than 30 per cent, whereas the reduction in the quantity of our imports was only 6 per cent. Nevertheless, as a result of the catastrophic fall of raw-material prices, the visible balance of trade has been actually less adverse to us than in recent years, the net position in terms of money moving £5 million in our favour, so that less of our surplus under other heads (i.e. from foreign interest, shipping, etc.), is being required today to finance our imports than in 1930 or in 1929. 265. The same point can be strikingly illustrated by what has happened in the case of the single commodity wheat. At the price prevailing in December 1930, the annual cost of our wheat imports would be about £30 million less than it was in 1929, and £60 million less than in 1925. It is obvious what a large contribution this single item represents to the national cost of supporting the present volume of unemployment. It is a great misfortune both for us and for the raw-material countries that we should have a great volume of unemployment through their inability to purchase from us as a result of the fall in the price of their produce. But merely from the point of view of our balance of trade it is not to be overlooked that the latter fact not only balances the former but may even outweigh it. We conclude that the underlying financial facts are more favourable than had been supposed, and that Great Britain’s position as a creditor country remains immensely strong.

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20 September 1931 Confidential Telegram from the Deputy Governor of the Bank of England, concerning the Decision of the United Kingdom to go off the Gold Standard

The UK was forced to break its link to gold in September 1931. This cable is one of the many sent out on that day, 20 September 1931, informing the Bank’s foreign and domestic correspondents of the radical change in the government’s policy. Source: London, Bank of England Archives, OV48/9, 1538/4, nos. 12a and 13a.

1.

2. 3. 4.

I regret to inform you that the Bank of England are compelled to suspend the sale of gold in accordance with their obligation under the Gold Standard Act [of] 1925. The necessary legislation is to be introduced into Parliament forthwith. No restrictions will be placed on the free disposal of any gold held in this country on behalf of foreign customers, nor of any gold which may be sent to this country for custody on foreign account or for sale in the market. The London Stock Exchange will be closed tomorrow for one day but there will be no Bank Holiday. The Banks will carry on business as usual and no banking trouble is anticipated here. I am trying to pass this information to you by telephone but send this cable in case I should not be able to reach you otherwise.

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21 September 1931 Philip Snowden’s Speech to the House of Commons, 1931

Philip Snowden, the Chancellor of the Exchequer in the new National Government, announced the ‘temporary’ suspension of sterling’s convertibility with gold a little more than six years after the United Kingdom had re-established the gold standard. Source: House of Commons, Parliamentary Debates: Official Report (London: HMSO, 1931), vol. 256, col. 1289–99.

Mr P. SNOWDEN: This is a Bill for the temporary Amendment of the Gold Standard Act, 1925, and the Amendment takes the form of suspending Section 1, Subsection (2), which reads as follows: ‘the Bank of England shall be bound to sell to any person who makes a demand in that behalf at the head office of the Bank during the office hours of the Bank, and pays the purchase price in any legal tender, gold bullion at the price of three pounds seventeen shillings and ten pence halfpenny per ounce troy of gold of the standard of fineness prescribed for gold coin by the Coinage Act, 1870, but only in the form of bars Containing approximately four hundred ounces troy of fine gold.’

The Bill is a one Clause Bill with three Sub-sections, the first of which reads : ‘Unless and until His Majesty by Proclamation otherwise directs, Sub-section (2) of Section (1) of the Gold Standard Act, 1925, shall cease to have effect, notwithstanding that Sub-section (1) of the said Section remains in force.’

The second Sub-section proposes to indemnify the Bank of England for having today acted upon the suspension of that Sub-section of the Gold Standard Act, 1925. The third Sub-section, a very short one, reads : ‘It shall be lawful for the Treasury to make, and from time to time vary, orders authorising the taking of such measures in relation to the exchanges

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The Monetary History of Gold and otherwise as they may consider expedient for meeting difficulties arising in connection with the suspension of the gold standard. This Sub-section shall continue in force for a period of six months from the passing of this Act.’

This Bill will be available in the Vote Office as soon as the House has given permission for its introduction. I ought, perhaps, to add that this will not affect the free gold market in London. There will be no restrictions on the importation or exportation of gold, and any gold sent to London for sale, for example that from the South African mines, will, like any other commodity, fetch its market price, whatever that may be. Also, there will, of course, be no impediment placed upon the free withdrawal of gold which has been put into the safe custody of the Bank of England by foreign Governments or by foreign central banks. All that is changed is that the right under the Sub-section of the 1925 Act to take from the Bank of England gold in bars is suspended. Finally – and I only say this because of an unreasoning fear that appears to prevail abroad – where we are under obligations to make payments in dollars or other foreign currencies, as for example some of the War Bonds that were issued in New York, we shall, of course, continue to meet our obligations, punctually in those currencies. So much, then, for the provisions of the Bill. The situation which it is intended to meet, though it has been precipitated by recent events, has been maturing for a considerable time. Obviously, the fall in the general price level affected the capacity of the primary producers of the whole world to meet their obligations, with consequent effect upon their credit in the markets. A vicious circle was set up, banks and investors becoming more and more reluctant to lend their capital to potential borrowers, and these borrowers becoming more and more insolvent owing to the impossibility of obtaining the usual financial accommodation. The, actual crisis started with the collapse of the chief bank in Austria last May and with the crisis which followed in Germany. The tying up of funds in Germany had an immediate effect upon the London market, because London is the centre of international banking, and it was known, of course, that we had been lending to Germany. Once foreign centres became nervous, the difficulties of our situation came to the front. There was much criticism abroad of our Budget, our expenditure upon unemployment, our adverse balance of trade; these were all seized upon and exaggerated. To meet that situation the Bank of England about the beginning of August raised a very large credit, no less than £50,000,000, from the American and French central banks to meet the withdrawals, but within a couple of weeks these resources were practically exhausted.

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After the Gold Standard, 1931–1999 At that stage the National Government came into being, and the plans which we announced for balancing the Budget had the immediate effect of restoring confidence. For some days the stream of withdrawals fell sharply, and we hoped that it might dry up. Unfortunately, however, we could not present a united front. […] Speeches were made and articles were written by prominent people advocating inflation and repudiation, which had a most damaging effect. There was political uncertainty, and the news of the unrest that occurred in the Navy was recorded in scare headlines in every foreign newspaper. At the same time, in the general atmosphere of nervousness, difficulties developed in foreign countries, and people began to scramble to liquidate their positions. This was as much due to nervousness about their own position as to a loss of faith in sterling. The Government raised further credits to a total of £80,000,000 in New York and Paris, and I should like to take this opportunity of expressing our thanks to the Governments and Banks in both countries for the readiness with which they helped us. But, in the circumstances, even this further credit did not prove sufficient, in the last few days the withdrawals accelerated very sharply. On Wednesday, it was £5,000,000; on Thursday, £10,000,000; on Friday, nearly £18,000,000, and on Saturday, a half day, over £10,000,000. Altogether, during the last two months, we have lost in gold and foreign exchanges a sum of more than £200,000,000, apart from agreeing as a result of the London Conference, to lock up £70,000,000 of our assets in Germany. We informed both the United States and the French Government confidentially of the position on Friday and asked their view as to the possibility of obtaining further credits. In both cases the replies, though friendly and sympathetic, afforded no prospect of assistance on the scale that by that time was obviously necessary. On Saturday, the position had become so serious that it was quite evident that it could no longer be dealt with except by suspending the Gold Standard Act, and so the Bank of England addressed a letter in the following terms to the Prime Minister and myself: ‘I am directed to state that the credits for $125,000,000 and francs 3,100,000,000, arranged by the Bank of England in New York and Paris respectively, are exhausted, and that the credit for $200,000,000 arranged in New York by His Majesty’s Government, together with credits for a total of francs 5 milliards negotiated in Paris, are practically exhausted also. The heavy demands for exchange on New York and Paris still continue. In addition, the Bank are being subjected to a drain of gold for Holland. Under these circumstances, the Bank consider that, having regard to the above commitments and to contingencies that may arise, it would be impossible for them to meet the demands for gold with which they would be faced on with-

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The Monetary History of Gold drawal of support from the New York and Paris exchanges. The Bank therefore feel it their duty to represent that in their opinion, it is expedient in the national interest that they should be relieved of their obligation to sell gold under the provisions of Section (1) Sub-section (2) of the Gold Standard Act, 1925.’

To this letter the following reply was sent: ‘His Majesty’s Government have given the most serious consideration to your letter of the 19th instant in which you informed them of the grave difficulties with which you are faced in meeting the obligation placed on the Bank of England by the Gold Standard Act of 1925 to sell gold in the form of bars to any person making a demand in accordance with the Act and of the dangers which you apprehend if that obligation is maintained. His Majesty’s Government are of opinion that the Bank of England should place such restrictions on the supply of gold as the Bank may deem requisite in the national interest. They will be prepared to propose to Parliament forthwith a Bill giving indemnity for any such action taken by the Bank.’

Thus, with appalling suddenness, the crisis which we had striven to avert broke on our heads, and we had no alternative but to suspend the gold convertibility of the currency. We have consulted the banks as to the origin of the heavy sales of sterling, and the banks assure us that, as far as they can judge, the selling is predominantly on foreign account, and there is no evidence of any substantial export of capital by British nationals. So far as British nationals are participating in these sales they are, as I said in the House the other day, deliberately adding to the nation’s difficulties. The banks and accepting houses have arranged that they will scrutinise all demands for exchange presented by British nationals with a view to preventing, as far as they can, all purchases other than for bona fide commercial requirements, and I am very glad to be able to tell the House that foreign banks in London have taken steps to cooperate with their English colleagues in this matter. The Government are asking in the Bill for powers to take emergency measures under the Sub-section which I have just read should these prove to be necessary or advisable in order to support and reinforce the steps which the banks are taking. It may be suggested that before taking this extreme step, we should have allowed more of the gold reserves at the Bank to go. This is a question to which both the Government and the Bank of England gave anxious and careful consideration. If it had appeared that the drain could have been stopped by the exportation even of a large proportion of the gold which the Bank holds, the Bank of England would not have hesitated to allow it to go. The Bank and the Government had already obtained credits abroad approximately equivalent to the total amount of gold reserve held by the Bank, and these credits 340

After the Gold Standard, 1931–1999 have to be repaid within one year at latest. We had to take account of this liability, and we must also maintain a certain reserve for eventual emergencies which no one can foresee. […] We were informed that the foreign assets still held in London largely exceeded the amount of the Bank’s gold, and it appeared that to allow any further export of gold simply would benefit those who showed least confidence in sterling, and it would be at the expense of those who had not withdrawn their balances, so that in the circumstances we decided that it would be contrary to the national interests to allow any further gold to go. It is frequently suggested that we could have met the drain on our exchange by mobilising our holdings of foreign securities as was done during the War. This, was one of the first points to which His Majesty’s Government directed their attention, and they made inquiries as to what possibilities there were in this matter. These inquiries satisfied them that the position at present is, for various reasons, substantially different from what it was during the War, and that, having regard to the extent and rapidity of the drain on the exchange, such resources as we might have been able to obtain would not have materially affected the drain. At the same time, these securities may well prove a reserve for the support of the exchange in the situation which has arisen, and this matter is under constant consideration. The unequal distribution of the world’s supply of gold has long been under the consideration of the British Government and the Bank of England. In fact, we have taken every possible opportunity to promote cooperation between central banks with a view to finding a remedy. So far as we are concerned, we would willingly have called a conference for this purpose. But it was made abundantly clear to us that any proposal of this kind would be unwelcome to other Powers, and therefore a conference would be foredoomed to failure. [Hon. MEMBERS : ‘ Protection! ‘] It may be that the present crisis will bring home to those who have hitherto been reluctant to enter into a discussion on this matter the pressing necessity of concerted , action, and His Majesty’s Government will certainly miss no opportunity of emphasising the urgency and importance of the matter. When the financial history of the post-War period comes to be written, I do not think that this country will have any reason to be ashamed of its part. We set the example, both as regards meeting our obligations and of helping the reconstruction of the world, and, if we have failed, it is because we have undertaken a burden too heavy for us to bear. Certainly, it does not seem to me that other countries can afford to challenge or to condemn us for what we have done. As regards the United States, we exported to America, during and immediately after the War, actual gold to the value of £322,000,000 in discharge of our obligations. We then proceeded to fund our War Debt to the 341

The Monetary History of Gold United States, and under the basis of settlement we have contributed 1,352,000,000 dollars, or over £280,000,000, representing nearly 30 per cent, of the debt at the date of funding. Though the British debt to the United States represented only 41 per cent, of the total War Debt owing to the United States, our payments to the United States represent 83 per cent, of the total payments they have received in respect of those debts. As regards France, the War loans made by the British Government to France, after deducting all offsets, amounted at the date of funding to £600,000,000, on which the British tax-payer has been paying approximately £30,000,000 a year in interest. Under the terms of settlement, the French Government pay us only 40 per cent. of this. Much more could be said, but I will only add this: America and France taken together have now acquired three-quarters of the entire gold in the world and have buried it in their vaults, where it is largely sterilised and useless for the purpose of promoting international trade. To record these historical facts is in no way to overlook the help that we have received recently from France and from America. I have already expressed the warm appreciation of His Majesty’s Government for the readiness with which they came to our help in the matter of credits. But I should also like to add this special word as regards the French banks. I am told that these banks have not played any part in the recent withdrawals from London, but have maintained their balances practically intact, and the critics of the French banks will, I hope, bear this in mind. The credits we have raised could do little more than disguise the symptoms of the present trouble, but could do nothing to remedy the disease. There is, in sober truth, a world-wide panic on the part of the investment markets. The whole world seems to be bent upon selling securities for cash and denying the possibility of the existence of credit. Such a course cannot be pursued for very long with out, inevitably, causing the breakdown of the whole world system of credit, and, in the face of such a panic as that, we must protect ourselves. His Majesty’s Government, therefore, must ask Parliament to suspend temporarily the provisions of the Gold Standard Act and to authorise such other measures as may be necessary to protect our position. But happily we are forced to do this by reason of an exchange crisis and not because of any disorder in our own internal finances. We are securing, at the cost of painful sacrifices, a balanced Budget and our internal position is secure. It is vital for us to maintain that position. Externally, the initial effects on our exchange of the steps we are proposing may no doubt be serious, but I believe they will be temporary and that those who have confidence in sterling will not find their confidence misplaced. At the same time, I think we are entitled to look for some recognition on the part of other creditor countries of their responsibility for the present situation. Firstly, the world must learn that the existing eco342

After the Gold Standard, 1931–1999 nomic system cannot be maintained […] if everybody tries simultaneously to liquidate their investments. This is playing fast and loose with the delicate machinery of credit. It may be, as I said, that the present crisis will pave the way to better international cooperation, but its immediate effects may be at least as serious for the countries which have been dependent on London for credit as they may be for ourselves; and there is a risk, of course, that for a time the machinery of international credit may be dislocated. I can only hope that this risk will not be realised and that, even though it may temporarily not be linked to gold, sterling may continue to serve, as it has in the past, as a medium of international trade. That is all that I have to say in asking leave to bring in the Bill and in asking the House to pass it without delay through all its stages as a matter of extreme urgency. I do this with no light heart. Our action, no doubt, will have wide repercussions and increase the dislocation and instability for the time being of international trade and finance, but at the same time there is no need to exaggerate the difficulty. Apart from temporary panic sales, which may, of course, have to be reckoned with, I see no reason why sterling should depreciate to any substantial extent or for any length of time provided, and this is vital, that the finances of our country are administered with proper care. It is one thing to go off the gold standard with an unbalanced Budget and uncontrollable inflation, but it is far less serious to take this measure, not because of internal financial difficulties, but because of excessive withdrawals of borrowed money. We have balanced our Budget and therefore removed the danger of having to print paper, which leads to uncontrolled inflation. We can, therefore, face the position with calmness. The ultimate resources of this country are great, and the Government will, of course, continue to watch the situation and take such measures as may be possible to circumscribe the fluctuations of the exchange. At the moment, we have no alternative before us but to suspend the convertibility of the currency. I venture to appeal to everyone in this place not to use words at this moment which will make things more difficult. We must get together as a nation and set to work to build up our prosperity anew. The question of the adverse trade balance has to be dealt with, and the Government are giving that matter their fullest consideration. In the process of rebuilding, we may have to adopt, as we have done in connection with balancing the Budget, many expedients which in other circumstances would be repugnant to us. In the meantime, it is the duty of everyone to keep cool and not to aggravate the situation by panic. If we do this, our inherent strength will pull us through these temporary difficulties.

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21 September 1931 Gold Standard (Amendment) Act, 1931, United Kingdom: ‘A Bill, to suspend the Operation of Sub-section (2) of Section One of the Gold Standard Act, 1925, and for Purposes connected therewith’

This extract contains the parliamentary legislation referred to in the Bank of England telegram (see above) and in the Chancellor of the Exchequer Snowden’s speech (previous document). Source: House of Commons, House of Commons Parliamentary Papers, 1930–1 (London: House of Commons, 1931), vol. 1, no. 227, pp. 763–6.

Be it enacted by the King’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows: 1. – (1.) Unless and until His Majesty by Proclamation otherwise directs, subsection (2) of section one of the Gold Standard Act, 1925, shall cease to have effect, notwithstanding that subsection (1) of the said section remains in force. (2.) The Bank of England are hereby discharged from all liabilities in respect of anything done by the Bank in contravention of the provision of the said subsection (2) at any time after the eighteenth day of September, nineteen hundred and thirty-one, and no proceedings whatsoever shall be instituted against the Bank or any other person in respect of anything so done as aforesaid. (3.) It shall be lawful for the Treasury to make, and from time to time vary, orders authorising the taking of such measures in relation to the exchanges and otherwise as they may consider expedient for meeting difficulties arising in connection with the suspension of the gold standard. This subsection shall continue in force for a period of six months from the passing of this Act. 2. This Act may be cited as the Gold Standard (Amendment) Act, 1931. 344

21 January 1932 Bank of England Report entitled ‘The Suspension of the Gold Standard in Great Britain and its Effect on the Countries of Europe’

This Report in the Bank’s internal archives traces some of the consequences of the suspension of the gold standard in the United Kingdom. Foreign central banks which held sterling suffered substantial losses due to Britain’s effective devaluation. These losses placed some of their currencies under speculative pressure. Source: London, Bank of England Archives, OV48/9, 1538/4, No. 86, ‘The Suspension of the Gold Standard in Great Britain and its Effect on the Countries of Europe’.

It was not to be expected that such a momentous step as the suspension of the gold standard by Great Britain, after six years of imperfect and difficult working, would be without grave and far-reaching repercussions on the rest of Europe. […] Britain’s suspension of gold payments on the 20th September was followed by Danzig’s decision to abandon sterling standard for the gold standard on the 21st September 1931. Danzig had already, at the end of August, utilised nearly £500,000 of its sterling balances in the purchase of gold (mainly from Sweden). Since the 21st September, the process of converting its sterling into gold and gold foreign exchange has continued, and, at the end of the year, these items had risen £360,000 to £1,890,000. On the 22nd September Denmark prohibited gold exports. For some time Denmark had suffered a loss of foreign capital, and during September, gold and foreign balances held at the Nationalbanken i Kjobenhavn fell by £1.2 millions. Bearing in mind that over 55 per cent of Denmark’s total exports are to England, this step was perhaps only to be expected. On the 27th September, Norway and Sweden decided to suspend the gold standard. As the British market absorbs 25 per cent of Sweden’s and 26½ per cent of Norway’s total exports, and closely linked as these Scandinavian countries are, it is not unnatural that such a step was taken. […]. The 345

The Monetary History of Gold suspension by the Scandinavians led to increasing difficulties in Finland, since Finland exports the same kinds of goods. Confidence in Finland’s ability to maintain the gold value was shaken and foreign balances reduced, leading to suspension on the 12th October. […]. Sterling held by the Bank of France was estimated at £62 million and the loss on this through devaluation at 2½ milliards of francs (£20 million), a sum well in excess of the capital reserves. […] In Italy, as in France, Belgium and Holland, the adhesion to the gold standard resulted in heavy losses on all sterling balances, especially as the Italian currency was stabilised in 1927 on a gold exchange standard and the largest proportion of the Banca d’Italia reserves was in £s. […] Immediately after Britain’s suspension, the Banque Nationale de Belgique exchanged all visible foreign exchange for gold (according to the return of 24th September 1931). In fact, Belgium was responsible for the greater part of the earmarking of gold in New York during the eight days ending 24th September, when gold to the value of $184 million (£36 million) was set aside for foreign account. Balances held at the Bank of England have increased slightly. The depreciation in the value of sterling gave rise to severe loss in Holland, since a large part of the foreign bill portfolio of the Nederlandsche Bank consisted of sterling bills. […] The dollar has replaced the £ as the basis for calculating the value of the Greek drachma in foreign currencies. Balances held by the Bank of Greece at the Bank of England have fallen by £1.2 million since the 19th September 1931. […] Bulgaria has suffered serious dislocation of her export trade as the great majority of exports have always been contracted in pounds. There has been a heavy drop in exports and a restriction of credit. […] Switzerland followed the general tendency and strengthened its position by the withdrawal of funds from abroad and by the conversion of foreign exchange into gold. The gold reserve on Banque Nationale Suisse was only £28 million on 31st December 1930, [but] by the end of September 1931 it was £68 million and had risen to £93 million by the 31st December 1931. Sterling held at the Bank of England was entirely liquidated, but gold held has risen 19th September to over £6 million. In England, the advantage to exporting that was to be anticipated from the release of the sterling exchange is not yet definitely marked in the foreign trade statistics, though it is visible in employment figures. It is as yet premature to estimate how far the movement towards increasing exports may extend, but there are difficulties in the way of any great improvement because of the economic distress of purchasing countries and the many additional artificial obstacles imposed with the direct object of hindering imports from the United Kingdom. 346

11 July 1932 Resolution of the Board of Directors of the Bank for International Settlements relating to the Gold Standard

International conventional wisdom during the early 1930s favoured a return to the gold standard. This Resolution of the Bank for International Settlements reflects the financial orthodoxy of the day. Source: London, Bank of England Archives, OV48/10, 1539/1, No. 40; for the French text, see ibid., No. 15.

1. The Board of the Bank for International Settlements recognising the necessity of the reestablishment between nations of a monetary system with a common basis in order to facilitate international settlements under more stable and secure conditions, is unanimously of opinion that the gold standard remains the best available monetary mechanism and the one best suited to make possible the free flow of world trade and of international financing; it is desirable, therefore, to prepare all the necessary measures for the reestablishment of the functioning of the gold standard. 2. In order to render possible a general return to the gold standard, the Board thinks it first necessary that those measures should be taken by international collaboration and national efforts which will restore equilibrium in the economic and financial structure of the various countries. 3. The realisation of these measures depends in the first instance on Government action and, without that, is beyond the power of Central Banks. To enable the mechanism of the international balance of payments to work again in a satisfactory manner, it will be necessary to restore a reasonable degree of freedom in the movement of goods, services and capital; to complete the solution of reparations reached at Lausanne by a satisfactory solution of war debts; and to take the necessary steps in each individual country to restore and maintain equilibrium in the internal economy, not only as regards public revenue and expenditure, but also as regards the cost of production and organisation of the internal money and capital market.

347

The Monetary History of Gold 4. Little or no progress can be expected in the monetary sphere, or towards the effective general restoration of the gold standard, as long as the main outstanding problems are not definitely dealt with by the Governments. As soon as sufficient progress is made in the settlement of these problems, concurrently with action on the interdependent economic problems, action in the monetary sphere can also begin. The Bank for International Settlements will be available to the Central Banks to serve as their common agency in the task of monetary reconstruction. 5. The Board further wishes to record that is has found itself in substantial agreement with the conclusions of the Report of the Gold Delegation of the League of Nations of June 1932, as adopted by the majority of its members. These conclusions form a starting point for the elaboration of monetary principles, which may be given practical application in the future.

348

6 March 1933 Presidential Proclamation (No. 2039) of Franklin D. Roosevelt prohibiting Gold and Silver Exports and Foreign Exchange Transactions

President Roosevelt’s note to the proclamation provides details about the drafting of the proclamation, the background against which it was issued, the reasons behind the closure of all banks and other aspects of the prevailing situation. Source: Franklin D. Roosevelt, The Public Papers and Addresses of Franklin D. Roosevelt (New York: Random House, 1938), vol. 2, no. 2, pp. 24–9, esp. pp. 24–6.

WHEREAS there have been heavy and unwarranted withdrawals of gold and currency from our banking institutions for the purpose of hoarding; and WHEREAS continuous and increasingly extensive speculative activity abroad in foreign exchange has resulted in severe drains of the Nation’s stocks of gold; and WHEREAS those conditions have created a national emergency; and WHEREAS it is in the best interests of all bank depositors that a period of respite be provided with a view to preventing further hoarding of coin, bullion or currency or speculation in foreign exchange and permitting the application of appropriate measures to protect the interests of our people; and WHEREAS it is provided in Section 5 (b) of the Act of October 6, 1917 (40 Stat. L. 411), as amended, ‘That the President may investigate, regulate, or prohibit, under such rules and regulations as he may prescribe, by means of licenses or otherwise, any transactions in foreign exchange and the export, hoarding, melting, or earmarking of gold or silver coin or bullion or currency …;’ and WHEREAS it is provided in Section 16 of the said Act ‘That whoever shall willfully violate any of the provisions of this Act or of any licence, rule, or regulation issued thereunder, and whoever shall willfully violate, neglect, or refuse to comply with any order of the President issued in compliance with the provisions of this Act, shall, upon conviction, be fined not more than $10,000, or, if a natural person, imprisoned for not more than ten years, or both …;’ 349

The Monetary History of Gold NOW, THEREFORE, I, FRANKLIN D. ROOSEVELT, President of the United States of America, in view of such national emergency and by virtue of the authority vested in me by said Act and in order to prevent the export, hoarding, or earmarking of gold or silver coin or bullion or currency, do hereby proclaim, order, direct and declare that from Monday, the Sixth day of March to Thursday, the Ninth day of March, Nineteen Hundred and Thirty-Three, both dates inclusive, there shall be maintained and observed by all banking institutions and all branches thereof located in the United States of America, including the territories and insular possessions, a bank holiday, and that during said period all banking transactions shall be suspended. During such holiday, excepting as hereinafter provided, no such banking institution or branch shall pay out, export, earmark, or permit the withdrawal or transfer in any manner or by any device whatsoever, of any gold or silver coin or bullion or currency or take any other action which might facilitate the hoarding thereof; nor shall any such banking institution or branch pay out deposits, make loans or discounts, deal in foreign exchange, transfer credits from the United States to any place abroad, or transact any other banking business whatsoever. During such holiday, the Secretary of the Treasury, with the approval of the President and under such regulations as he may prescribe, is authorised and empowered (a) to permit any or all of such banking institutions to perform any or all of the usual banking functions, (b) to direct, require or permit the issuance of clearing house certificates or other evidences of claims against assets of banking institutions, and (c) to authorise and direct the creation in such banking institutions of special trust accounts for the receipt of new deposits which shall be subject to withdrawal on demand without any restriction or limitation and shall be kept separately in cash or on deposit in Federal Reserve Banks or invested in obligations of the United States. As used in this order the term ‘banking institutions’ shall include all Federal Reserve Banks, national banking associations, banks, trust companies, savings banks, building and loan associations, credit unions, or other corporations, partnerships, associations or persons, engaged in the business of receiving deposits, making loans, discounting business paper, or transacting any other form of banking business.

350

9 March 1933 Recommendation of United States President Franklin D. Roosevelt to Congress for Legislation to control the Resumption of Banking

Faced with a wave of banking failures and runs on many banks, US President Franklin Roosevelt declared a national bank holiday and began to pursue expansionary regulatory, fiscal, and monetary policies. Source: Roosevelt, The Public Papers and Addresses of Franklin D. Roosevelt, vol. 2, no. 10, pp. 45–7, esp. pp. 45–6.

On March 3 banking operations in the United States ceased. To review at this time the causes of this failure of our banking system is unnecessary. Suffice it to say that the Government has been compelled to step in for the protection of depositors and the business of the Nation. Our first task is to reopen all sound banks. This is an essential preliminary to subsequent legislation directed against speculation with the funds of depositors and other violations of positions of trust. In order to that the first objective – the opening of banks for the resumption of business – may be accomplished, I ask of the Congress the immediate enactment of legislation giving to the Executive branch of Government control over banks for the protection of depositors; authority forthwith to open banks as have been ascertained to be in sound condition and other such banks as rapidly as possible; and authority to reorganise and reopen such banks as may be found to require reorganisation to put them on a sound basis. I ask amendments to the Federal Reserve Act to provide for such additional currency, adequately secured, as it may become necessary to issue to meet all demands for currency and at the same time to achieve this end without increasing unsecured indebtedness of the Government of the United States. I cannot too strongly urge upon the Congress the clear necessity for immediate action. A continuation of the strangulation of banking facilities is unthinkable. The passage of the proposed legislation will end this condition and I trust within a short space of time will result in a resumption of business activities. 351

The Monetary History of Gold In addition, it is my belief that this legislation will not only lift immediately all unwarranted doubts and suspicions in regard to banks which are one hundred percent sound but will also mark the new beginning of a new relationship between the banks and the people of this country. The members of the Congress will realise, I am confident, the grave responsibility which lies upon me and upon them. In the short space of five days it is impossible for us to formulate completed measures to prevent the recurrence of the evils of the past. This does not and should not, however, justify any delay in accomplishing this first step. At an early moment I shall request of the Congress two other measures which I regard as of immediate urgency. With action taken thereon we can proceed to the consideration of a rounded program of national restoration.

352

9 March 1933 Presidential Proclamation (No. 2040) of Franklin D. Roosevelt extending the Prohibition of Gold and Silver Exports and Foreign Exchange Transactions

While seeking to stimulate the domestic economy, Roosevelt began to place restrictions on the private use of gold which would eventually include a prohibition on private ownership of gold for monetary purposes. Source: Roosevelt, The Public Papers and Addresses of Franklin D. Roosevelt, vol. 2, no. 11, p. 48.

WHEREAS, on March 6, 1933, I, FRANKLIN D. ROOSEVELT, President of the United States of America, by Proclamation declared the existence of a national emergency and proclaimed a bank holiday extending from Monday the 6th day of March to Thursday the 9th day of March, 1933, both dates inclusive, in order to prevent the export, hoarding or earmarking of gold or silver coin, or bullion or currency, or speculation in foreign exchange; and WHEREAS, under the Act of March 9, 1933, all Proclamations heretofore or hereafter issued by the President pursuant to the authority conferred by section 5 (b) of the Act of October 6, 1917, as amended, are approved and confirmed; and WHEREAS, said national emergency still continues, and it is necessary to take further measures extending beyond March 9, 1933, in order to accomplish such purposes: NOW, THEREFORE, I, FRANKLIN D. ROOSEVELT, President of the United States of America, in view of such continuing national emergency and by virtue of the authority vested in me by Section 5 (b) of the Act of October 6, 1917 (40 Stat. L. 411), as amended by the Act of March 9, 1933, do hereby proclaim, order, direct and declare that all the terms and provisions of said Proclamation of March 6, 1933, and the regulation and orders issued thereunder are hereby continued in full force and effect until further proclamation by the President. 353

10 March 1933 Executive Order (No. 6073) of United States President Franklin D. Roosevelt reopening the Banks but maintaining the Prohibition on Gold Exports and Foreign Exchange Transactions

Source: Roosevelt, The Public Papers and Addresses of Franklin D. Roosevelt, vol. 2, no. 13, pp. 54–7, esp. pp. 54–6.

By virtue of the authority vested in me by Section 5 (b) of the Act of October 6, 1917 (40 Stat. L. 411), as amended by the Act of March 9, 1933, and by Section 4 of the said Act of March 9, 1933, and by virtue of all the other authority vested in me, I hereby issue the following executive order. The Secretary of the Treasury is authorised and empowered under such regulations as he may prescribe to permit any member bank of the Federal Reserve System and any other banking institution organised under the laws of the United States, to perform any or all of their usual banking functions, except as otherwise prohibited. The appropriate authority having immediate supervision of banking institutions in each State or any or any place subject to the jurisdiction of the United States is authorised and empowered under such regulations as such authority may prescribe to permit any banking institution in such State or place, other than banking institutions covered by the foregoing paragraph, to perform any or all of their usual banking functions, except as otherwise prohibited. All banks which are members of the Federal Reserve System, desiring to reopen for the performance of all usual and normal banking functions, except as otherwise prohibited, shall apply for a license therefor to the Secretary of the Treasury. Such application shall be filed immediately through the Federal Reserve Banks. The Federal Reserve Bank shall then transmit such application to the Secretary of the Treasury. Licenses will be issued by the Federal Reserve Bank upon approval of the Secretary of the Treasury. The Federal Reserve Banks are hereby designated as agents of the Secretary of the Treasury for the receiving of application and the issuance of licenses in his behalf and upon his instructions. 354

After the Gold Standard, 1931–1999 Until further order, no individual, partnership, association, or corporation, including any banking institution, shall export or otherwise remove or permit to be withdrawn from the United States or any place subject to the jurisdiction thereof any gold coin, gold bullion, or gold certificates, except in accordance with regulations prescribed by or under license issued by the Secretary of the Treasury. No permission to any banking institution to perform any banking functions shall authorise such institution to pay out any gold coin, gold bullion or gold certificates except as authorised by the Secretary of the Treasury, nor to allow withdrawal of any currency for hoarding, nor to engage in any transaction in foreign exchange except such as may be undertaken for legitimate and normal business requirements, for reasonable traveling and other personal requirements, and for the fulfillment of contracts entered into prior to March 6, 1933. Every Federal Reserve Bank is authorised and instructed to keep itself currently informed as to transactions in foreign exchange entered into or consummated within its district and shall report to the Secretary of the Treasury all transactions in foreign exchange which are prohibited.

355

5 April 1933 Executive Order (No. 6102) of United States President Franklin D. Roosevelt prohibiting the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates, and requiring them to be delivered to the Federal Reserve Bank

This order effectively nationalised gold in the United States. In the United States, a key characteristic of the domestic gold standard – free conversion between gold and bills – was eliminated. Source: Roosevelt, The Public Papers and Addresses of Franklin D. Roosevelt, vol. 2, no. 33, pp. 111–16, esp. pp. 111–14. See also the accompanying White House Statement, ibid., no. 32, pp. 110–11.

By virtue of the authority vested in me by Section 5 (b) of the Act of October 6, 1917, as amended by Section 2 of the Act of March 9, 1933, entitled ‘An Act to provide relief in the existing national emergency in banking, and for other purposes’, in which amendatory Act Congress declared that a serious emergency exists, I, Franklin D. Roosevelt, President of the United States of America, do declare that said national emergency still continues to exist and pursuant to said section do hereby prohibit the hoarding of gold coin, gold bullion, and gold certificates within the continental United States by individuals, partnerships, associations and corporations and hereby prescribe the following regulations for carrying out the purposes of this order: Section 1. For the purposes of this regulation, the term ‘hoarding’ means the withdrawal and withholding of gold coin, gold bullion or gold certificates from the recognised and customary channels of trade. The term ‘person’ means any individual, partnership, association or corporation. Section 2. All persons are hereby required to deliver on or before May 1, 1933, to a Federal Reserve Bank or branch or agency thereof or to any member bank of the Federal Reserve System all gold coin, gold bullion and gold certificates now owned by them or coming into their ownership on or before April 28, 1933, except the following: 356

After the Gold Standard, 1931–1999 (a) Such amount of gold as may be required for legitimate and customary use in industry, profession or art within a reasonable time, including gold prior to refining and stocks of gold in reasonable amounts for the usual trade requirements of owners mining and refining such gold. (b) Gold coin and gold certificates in an amount not exceeding in the aggregate $100 belonging to any one person; and gold coins having a recognised special value to collectors of rare and unusual coins. (c) Gold coin and bullion earmarked or held in trust for a recognised foreign Government or foreign central bank or the Bank for International Settlements. (d) Gold coin and gold bullion licensed for other proper transactions (not involving hoarding) including gold coin and bullion imported for reexport or held pending action on application for export licenses. Section 3. Until otherwise ordered any person becoming the owner of any gold coin, gold bullion, or gold certificates after April 28, 1933, shall, within three days after receipt thereof, deliver the same in the manner prescribed in Section 2; unless such gold coin, gold bullion or gold certificates are held for any of the purposes specified in paragraphs (a), (b), or (c) of Section 2; or unless such gold coin or gold bullion is held for purposes specified in paragraph (d) of Section 2 and the person holding it is, with respect to such gold coin or bullion, a licensee or applicant for license pending action thereon. Section 4. Upon receipt of gold coin, gold bullion or gold certificates delivered to it in accordance with Sections 2 or 3, the Federal Reserve Bank or member bank will pay therefor an equivalent amount of any other form of coin or currency coined or issued under the laws of the United States. Section 5. Member banks shall deliver all gold coin, gold bullion and gold certificates owned or received by them (other than as exempted under the provisions of Section 2) to the Federal Reserve Banks of their respective districts and receive credit or payment therefor. Section 6. The Secretary of the Treasury, out of the sum made available to the President by Section 501 of the Act of March 9, 1933, will in all proper cases pay the reasonable costs of transportation of gold coin, gold bullion or gold certificates delivered to a member bank or Federal Reserve Bank in accordance with Section 2, 3, or 5 hereof, including the cost of insurance, protection, and such other incidental costs as may be necessary, upon production of satisfactory evidence of such costs. Voucher forms for this purpose may be procured from Federal Reserve Banks. Section 7. In cases where the delivery of gold coin, gold bullion or gold certificates by the owners thereof within the time set forth above will involve extraordinary hardship or difficulty, the Secretary of the Treasury may, in his 357

The Monetary History of Gold discretion, extend the time within which such delivery must be made. Applications for such extensions must be made in writing under oath, addressed to the Secretary of the Treasury and filed with a Federal Reserve Bank. Each application must state the date to which the extension is desired, the amount and location of the gold coin, gold bullion and gold certificates in respect of which the application is being made and the facts showing extension to be necessary to avoid extraordinary hardship or difficulty. Section 8. The Secretary of the Treasury is hereby authorised and empowered to issue such further regulations as he may deem necessary to carry out the purposes of this order and to issue licenses thereunder, through such officers or agencies as he may designate, including licenses permitting the federal Reserve Banks and member banks of the Federal Reserve System, in return for an equivalent amount of other coin, currency or credit, to deliver, earmark or hold in trust gold coin and bullion to or for persons showing the need for the same for any of the purposes specified in paragraphs (a), (c) and (d) of Section 2 of these regulations. Section 9. Whoever willfully violates any provision of this Executive Order or of these regulations or of any rule, regulation or license issued thereunder may be fined not more than $10,000, or if a natural person, may be imprisoned for not more than ten years, or both; and any officer, director, or agent of any corporation who knowingly participates in such violation may be punished by a like fine, imprisonment, or both. This order and these regulations may be modified or revoked at any time.

358

19 April 1933 Report of A. P. L. Gordon, with Moy, Davies, Smith, Vandervell & Co., 20 Copthall Avenue, London EC2, concerning the Revival of the American Export Embargo on Gold, entitled ‘Gold, Dollars and Markets’, marked ‘For Clients and Correspondents only’

This Report illustrates the view from abroad of the American actions regarding the export of gold. Source: London, Bank of England Archives, C43/139, 1945/1, No. 79, ‘Gold, Dollars and Markets’.

This evening the news came through that America has revived the embargo on the export of gold; and, in the light of recent exchange movements, this means that the United States are virtually off the gold standard. The announcement has had two effects: first, the exchange rate has moved very sharply against dollars; secondly, the New York stock market has advanced very rapidly – anything up to $10 per share in the leading American common stocks. […] The Gold Standard and Kaffirs. In the whole course of events, nothing has been more significant than President Roosevelt’s statement, that re-valuation of the dollar had been abandoned ‘until other nations returned to gold’. Such a statement, with the Prime Minister of England almost in sight of New York, can only indicate a trading-devaluation based in the attempt to regain stability in the world’s currencies. It is doubtful whether there was, prior to the recent currency movements, a serious volume of ‘bad’ money in the United States; the new conditions may, therefore, take the shape of a bargaining instrument rather than of an enforced insolvency. President Roosevelt’s announcement indicates that the present circumstances are a step towards, and not a step away from, a reconstructed gold standard. The necessity for bargaining, with War debts, tariffs and trade under 359

The Monetary History of Gold discussion, was clear before Mr McDonald left London. The gold-export embargo has given the United States the initiative. From this standpoint, it is possible that agreement on War debts may be less favourable to the debtors than at one time seemed probable. But, whatever agreement may be reached, immediately or at the World Economic Conference, a gold basis for currency is clearly held to be a necessity. Present developments are unlikely to have taken the British Treasury, and the Bank of England, by surprise. The Bank has, during 1933, been a heavy purchaser of gold, at and above 120s. per ounce. It is unlikely that these purchases have been made with a view to their immediate conversion into a loss. And, since a high price for gold will stimulate gold production, and induce for some years a steady rise in the level of commodity prices, it is unlikely that sterling will be stabilised below the present price for gold. Gold at 120s. per once or over may therefore be expected to be a permanent price. […]

360

20 April 1933 Executive Order (No. 6111) of United States President Franklin D. Roosevelt concerning Controls on Gold Exports and Transactions in Foreign Exchange

This Executive Order provided additional regulatory powers to the Secretary of the Treasury to control the domestic holding of gold – in particular in arranging licenses for private gold holders. Source: Roosevelt, The Public Papers and Addresses of Franklin D. Roosevelt, vol. 2, no. 42, pp. 141–4, esp. pp. 141–3.

By virtue of the authority vested in me by Section 5 (b) of the Act of October 6, 1917, as amended by Section 2 of the Act of March 9, 1933, entitled ‘An Act to provide relief in the existing national emergency in banking, and for other purposes’, in which amendatory Act Congress declared that a serious emergency exists, I, Franklin D. Roosevelt, President of the United States of America, do declare that said national emergency still continues to exist and pursuant to said section and by virtue of all other authority vested in me, do hereby issue the following executive order: 1. Until further order, the earmarking for foreign account and the export of gold coin, gold bullion or gold certificates from the United States or any place subject to the jurisdiction thereof are hereby prohibited, except that the Secretary of the Treasury, in his discretion and subject to such regulation as he may prescribe, may issue licenses authorising the export of gold coin and bullion (a) earmarked or held in trust for a recognised foreign government or foreign central bank or the Bank for International Settlements, (b) imported for reexport or gold in reasonable amounts for usual trade requirements of refiners importing gold bearing materials under agreement to export gold, (c) actually required for the fulfillment of any contract entered into prior to the date of this order, by an applicant who in obedience to the Executive Order of April 5, 1993, has delivered gold coin, gold bullion or gold certificates, and (d) with the approval of the President, for transactions which he may deem necessary to promote the public interest. 361

The Monetary History of Gold 2. Until further order, the Secretary of the Treasury is authorised, through any agency that he may designate, to investigate, regulate, or prohibit, under such rules and regulations as he may prescribe, by means of licenses or otherwise, any transactions in foreign exchange, transfers of credit from any banking institution within the United States or any place subject to the jurisdiction thereof to any foreign branch or office of such banking institution or to any foreign bank or banker, and the export or withdrawal of currency from the United States, by any individual, partnership, association, or corporation within the United States or any place subject to the jurisdiction thereof; and the Secretary of the Treasury may require any individual, partnership, association, or corporation engaged in any transaction referred to herein to furnish under oath, complete information relative thereto, including the production of any books of account, contracts, letters or other papers, in connection therewith in the custody or control of such individual, partnership, association, or corporation either before or after such transaction is completed. 3. The provisions relating to foreign exchange transactions contained in the Executive Order of March 10, 1933, shall remain in full force and effect except as amended or supplemented by this order and by regulations issued hereunder. 4. Applicants who have gold coin, gold bullion or gold certificates in their possession, or who in obedience to the Executive Order of April 5, 1933, have delivered gold coin, gold bullion or gold certificates shall be entitled to licenses as provided in Section 8 of said Executive Order for amounts not exceeding the equivalent of such coin, bullion or certificates held or delivered. The Secretary may in his discretion issue or decline to issue any other licenses under said Executive Order, which shall in all other respects remain in full force and effect. 5. Whoever willfully violates any provision of this Executive Order or of any rule, regulation or license issued thereunder may be fined not more than $10,000, or, if a natural person, may be imprisoned for not more than ten years, or both; and any officer, director, or agent of any corporation who knowingly participates in any such violation may be punished by a like fine, imprisonment, or both. This order may be modified or revoked at any time.

362

7 May 1933 Excerpt from United States President Franklin D. Roosevelt’s second ‘Fireside Chat’ of 1933: ‘What we have been doing and what we are planning to do’

US President Roosevelt’s national address outlined his administration’s economic policy and how it related to the gold standard. Source: Roosevelt, The Public Papers and Addresses of Franklin D. Roosevelt, vol. 2, no. 50, pp. 160–8, esp. pp. 165–6.

Much has been said of late about Federal finances and inflation, the gold standard, etc. Let me make the facts very simple and my policy very clear. In the first place, the Government credit and Government currency are really one in the same thing. Behind Government bonds there is only a promise to pay. Behind Government currency we have, in addition to the promise to pay, a reserve of gold and a small reserve of silver. In this connection it is worth while remembering that in the past the Government has agreed to redeem nearly thirty billions of its debts and its currency in gold, and private corporations in this country have agreed to redeem another sixty or seventy billions of securities and mortgages in gold. The Government and private corporations were making these agreements when they knew full well that all of the gold in the United States amounted to only between three and four billions and that all of the gold in all of the world amounted to only about eleven billions. If the holders of these promises to pay started in to demand gold the first comers would get gold for a few days and they would amount to about onetwenty-fifth of the holders of securities and currency. The other twenty-four people out of twenty-five, who did not happen to be at the top of the line, would be told politely that there was no more gold left. We have decide to treat all twenty-five in the same way in the interest of justice and the exercise of constitutional powers of this Government. We have placed everyone on the same basis in order that the general good may be preserved.

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The Monetary History of Gold Nevertheless, gold, and to a partial extent silver, are perfectly good bases for currency, and that is why I decided not to let any of the gold now in the country to go out of it. A series of conditions arose three weeks ago which very readily might have meant, first, a drain on our gold by foreign countries, and second, as a result of that, a flight of American capital, in the form of gold, out of our country. It is not exaggerating the possibility to tell you that such an occurrence might well have taken from us the major part of our gold reserve and resulted in such a further weakening of our Government and private credit as to bring on actual panic conditions and the complete stoppage of the wheels of industry. The Administration has the definite objective of raising commodity prices to such an extent that those who have borrowed money will, on the average, be able to repay that money on the same kind of dollar which they borrowed. We do not seek to let them get such a cheap dollar that they will be able to pay back a great deal less than they borrowed. In other words, we seek to correct a wrong and not to create another wrong in the opposite direction. That is why powers are being given to the Administration to provide, if necessary, for an enlargement of credit, in order to correct the existing wrong. These powers will be used when, as, and if it may be necessary to accomplish the purpose.

364

12 May 1933 Emergency Farm Mortgage Act, 1933

As the Great Depression worsened, the United States sought to insulate its economy from the effects of foreign devaluations. In this excerpt, the United States Congress gives the President the authority to expand the money supply and also devalue the gold value of the dollar by up to 50 per cent. Source: Statutes at Large of the United States of America from March 1933 to June 1934, Vol. 48, Part 1 (Washington: Government Printing Office, 1934), pp. 51–4.

43. Whenever the President finds, upon investigation, that (1.) the foreign commerce of the United States is adversely affected by reason of the depreciation in the value of the currency of any other government or governments in relation to the present standard value of gold, or (2.) action under this section is necessary in order to regulate and maintain the parity of currency issues of the United States, or (3.) an economic emergency requires an expansion of credit, or (4.) an expansion of credit is necessary to secure by international agreement a stabilisation at proper levels of the currencies of various governments, the President is authorised, in his discretion – (a) To direct the Secretary of the Treasury to enter into agreements with the several Federal Reserve banks and with the Federal Reserve Board whereby the Federal Reserve Board will, and it is hereby authorised to, notwithstanding any provisions of law or rules and regulations to the contrary, permit such reserve banks to agree that they will, (1.) conduct, pursuant to existing law, throughout specified periods, open market operations in obligations of the United States Government or corporations in which the United States is the majority stockholder, and (2.) purchase directly and hold in portfolio for an agreed period or periods of time Treasury bills or other obligations of the United States Government in an aggregate sum of $3,000,000,000 in addition to those they may then hold, unless prior to the termination of such period or periods the Secretary shall consent to their sale. No suspension of reserve requirements of the Federal Reserve banks, under the terms of section 11 (c) of the Federal Reserve Act, necessitated by reason of operations under

SECTION

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The Monetary History of Gold this section, shall require the imposition of the graduated tax upon any deficiency in reserves as provided in said section 11 (c). Nor shall it require any automatic increase in the rates of interest or discount charged by any Federal Reserve bank, as otherwise specified in that section. The Federal Reserve Board, with the approval of the Secretary of the Treasury, may require the Federal Reserve banks to take such action as may be necessary, in the judgment of the Board and of the Secretary of the Treasury, to prevent undue credit expansion. (b) If the Secretary, when directed by the President, is unable to secure the assent of the several Federal Reserve banks and the Federal Reserve Board to the agreements authorised in this section, or if operations under the above provisions prove to be inadequate to meet the purposes of this section, or if for any other reason additional measures are required in the judgment of the President to meet such purposes, then the President is authorised – (1.) To direct the Secretary of the Treasury to cause to be issued in such amount or amounts as he may from time to time order, United States notes, as provided in the Act entitled ‘An Act to authorise the issue of United States notes and for the redemption of funding thereof and for funding the floating debt of the United States’, approved February 25, 1862, and Acts supplementary thereto and amendatory thereof, in the same sise and of similar color to the Federal Reserve notes heretofore issued and in denominations of $1, $5, $10, $20, $50, $100, $500, $1,000, and $10,000; but notes issued under this subsection shall be issued only for the purpose of meeting maturing Federal obligations to repay sums borrowed by the United States and for purchasing United States bonds and other interest-bearing obligations of the United States: Provided, That when any such notes are used for such purpose the bond or other obligation so acquired or taken up shall be retired and canceled. Such notes shall be issued at such times and in such amounts as the President may approve but the aggregate amount of such notes outstanding at any time shall not exceed $3,000,000,000. There is hereby appropriated, out of any money in the Treasury not otherwise appropriated, an amount sufficient to enable the Secretary of the Treasury to retire and cancel 4 per centum annually of such outstanding notes, and the Secretary of the Treasury is hereby directed to retire and cancel annually 4 per centum of such outstanding notes. Such notes and all other coins and currencies heretofore or hereafter coined or issued by or under the authority of the United States shall be legal tender for all debts public and private. (2.) By proclamation to fix the weight of the gold dollar in grains nine tenths fine and also to fix the weight of the silver dollar in grains nine 366

After the Gold Standard, 1931–1999 tenths fine at a definite fixed ratio in relation to the gold dollar at such amounts as he finds necessary from his investigation to stabilise domestic prices or to protect the foreign commerce against the adverse effect of depreciated foreign currencies, and to provide for the unlimited coinage of such gold and silver at the ratio so fixed, or in case the Government of the United States enters into an agreement with any government or governments under the terms of which the ratio between the value of gold and other currency issued by the United States and by any such government or governments is established, the President may fix the weight of the gold dollar in accordance with the ratio so agreed upon, and such gold dollar, the weight of which is so fixed, shall be the standard unit of value, and all forms of money issued or coined by the United States shall be maintained at a parity with this standard and it shall be the duty of the Secretary of the Treasury to maintain such parity, but in no event shall the weight of the gold dollar be fixed so as to reduce its present weight by more than 50 per centum.

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28 August 1933 Executive Order (No. 6260) of United States President Franklin D. Roosevelt concerning Controls on Gold Exports and Transactions in Foreign Exchange

This excerpt contains the additional restrictions imposed on gold in the United States in late 1933. Source: Roosevelt, The Public Papers and Addresses of Franklin D. Roosevelt, vol. 2, no. 120, pp. 345–52.

By virtue of the authority vested in me by Section 5 (b) of the Act of October 6, 1917, as amended by Section 2 of the Act of March 9, 1933, entitled ‘An Act to Provide Relief in the Existing National Emergency in Banking and for other Purposes’, I, Franklin D. Roosevelt, President of the United States of America, do declare that a period of national emergency exists, and by virtue of said authority and of all other authority vested in me, do hereby prescribe the following provisions for the investigation and regulation of the hoarding, earmarking, and export of gold coin, gold bullion, and gold certificates by any person within the United States or any place subject to the jurisdiction thereof; and for the investigation and regulation of transactions in foreign exchange and transfers of credit and the export or withdrawal of currency from the United States or any place subject to the jurisdiction thereof by any person within the United States or any place subject to the jurisdiction thereof. Section 2. Definitions. As used in the Order the term ‘person’ means any individual, partnership, association or corporation; and the term ‘United States’ means the United States and any place subject to the jurisdiction thereof. Section 3. Returns. Within fifteen days from the date of this Order every person in possession and every person owning gold coin, gold bullion, or gold certificates shall make under oath and file as hereinafter provided a return to the Secretary of the Treasury containing true and complete information relative thereto, including the name and address of the person making the return; the kind and amount of such coin, bullion, or certificates held and the loca368

After the Gold Standard, 1931–1999 tion thereof; if held for another, the capacity in which they are held and the person for whom they are held, together with the post-office address of such person; and the nature of the transaction requiring the holding of such coin, bullion, or certificates and a statement explaining why such transaction cannot be carried out by the use of currency other than gold certificates; provided that no returns are required to be filed with respect to (a) Gold coin, gold bullion, and gold certificates in an amount not exceeding in the aggregate $100 belonging to any one person; (b) Gold coin having a recognised special value to collectors of rare and unusual coin; (c) Gold coin, gold bullion, and gold certificates acquired or held under a license heretofore granted by or under authority of the Secretary of the Treasury; and (d) Gold coin, gold bullion, and gold certificates owned by Federal Reserve Banks. Such return required to be made by an individual shall be filed with the Collector of Internal Revenue for the collection district in which such individual resides, or, if such individual has no legal residence in the United states, then with the Collector of Internal Revenue at Baltimore, Maryland. Such return required to be made by a partnership, association, or corporation shall be filed with the Collector of Internal Revenue of the collection district in which is located the principal place of business or principal office of agency of such partnership, association, or corporation, or, if it has no principal place of business or principal office or agency in the United States, then with the Collector of Internal Revenue at Baltimore, Maryland. Such return required to be made by an individual residing in Alaska shall be filed with the Collector of Internal Revenue at Seattle, Washington. Such return required to be made by a partnership, association, or corporation having its principal place of business or principal office or agency in Alaska shall be filed with the Collector of Internal Revenue at Seattle, Washington. The Secretary of the Treasury may grant a reasonable extension of the time for filing a return, under such rules and regulations as he shall prescribe. No such extension shall be for more than forty-five days from the date of this Executive Order. An extension granted hereunder shall be deemed a license to hold for a period ending fifteen days after the expiration of the extension. The returns required to be made and filed under this Section shall constitute public records; but they shall be open to public inspection only upon order of the President and under the rules and regulations prescribed by the Secretary of the Treasury. A return made and filed in accordance with this Section by the owner of gold coin, gold bullion, and gold certificates described therein, or his duly rec369

The Monetary History of Gold ognised agent, shall be deemed an application for the issuance under Section 5 hereof of a license to hold such coin, bullion, and certificates. Section 4. Acquisition of gold coin and gold bullion. No person other than a Federal Reserve Bank shall after the date of this Order acquire in the United States any gold coin, gold bullion, or gold certificates except under license therefor issued pursuant to this Executive Order, provided that member banks of the Federal Reserve System may accept delivery of such coin, bullion, and certificates for surrender promptly to a Federal Reserve Bank, and provided further that persons requiring gold for use in the industry, profession of art in which they are regularly engaged may replenish their stocks of gold up to an aggregate amount of $100, by acquisitions of gold bullion held under licenses issued under Section 5(b), without the necessity of license for such acquisitions. The Secretary of the Treasury, subject to such further regulations as he may prescribe, shall issue licenses authorising the acquisition of (a) Gold coin or gold bullion which the Secretary of State is satisfied is required for a necessary and lawful transaction for which currency other gold certificates cannot be used, by an applicant who established that since March 9, 1933, he has surrendered and equal amount of gold coin, gold bullion, or gold certificates to a banking institution in the continental United States or to the Treasurer of the United States; (b) Gold coin or gold bullion which the Secretary is satisfied is required by an applicant who holds a license to export such an amount of gold coin or gold bullion issued under subdivisions (c) or (d) of Section 6 hereof, and (c) Gold bullion which the Secretary, or such agency as he may designate, is satisfied is required for legitimate and customary use in industry, profession, or art, or in the business of furnishing gold therefor. Licenses issued pursuant to this Section shall authorise the holder to acquire gold coin and gold bullion only from sources specified by the Secretary of the Treasury in the regulations issued hereunder. Section 5. Holding of gold coin, gold bullion, and gold certificates. After thirty days from the date of this Order, no person shall hold in his possession or retain any interest, legal or equitable, in any gold coin, gold bullion, or gold certificates situated in the United States and owned by any person subject to the jurisdiction of the United States, except under license therefor issued pursuant to this Executive Order; provided, however, that licenses shall not be required in order to hold in possession or retain an interest in gold coin, gold bullion, or gold certificates with respect to which a return need not be filed under Section 3 hereof. 370

After the Gold Standard, 1931–1999 The Secretary of the Treasury, subject to such further regulations as he may prescribe, shall issue licenses authorising the holding of (a) Gold coin, gold bullion, and gold certificates, which the Secretary is satisfied are required by the person owning the same for necessary and lawful transactions for which currency, other than gold certificates, cannot be used; (b) Gold bullion which the Secretary, or such agency as he may designate, is satisfied is required for legitimate and customary use in industry, profession, or art, or by a person regularly engaged in such industry, profession, or art or in the business of furnishing gold therefor; (c) Gold coin and gold bullion earmarked or held in trust since before April 20, 1933, for a recognised foreign Government or foreign central bank or the Bank for International Settlements; (d) Gold coin and gold bullion imported for reexport or held pending action upon application for export licenses. Section 6. Earmarking and export of gold coin and gold bullion. After the date of this Order no person shall earmark or export any gold coin, gold bullion, or gold certificates from the United States, except under license therefor issued by the Secretary of the Treasury pursuant to the provisions of this Order. The Secretary of the Treasury, in his discretion and subject to such regulations as he may prescribe, may issue licenses authorising (a) The export of gold coin or gold bullion earmarked or held in trust since before April 20, 1933, for a recognised foreign Government or foreign central bank, or the Bank for International Settlements; (b) The export of gold, (i.) imported for reexport, (ii.) refined from goldbearing materials imported by the applicant under an agreement to export gold, or (iii.) in bullion containing not more than five ounces of gold per ton; (c) The export of gold coin or gold bullion to the extent actually required for the fulfillment of a contract entered into by the applicant prior to April 20, 1933; but not in excess of the amount of the gold coin, gold bullion, and gold certificates surrendered by the applicant on or after March 9, 1933, to a banking institution in the continental United States or to the Treasurer of the United States; and (d) The earmarking for foreign account and/or export of gold coin or gold bullion, with the approval of the President, for transactions which the Secretary of the Treasury may deem necessary to promote the public interest. Section 7. United States Possessions – Shipments thereto. The provisions of Sections 3 and 5 of this Order shall not apply to gold coin, gold bullion, or gold certificates which are situated in the Philippine Islands, American Samoa, 371

The Monetary History of Gold Guam, Hawaii, Panama Canal Zone, Puerto Rico, or the Virgin Islands of the United States, and are owned by a person not domiciled within the continental United States. The provisions of Section 4 shall not apply to acquisitions by persons within the Philippine Islands, American Samoa, Guam, Hawaii, Panama Canal Zone, Puerto Rico, or the Virgin Islands of the United States of gold coin or gold bullion which has not been taken or sent thereto since April 5, 1933, from the continental United States or any place subject to the jurisdiction thereof. Section 8. Until further Order, the Secretary of the Treasury is authorised, through any agency that he may designate, to investigate, regulate, or prohibit, under such rules and regulations as he may prescribe, by means of licenses or otherwise, any transactions in foreign exchange, transfers of credit from any banking institution within the United States to any foreign branch or office of such banking institution or to any foreign bank or banker, and the export or withdrawal of currency from the United States, by any person within the United States; and Secretary of the Treasury may require any person engaged in any transaction referred to herein to furnish under oath complete information relative thereto, including the production of any books of account, contracts, letters, or other papers, in connection therewith in the custody or control of such person either before or after such transaction is completed. Section 9. The Secretary of the Treasury is hereby authorised and empowered to issue such regulations as he may deem necessary to carry out the purposes of this Order. Such regulations may provide for the detention in the United States of any gold coin, gold bullion, or gold certificates sought to be transported beyond the limits of the continental United States, pending an investigation to determine if such coin, bullion, or certificates are held or are to be acquired in violation of the provisions of this Executive Order. Licenses and permits granted in accordance with the provisions of this Order and the regulations prescribed hereunder, may be issued through such officers or agencies as the Secretary may designate. Section 10. Whoever willfully violates any provision of this Executive Order or of any license, order, rule, or regulation issued or prescribed hereunder, shall, upon conviction, be fined not more than $10,000, or if a natural person, may be imprisoned for not more than 10 years, or both; and any officer, director, or agent of any corporation who knowingly participates in such violation may be punished by a like fine, imprisonment, or both. Section 11. The Executive Orders of April 5, 1933, Forbidding the Hoarding of Gold Coin, Gold Bullion and Gold Certificates, and April 20, 1933, relating to Foreign Exchange and the Earmarking and Export of Gold Coin or Bullion or Currency, respectively, are hereby revoked. The revocation of such prior Executive Orders shall not affect any act done, or any right accruing or 372

After the Gold Standard, 1931–1999 accrued, or any suit or proceeding had or commenced in any civil or criminal cause prior to said revocation, but all liabilities under said Executive Orders shall continue and may be enforced in the same manner as if said revocation had not been made. This Executive Order and any regulations or licenses issued hereunder may be modified or revoked at any time.

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15 January 1934 Recommendation of United States President Franklin D. Roosevelt to Congress for Legislation to improve the financial and monetary System

Roosevelt’s request for additional powers, endorsed by Congress barely two weeks later (see the following document), was the basis for the nationalisation of gold held in the vaults of the Federal Reserve System. Source: Roosevelt, The Public Papers and Addresses of Franklin D. Roosevelt, vol. 3, no. 8, pp. 40–5, esp. pp. 40–4.

In conformity with the progress we are making in restoring a fairer price level and with our purpose of arriving eventually at a less variable purchasing power for the dollar, I ask the Congress for certain additional legislation to improve our financial and monetary system. By making clear that we are establishing permanent metallic reserves in the possession and ownership of the Federal Government, we can organise a currency system which will be both sound and adequate. The issuance and control of the medium of exchange which we call ‘money’ is a high prerogative of government. It has been such for many centuries. Because they were scarce, because they could readily be sub-divided and transported, gold and silver have been used either for money or as a basis for forms of money which in themselves had only nominal intrinsic value. In pure theory, of course, a government could issue mere tokens to serve as money – tokens which would be accepted at face value if it were certain that the amount of these tokens were permanently limited and confined to the total amount necessary for the daily cash needs of the community. Because this assurance could not always or sufficiently be given, governments have found that reserves or bases of gold and silver behind their paper or token currency added stability to their financial systems. There is still much confusion of thought which prevents a world-wide agreement creating a uniform monetary policy. Many advocate gold as the sole basis of currency; others advocate silver; still other advocate both gold and sil374

After the Gold Standard, 1931–1999 ver whether as separate bases, or on a basis with a fixed ratio, or on a fused basis. We hope that, despite present world confusion, events are leading to some future form of general agreement. The recent London agreement in regard to silver was a step, though only a step, in this direction. At this time we can usefully take a further step, which we hope will contribute to an ultimate world-wide solution. Certain lessons seem clear. For example, the free circulation of gold coins is unnecessary, leads to hoarding, and tends to a possible weakening of national financial structures in times of emergency. The practice of transferring gold from one individual to another or from the Government to an individual within a Nation is not only unnecessary, but is in every way undesirable. The transfer of gold in bulk is essential only for the payment of international trade balances. Therefore it is a prudent step to vest in the Government of a Nation the title to and possession of all monetary gold within its boundaries and to keep that gold in the form of bullion rather than in coin. Because the safe-keeping of this monetary basis rests with the Government, we have already called in the gold which was in possession of private individuals or corporations. There remains, however, a very large weight in gold bullion and coins which is still in the possession or control of the Federal Reserve Banks. Although under existing law there is authority, by executive act, to take title to the gold in the possession or control of the Reserve Banks, this is a step of such importance that I prefer to ask the Congress by specific enactment to vest in the United States Government title to all supplies of American-owned monetary gold, with provision for the payment therefor in gold certificates. These gold certificates will be, as now, secured at all times dollar for dollar by gold in the Treasury – gold for each dollar of such weight and fineness as may be established from time to time. Such legislation places the right, title and ownership to our gold reserves in the Government itself; it makes clear the Government’s ownership of any added dollar value of the country’s stock of gold which would result from any decrease of the gold content of the dollar which may be made in the public interest. It would also, of course, with equal justice, cast upon the Government the loss of such dollar value if the public interest in the future should require in the amount of gold designated as a dollar. The title to all gold being in the Government, the total stock will serve as a permanent and fixed metallic reserve which will change in amount only so far as necessary for the settlement of international balances or as may be required 375

The Monetary History of Gold by a future agreement among Nations of the world for a redistribution of the world stock of monetary gold. With the establishment of this permanent policy, placing all monetary gold in the ownership of the Government as a bullion base for its currency, the time has come for a more certain determination of the gold value of the American dollar. Because of world uncertainties, I do not believe it desirable in the public interest that an exact value be now fixed. The President is authorised by present legislation to fix the low limit of permissible revaluation at 50 percent. Careful study leads me to believe that any revaluation at more than 60 percent of the present statutory value would not be in the public interest. I, therefore, recommend to the Congress that it fix the upper limit of permissible revaluation at 60 percent. That we may be further prepared to bring some greater degree of stability to foreign exchange rates in the interests of our people, there should be added to the present power of the Secretary of the Treasury to buy and sell gold at home and abroad, express power to deal in foreign exchange as such. As a part of this power, I suggest that, out of the profits of devaluation, there should be set up a fund of two billion dollars for such purchases and sales of gold, foreign exchange, and Government securities as the regulation of the currency, the maintenance of the credit of the Government and the general welfare of the United States may require. Certain amendments of existing legislation relating to the purchase and sale of gold and to other monetary matters would add to the convenience of handling current problems in this field. The Secretary of the Treasury is prepared to submit information concerning such changes to the appropriate committees of the Congress. The foregoing recommendations relate chiefly to gold. The other principal precious metal – silver – has also been used from time immemorial as a metallic base for currencies as well as for actual currency itself. It is used as such by probably half of the population of the world. It constitutes a very important part of own monetary structure. It is such a crucial factor in much of the world’s international trade that it cannot be neglected. On December 21, 1933, I issued a proclamation providing for the coinage of our newly mined silver and for increasing our reserves of silver bullion, thereby putting us among the first Nations to carry out the silver agreement entered into by sixty-six Governments at the London Conference. This agreement is distinctly a step in the right direction and we are proceeding to perform our part of it. All of the sixty-six Nations agreed to refrain from melting or debasing their silver coins, to replace paper currency of small denominations with silver coins and to refrain from legislation that would depreciate the value of silver in the 376

After the Gold Standard, 1931–1999 world markets. Those Nations producing large quantities of silver agreed to take specified amounts from their domestic production and those holding and using large quantities agreed to restrict the amount they would sell during the four years covered by the agreement. If all these undertakings are carried out by the Governments concerned, there will be a marked increase in the use and value of silver. Governments can well, as they have in the past, employ silver as a basis for currency, and I look for a greatly increased use. I am, however, withholding any recommendation to the Congress looking to further extension of the monetary use of silver because I believe that we should gain more knowledge of the results of the London agreement and of other monetary measures. Permit me once more to stress two principles. Our national currency must be maintained as a sound currency which, insofar as possible, will have a fairly constant standard of purchasing power and be adequate for the purposes of daily use and the establishment of credit. The other principle is the inherent right of Government to issue currency and to be the sole custodian and owner of the base or reserve of precious metals underlying that currency. With this goes the prerogative of Government to determine from time to time the extent and nature of the metallic reserve. I am confident that the Nation will well realise the definite purpose of the Government to maintain the credit of that Government and, at the same time, to provide a sound medium of exchange which will serve the needs of our people.

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30 January 1934 Gold Reserve Act of 1934: ‘An Act to protect the Currency System of the United States, to provide for the better Use of the monetary Gold Stock of the United States, and for other Purposes’

As the US economy continued to deteriorate, the Roosevelt administration nationalised gold and prohibited private gold ownership except under license. The President was empowered to devalue the gold dollar by up to 40 per cent, a power he exercised for the first time one day after this Act came into force (see the following document). Source: Statutes at Large of the United States of America from March 1933 to June 1934, Vol. 48, Part 1 (Washington: Government Printing Office, 1934), pp. 337– 44.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the short title of this Act shall be the ‘Gold Reserve Act of 1934’ SECTION 2. (a) Upon the approval of this Act all right, title, and interest, and every claim of the Federal Reserve Board, of every Federal Reserve hank, and of every Federal Reserve agent, in and to any and all gold coin and gold bullion shall pass to and are hereby vested in the United States; and in payment therefor credits in equivalent amounts in dollars are hereby established in the Treasury in the accounts authorised under the sixteenth paragraph of section 16 of the Federal Reserve Act, as heretofore and by this Act amended (U.S.C., title 12, sec. 467). Balances in such accounts shall be payable in gold certificates, which shall be in such form and in such denominations as the Secretary of the Treasury may determine. All gold so transferred, not in the possession of the United States, shall be held in custody for the United States and delivered upon the order of the Secretary of the Treasury; and the Federal Reserve Board, the Federal Reserve banks, and the Federal Reserve agents shall give

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After the Gold Standard, 1931–1999 such instructions and shall take such action as may be necessary to assure that such gold shall be so held and delivered. (b) Section 16 of the Federal Reserve Act, as amended, is further amended in the following respects: (1.) The third sentence of the first paragraph is amended to read as follows: ‘They shall be redeemed in lawful money on demand at the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve bank.’ (2.) So much of the third sentence of the second paragraph as precedes the proviso is amended to read as follows: ‘The collateral security thus offered shall be notes, drafts, bills of exchange, or acceptances acquired under the provisions of section 13 of this Act, or bills of exchange endorsed by a member bank of any Federal Reserve district and purchased under the provisions of section 14 of this Act, or bankers acceptances purchased under the provisions of said section 14, or gold certificates:’ (3.) The first sentence of the third paragraph is amended to read as follows: ‘Every Federal Reserve bank shall maintain reserves in gold certificates or lawful money of not less than 35 per centum against its deposits and reserves in gold certificates of not less than 40 per centum against its Federal Reserve notes in actual circulation: Provided, however, That when the Federal Reserve agent holds gold certificates as collateral for Federal Reserve notes issued to the bank such gold certificates shall be counted as part of the reserve which such bank is required to maintain against its Federal Reserve notes in actual circulation.’ (4.) The fifth and sixth sentences of the third paragraph are amended to read as follows: ‘Notes presented for redemption at the Treasury of the United States shall be paid out of the redemption fund and returned to the Federal Reserve banks through which they were originally issued, and thereupon such Federal Reserve bank shall, upon demand of the Secretary of the Treasury, reimburse such redemption fund in lawful money or, if such Federal Reserve notes have been redeemed by the Treasurer in gold certificates, then such funds shall be reimbursed to the extent deemed necessary by the Secretary of the Treasury in gold certificates, and such Federal Reserve bank shall, so long as any of its Federal Reserve notes remain outstanding, maintain with, the Treasurer in gold certificates an amount sufficient in the judgment of the Secretary to provide for all redemptions to be made by the Treasurer. Federal Reserve notes received by the Treasurer otherwise than for redemption may be exchanged for gold certificates out of the redemption fund hereinafter provided and returned to the Reserve bank through which they were 379

The Monetary History of Gold originally issued, or they may be returned to such bank for the credit of the United States.’ (5.) The fourth, fifth, and sixth paragraphs are amended to read as follows: ‘The Federal Reserve Board shall require each Federal Reserve bank to maintain on deposit in the Treasury of the United States a sum in gold certificates sufficient in the judgment of the Secretary of the Treasury for the redemption of the Federal Reserve notes issued to such bank, but in no event less than 5 per centum of the total amount of notes issued less the amount of gold certificates held by the Federal Reserve agent as collateral security; but such deposit of gold certificates shall be counted and included as part of the 40 per centum reserve hereinbefore required. The Board shall have the right, acting through the Federal Reserve agent, to grant in whole or in part, or to reject entirely the application of any Federal Reserve bank for Federal Reserve notes; but to the extent that such application may be granted the Federal Reserve Board shall, through its local Federal Reserve agent, supply Federal Reserve notes to the banks so applying, and such bank shall be charged with the amount of the notes issued to it and shall pay such rate of interest as may be established by the Federal Reserve Board on only that amount of such notes which equals the total amount of its outstanding Federal Reserve notes less the amount of gold certificates held by the Federal Reserve agent as collateral security. Federal Reserve notes issued to any such bank shall, upon delivery, together with such notes of such Federal Reserve bank as may be issued under section 18 of this Act upon security of United States 2 per centum Government bonds, become a first and paramount lien on all the assets of such bank. ‘Any Federal Reserve bank may at any time reduce its liability for outstanding Federal Reserve notes by depositing with the Federal Reserve agent its Federal Reserve notes, gold certificates, or lawful money of the United States. Federal Reserve notes so deposited shall not be reissued, except upon compliance with the conditions of an original issue. ‘The Federal Reserve agent shall hold such gold certificates or lawful money available exclusively for exchange for the outstanding Federal Reserve notes when offered by the Reserve bank of which he is a director. Upon the request of the Secretary of the Treasury the Federal Reserve Board shall require the Federal Reserve agent to transmit to the Treasurer of the United States so much of the gold certificates held by him as collateral security for Federal Reserve notes as may be required for the exclusive purpose of the redemption of such Federal Reserve notes, but such gold certificates when deposited with the Treasurer shall 380

After the Gold Standard, 1931–1999 be counted and considered as if collateral security on deposit with the Federal Reserve agent.’ (6.) The eighth paragraph is amended to read as follows: ‘All Federal Reserve notes and all gold certificates and lawful money issued to or deposited with any Federal Reserve agent under the provisions of the Federal Reserve Act shall hereafter be held for such agent, under such rules and regulations as the Federal Reserve Board may prescribe, in the joint custody of himself and the Federal Reserve bank to which he is accredited. Such agent and such Federal Reserve bank shall be jointly liable for the safekeeping of such Federal Reserve notes, gold certificates, and lawful money. Nothing herein contained, however, shall be construed to prohibit a Federal Reserve agent from depositing gold certificates with the Federal Reserve Board, to be held by such Board subject to his order, or with the Treasurer of the United States for the purposes authorised by law.’ (7.) The sixteenth paragraph is amended to read as follows: ‘The Secretary of the Treasury is hereby authorised and directed to receive deposits of gold or of gold certificates with the Treasurer or any Assistant Treasurer of the United States when tendered by any Federal Reserve bank or Federal Reserve agent for credit to its or his account with the Federal Reserve Board. The Secretary shall prescribe by regulation the form of receipt to be issued by the Treasurer or Assistant Treasurer to the Federal Reserve bank or Federal Reserve agent making the deposit, and a duplicate of such receipt shall be delivered to the Federal Reserve Board by the Treasurer at Washington upon proper advices from any Assistant Treasurer that such deposit has been made. Deposits so made shall be held subject to the orders of the Federal Reserve Board and shall be payable in gold certificates on the order of the Federal Reserve Board to any Federal Reserve bank or Federal Reserve agent at the Treasury or at the Subtreasury of the United States nearest the place of business of such Federal Reserve bank or such Federal Reserve agent. The order used by the Federal Reserve Board in making such payments shall be signed by the governor or vice governor, or such other officers or members as the Board may by regulation prescribe. The form of such order shall be approved by the Secretary of the Treasury,’ (8.) The eighteenth paragraph is amended to read as follows: ‘Deposits made under this section standing to the credit of any Federal Reserve bank with the Federal Reserve Board shall, at the option of said bank, be counted as part of the lawful reserve which it is required to maintain against outstanding Federal Reserve notes, or as a part of the reserve it is required to maintain against deposits.’ 381

The Monetary History of Gold SECTION 3. The Secretary of the Treasury shall, by regulations issued hereunder, with the approval of the President, prescribe the conditions under which gold may be acquired and held, transported, melted or treated, imported, exported, or earmarked: (a) for industrial, professional, and artistic use; (b) by the Federal Reserve banks for the purpose of settling international balances; and, (c) for such, other purposes as in his judgment are not inconsistent with the purposes of this Act. Gold in any form may be acquired, transported, melted or treated, imported, exported, or earmarked or held in custody for foreign or domestic account (except on behalf of the United States) only to the extent permitted by, and subject to the conditions prescribed in, or pursuant to, such regulations. Such regulations may exempt from the provisions of this section, in whole or in part, gold situated in the Philippine Islands or other places beyond the limits of the continental United States. SECTION 4. Any gold withheld, acquired, transported, melted or treated, imported, exported, or earmarked or held in custody, in violation of this Act or of any regulations issued hereunder, or licenses issued pursuant thereto, shall be forfeited to the United States, and may be seized and condemned by like proceedings as those provided by law for the forfeiture, seizure, and condemnation of property imported into the United States contrary to law; and in addition any person failing to comply with the provisions of this Act or of any such regulations or licenses, shall be subject to a penalty equal to twice the value of the gold in respect of which such failure occurred. SECTION 5. No gold shall hereafter be coined, and no gold coin shall hereafter be paid out or delivered by the United States: Provided however, That coinage may continue to be executed by the Mints of the United States for foreign countries in accordance with the Act of January 29, 1874 (U.S.C., title 31, sec. 367). All gold coin of the United States shall be withdrawn from circulation, and, together with all other gold owned by the United States, shall be formed into bars of such weights and degrees of fineness as the Secretary of the Treasury may direct. SECTION 6. Except to the extent permitted in regulations which may be issued hereunder by the Secretary of the Treasury with the approval of the President, no currency of the United States shall be redeemed in gold: Provided, however, That gold certificates owned by the Federal Reserve banks shall be redeemed at such times and in such amounts as, in the judgment of the Secretary of the Treasury, are necessary to maintain the equal purchasing power of every kind of currency of the United States: And provided further, That the reserve for United States notes and for Treasury notes of 1890, and the security for gold certificates (including the gold certificates held in the Treasury for credits payable therein) shall be maintained in gold bullion equal to the dollar amounts required by law, and the reserve for Federal Reserve

382

After the Gold Standard, 1931–1999 notes shall be maintained in gold certificates, or in credits payable in gold certificates maintained with the Treasurer of the United States under section 16 of the Federal Reserve Act, as heretofore and by this Act amended. No redemptions in gold shall be made except in gold bullion bearing the stamp of a United States Mint or assay office in an amount equivalent at the time of redemption to the currency surrendered for such purpose. SECTION 7. In the event that the weight of the gold dollar shall at any time be reduced, the resulting increase in value of the gold held by the United States (including the gold held as security for gold certificates and as a reserve for any United States notes and for Treasury notes of 1890) shall be covered into the Treasury as a miscellaneous receipt; and, in the event that the weight of the gold dollar shall at any time be increased, the resulting decrease in value of the gold held as a reserve for any United States notes and for Treasury notes of 1890, and as security for gold certificates shall be compensated by transfers of gold bullion from the general fund, and there is hereby appropriated an amount sufficient to provide for such transfers and to cover the decrease in value of the gold in the general fund. SECTION 8. Section 3700 of the Revised Statutes (U.S.C., title 31, sec. 734) is amended to read as follows: ‘SEC. 3700. With the approval of the President, the Secretary of the Treasury may purchase gold in any amounts, at home or abroad, with any direct obligations, coin, or currency of the United States, authorised by law, or with any funds in the Treasury not otherwise appropriated, at such rates and upon such terms and conditions as he may deem most advantageous to the public interest; any provision of law relating to the maintenance of parity, or limiting the purposes for which any of such obligations, coin, or currency, may be issued, or requiring any such obligations to be offered as a popular loan or on a competitive basis, or to be offered or issued at not less than par, to the contrary notwithstanding. All gold so purchased shall be included as an asset of the general fund of the Treasury.’ SECTION 9. Section 3699 of the Revised Statutes (U.S.C., title 31, sec. 733) is amended to read as follows: ‘SEC. 3699. The Secretary of the Treasury may anticipate the payment of interest on the public debt, by a period not exceeding one year, from time to time, either with or without a rebate of interest upon the coupons, as to him may seem expedient; and he may sell gold in any amounts, at home or abroad, in such manner and at such rates and upon such terms and conditions as he may deem most advantageous to the public interest, and the proceeds of any gold so sold shall be covered into the general fund of the Treasury: Provided, however, That the Secretary of the Treasury may sell the gold which is required to be maintained as a reserve or as security for currency issued by the United 383

The Monetary History of Gold States, only to the extent necessary to maintain such currency at a parity with the gold dollar.’ SECTION 10. (a) For the purpose of stabilising the exchange value of the dollar, the Secretary of the Treasury, with the approval of the President, directly or through such agencies as he may designate, is authorised, for the account of the fund established in this section, to deal in gold and foreign exchange and such other instruments of credit and securities as he may deem necessary to carry out the purpose of this section. An annual audit of such fund shall be made and a report thereof submitted to the President. (b) To enable the Secretary of the Treasury to carry out the provisions of this section there is hereby appropriated, out of the receipts which are directed to be covered into the Treasury under section 7 hereof, the sum of $2,000,000,000, which sum when available shall be deposited with the Treasurer of the United States in a stabilisation fund (hereinafter called the ‘fund’) under the exclusive control of the Secretary of the Treasury, with the approval of the President, whose decisions shall be final and not be subject to review by any other officer of the United States. The fund shall be available for expenditure, under the direction of the Secretary of the Treasury and in his discretion, for any purpose in connection with carrying out the provisions of this section, including the investment and reinvestment in direct obligations or the United States of any portions of the fund which the Secretary of the Treasury, with the approval of the President, may from time to time determine are not currently required for stabilising the exchange value of the dollar. The proceeds of all sales and investments and all earnings and interest accruing under the operations of this section shall be paid into the fund and shall be available for the purposes of the fund. (c) All the powers conferred by this section shall expire two years after the date of enactment of this Act, unless the President shall sooner declare the existing emergency ended and the operation of the stabilisation fund terminated; but the President may extend such period for not more than one additional year after such date by proclamation recognising the continuance of such emergency. SECTION 11. The Secretary of the Treasury is hereby authorised to issue, with the approval of the President, such rules and regulations as the Secretary may deem necessary or proper to carry out the purposes of this Act. SECTION 12. Paragraph (b) (2), of section 43, title III, of the Act approved May 12, 1933 (Public, Numbered 10, Seventy-third Congress), is amended by adding two new sentences at the end thereof, reading as follows: ‘Nor shall the weight of the gold dollar be fixed in any event at more than 60 per centum of its present weight. The powers of the President specified in 384

After the Gold Standard, 1931–1999 this paragraph shall be deemed to be separate, distinct, and continuing powers, and may be exercised by him, from time to time, severally or together, whenever and as the expressed objects of this section in his judgment may require; except that such powers shall expire two years after the date of enactment of the Gold Reserve Act of 1934 unless the President shall sooner declare the existing emergency ended, but the President may extend such period for not more than one additional year after such date by proclamation recognising the continuance of such emergency.’ […] (c) The Secretary of the Treasury is authorised to issue gold certificates in such form and in such denominations as he may determine, against any gold held by the Treasurer of the United States, except the gold fund held as a reserve for any United States notes and Treasury notes of 1890. The amount of gold certificates issued and outstanding shall at no time exceed the value, at the legal standard, of the gold so held against gold certificates. […] SECTION 15. As used in this Act the term ‘United States’ means the Government of the United States; the term ‘the continental United States’ means the States of the United States, the District of Columbia, and the Territory of Alaska; the term ‘currency of the United States’ means currency which is legal tender in the United States, and includes United States notes, Treasury notes of 1890, gold certificates, silver certificates, Federal Reserve notes, and circulating notes of Federal Reserve banks and national banking associations; and the term ‘person’ means any individual, partnership, association, or corporation, including the Federal Reserve Board, Federal Reserve banks, and Federal Reserve agents. Wherever reference is made in this Act to equivalents as between dollars or currency of the United States and gold, one dollar or one dollar face amount of any currency of the United States equals such a number of grains of gold, nine tenths fine, as, at the time referred to, are contained in the standard unit of value, that is, so long as the President shall not have altered by proclamation the weight of the gold dollar under the authority of section 43, title III, of the Act approved May 12, 1933, as heretofore and by this Act amended, twenty-five and eight tenths grains of gold, nine tenths fine, and thereafter such a number of grains of gold, nine tenths fine, as the President shall have fixed under such authority.

385

31 January 1934 Presidential Proclamation (No. 2072) of Franklin D. Roosevelt fixing the Gold Value, by Weight, of the United States Dollar, making the Dollar convertible to Gold at the new Price of $35.00 per Ounce

One day after Congress nationalised the Federal Reserve’s gold holdings, Roosevelt devalued the dollar from $20.67 per ounce to $35 per ounce, a level at which it would remain until 1971. Source: Roosevelt, The Public Papers and Addresses of Franklin D. Roosevelt, vol. 3, no. 16, pp. 67–76, esp. pp. 67–70.

WHEREAS, by virtue of Section 1 of the Act of Congress approved March 14, 1900 (31 Stat. L. 45), the present weight of the gold dollar is fixed at 25.8 grains of gold nine-tenths fine; and WHEREAS, by Section 43, Title III of the Act approved May 12, 1933 (Public, No. 10, 73d Cong.), as amended by Section 12 of the Gold Reserve Act of 1934, it is provided in part as follows: ‘Whenever the President finds, upon investigation, that (1.) the foreign commerce of the United States is adversely affected by reason of the depreciation in the value of the currency of any other Government in relation to the present standard value of gold, or (2.) action under this section is necessary in order to regulate and maintain the parity of currency issues of the United States, or (3.) an economic emergency requires an expansion of credit, or (4.) an expansion of credit is necessary to secure by international agreement a stabilisation at proper levels of the currencies of various Governments, the President is authorised in his discretion – ‘(a) To direct the Secretary of the Treasury to enter into agreements with the several Federal Reserve Banks and with the Federal Reserve Board whereby the Federal Reserve Board will, and is hereby authorised to, notwithstanding any provisions of law or rules and regulations to the contrary, permit such Reserve banks to agree that they will, (1.) conduct, pursuant to existing 386

After the Gold Standard, 1931–1999 law, throughout specified periods, open market operations in obligations of the United States Government in an aggregate sum of $3,000,000,000 in addition to those they may then hold, unless prior to the termination of such period or periods the Secretary shall consent to their sale. No suspension of reserve requirements of the Federal Reserve Banks, under the terms of section 11 (c) of the Federal Reserve Act, necessitated by reason of operations under this section, shall require the imposition of the graduated tax upon any deficiency in reserves as provided in said section 11 (c). Nor shall it require any automatic increase in the rates of interest or discount charged by any Federal Reserve Bank, as otherwise specified that section. The Federal Reserve Board, with the approval of the Secretary of the Treasury, may require the Federal Reserve banks to take such action as may be necessary, in the judgement of the Board and of the Secretary of the Treasury, to prevent undue credit expansion. ‘(b) If the Secretary, when directed by the President, is unable to secure the assent of the several Federal Reserve Banks and the Federal Reserve Board to the agreements authorised in this section, or if operations under the above provisions prove to be inadequate to meet the purposes of this section, or if for any other reason additional measures are required in the judgement of the President to meet such purposes, then the President is authorised – * * * ‘(2.) By proclamation to fix the weight of the gold dollar in grains nine-tenths fine and also to fix the weight of the silver dollar in grains nine-tenths fine at a definite fixed ratio in relation to the gold dollar at such amounts as he finds necessary from his investigation to stabilise domestic prices or to protect the foreign commerce against the adverse effect of depreciated foreign currencies, and to provide for the unlimited coinage of such gold and silver at the ratio so fixed, or in case the Government of the United States enters into an agreement with any Government or Governments under the terms of which the ratio between the value of gold and other currency issued by the United States and by any other Government or Governments is established, the President may fix the weight of the gold dollar in accordance with the ratio so agreed upon, and such gold dollar, the weight of which is so fixed, shall be the standard unit of value, and all forms of money issued or coined by the United States shall be maintained at a parity with this standard and it shall be the duty of the Secretary of the Treasury to maintain such parity, but in no event shall the weight of the gold dollar be fixed so as to reduce its present weight by more than 50 per centum. Nor shall the weight of the dollar be fixed in any event at more than 60 per centum of its present weight. The powers of the President specified in this paragraph shall be deemed to be separate, distinct, 387

The Monetary History of Gold and continuing powers, and may be exercised by him, from time to time, severally or together, whenever and as expressed objects of this section in his judgement may require; except that such powers shall expire two years after the date of enactment of the Gold Reserve Act of 1934 unless the President shall sooner declare the existing emergency ended, but the President may extend such period for not more than one additional year after such date by proclamation recognising the continuance of such emergency;’ WHEREAS, I find, upon investigation, that the foreign commerce of the United States is adversely affected by reason of the depreciation in the value of the currencies of other Governments in relation to the present standard value of gold, and that an economic emergency requires an expansion of credit; and WHEREAS, in my judgement, measures additional to those provided by subsection (a) of said section 43 are required to meet the purposes of such section; and WHEREAS, I find, from my investigation, that, in order to stabilise domestic prices and to protect foreign commerce against the adverse effect of depreciated foreign currencies, it is necessary to fix the weight of the gold dollar at 155/21 grains nine-tenths fine, NOW, THEREFORE, be it known that I, Franklin D. Roosevelt, President of the United States, by virtue of the authority vested in me by section 43, Title III, of said act of May 12, 1933, as amended, and by virtue of all other authority vested in me, do hereby proclaim, order, direct, declare, and fix the weight of the gold dollar to be 155/21 grains nine-tenths fine, from and after the date and hour of this Proclamation. The weight of the silver dollar is not altered or affected in any manner by reason of this Proclamation. This Proclamation shall remain in force and effect until and unless repealed or modified by act of Congress or by subsequent Proclamation; and notice is hereby given that I reserve the right by virtue of the authority vested in me to alter or modify this Proclamation as the interest of the United States may seem to require.

388

31 January 1934 White House Statement on the Presidential Proclamation of Franklin D. Roosevelt fixing the Gold Value, by Weight, of the United States Dollar

Source: Roosevelt, The Public Papers and Addresses of Franklin D. Roosevelt, vol. 3, no. 15, pp. 64–6. The Presidential Proclamation itself is reproduced in the previous document.

1. Acting under the powers granted by Title 3 of the Act approved May 12, 1933 (Thomas Amendment to the Farm Relief Act), the President today issued a Proclamation fixing the weight of the gold dollar at 155/21 grains nine-tenths fine. This is 59.06 plus percent of the former weight of 288/10 grains, nine-tenths fine, as fixed by Section i of the Act of congress of March 4, 1900. The new gold content of the dollar became effective immediately on the signing of the Proclamation by the President. Under the Gold Reserve Act of 1934, signed by the President Tuesday, January 30th, title to the entire stock of monetary gold in the United States, including gold coin and gold bullion heretofore held by the Federal Reserve Banks and the claim upon gold in the Treasury represented by gold certificates, is vested in the United States Government, and the ‘profit’ from the reduction of the gold content of the dollar, made effective by today’s Proclamation, accrues to the United States Treasury. Of this ‘profit’ two billion dollars, under the terms of the Gold Reserve Act and of today’s Proclamation, constitute a stabilisation fund under the direction of the Secretary of the Treasury. The balance will be converted into the general fund of the Treasury. Settlement for the gold coin, bullion and certificates taken over from the Federal Reserve Banks on Tuesday upon the approval of the Act was made in the form of credits set up on the Treasury’s books. This credit due the Federal Reserve Banks is to be paid in the form of gold certificates now in course of production of the Bureau of Engraving and Printing. These certificates bear on their face the wording:

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The Monetary History of Gold ‘This is to certify that there is on deposit in the Treasury of the United States of America ——— dollars in gold, payable to the bearer on demand as authorised by law.’ They also carry the standard legal tender clause, which is as follows: ‘This certificate is a legal tender in the amount thereof in payment of all debts and dues, public and private.’ The new gold certificates will be of the same sise as other currency in circulation and the only difference, other than the changes in the wording noting above, is that the backs of the new certificates will, as used to be done, be printed in yellow ink. The certificates will be in denominations up to $100,000. In his Proclamation of today the President gives notice that he reserves the right, by virtue of the authority vested in him, to alter or modify the present Proclamation as the interest of the United States may seem to require. The authority by later Proclamations to accomplish other revaluations of the dollar in terms of gold is contained in the Gold Reserve Act signed on Tuesday. 2. The Secretary of the Treasury, with the approval of the President, issued a public announcement that beginning February 1, 1934, he will buy through the Federal Reserve Bank of New York as fiscal agent, for the account of the United States, any and all gold delivered to United States Mints or the Assay Offices in New York or Seattle, at the rate of $35.00 per fine troy ounce, less the usual Mint charges and less one-fourth of one percent for handling charges. Purchases, however, are subject to compliance with the regulations under the Gold Reserve Act of 1934. 3. The Secretary of the Treasury today promulgated new regulations with respect to the purchase and sale of gold by the Mints. Under these regulations the Mints are authorised to purchase gold recovered from natural deposits in the United States or any place subject to its jurisdiction, unmelted scrap gold, gold imported into the United States after January 30, 1934, and such other gold as may be authorised from time to time by rulings of the Secretary of the Treasury. No gold, however, may be purchased which has been held in noncompliance with previous acts or orders, or noncompliance with the Gold Reserve Act of 1934, or these Regulations. Affidavits as to the source from which the gold was obtained are required, except in the case of nuggets or dust of less than five ounces, where a statement under oath will suffice. In the case of imported gold, the Mints may purchase only that which has been in customs custody after its arrival in the Continental United States. The price to be paid for gold purchased by the Mints is to be $35.00 per troy ounce of fine gold, less one-fourth of one percent and less Mint charges. This price may be changed by the Secretary of the Treasury at any time without notice. 390

After the Gold Standard, 1931–1999 The Mints are authorised to sell gold to persons licensed to acquire it for use in industries, professions, or arts, but not to more than is required for a three-month’s supply for the purchaser. The price at which gold is to be sold by the Mints will be $35.00 per troy ounce, plus one-fourth of one percent. This price also may be changed by the Secretary of the Treasury without notice.

391

14 May 1934 Press Release communicating a Resolution of the Bank for International Settlements relative to the Restoration of the Gold Standard

Source: London, Bank of England Archives, OV48/10, 1539/1, No. 39.

The representatives of twenty-three Central Banks assembled in Basle on the occasion of the Fourth Annual General Meeting of the Bank for International Settlements, after having received the Report of the President, have unanimously adopted the following statement: ‘Recognising that the final objective of their monetary policy is to restore the stability of currencies on a gold basis as soon as general conditions are favourable, the representatives of the twenty-three Central Bank members of the Bank for International Settlements unanimously reaffirm the principles laid down by the Board of Directors in their resolution of the 11th July 1932, relating to the gold standard. ‘They concur in the findings of the London Conference concerning the necessity and utility of close and continuous cooperation between Central Banks. In this connection they share the opinion of the Conference that the Bank for International Settlements plays and should play an increasingly important part to the benefit of all as a common centre of contact, of consultation and of collaboration, particularly with a view to examining the application of the principles of the gold standard’.

392

22 May 1934 Message of United States President Franklin D. Roosevelt to Congress on Silver Policy

During the Great Depression, Roosevelt experimented with an increased monetary role for silver. While obtaining international recognition of silver’s monetary role had been an objective of the Democratic Party in the United States since the late nineteenth century, the international reaction to Roosevelt’s initiative reflected the monopoly role that gold had achieved in the intervening half century. Source: Roosevelt, The Public Papers and Addresses of Franklin D. Roosevelt, vol. 3, no. 89, pp. 253–6, esp. pp. 253–5.

On January 11, 1934, I recommended to the Congress which was promptly enacted under the title, ‘The Gold Reserve Act of 1934’. This Act vested in the United States Government the custody and control of our stocks of gold as a reserve for our paper currency and as a medium of settling international balances. It set up a stabilisation fund for the control of foreign exchange in the interests of our people, and certain amendments were added to facilitate the acquisition of silver. As stated in my message to the Congress, this legislation was recommended as a step in improving our financial and monetary system. Its enactment has laid a foundation on which we are organising a currency system that will be both sound and adequate. It is a long step forward, but it is only a step. As a part of the larger objective, some things have been clear. One is that we should move forward as rapidly as conditions permit in broadening the metallic base of our monetary system and in stabilising the purchasing and debt-paying power of our money on a more equitable level. Another is that we should not neglect the value of an increased use of silver in improving our monetary system. Since 1929 that has been obvious. Some measures for making greater use of silver in the public interest are appropriate for independent action by us. On others, international cooperation should be sought. 393

The Monetary History of Gold Of the former class is that of increasing the proportion of silver in the abundant metallic reserves back of our paper currency. This policy was initiated by the Proclamation of December 21, 1933, bringing our current domestic production of silver into the Treasury, as well as placing this Nation among the first to carry out the agreement on silver which we sought and secured at the London Conference. We have since acquired other silver in the interest of stabilisation of foreign exchange and the development of a broader metallic base for our currency. We seek to remedy a maladjustment of our currency. In further aid of this policy, it would be helpful to have legislation broadening the authority for the further acquisition and monetary use of silver. I, therefore, recommend legislation at the present session, declaring it to be the policy of the United States to increase the amount of silver in our monetary stocks with the ultimate objective of having and maintaining one-fourth of their monetary value in silver in three-fourths in gold. The Executive Authority should be authorised and directed to make the purchases of silver necessary to attain this ultimate objective. The authority to purchase present accumulations of silver the country should be limited to purchases at not in excess of fifty cents per ounce. The Executive Authority should be enabled, should circumstances require, to take over present surpluses of silver in this country not required for industrial uses on payment of just compensation, and to regulate imports, exports and other dealings in monetary silver. There should be a tax of at least 50 percent on the profits accruing from dealing in silver. We can proceed with this program of increasing our store of silver for use as a part of the metallic reserves for our paper currency without seriously disturbing adjustments in world trade. However, because of the great world supply of silver and its use in varying forms by the world’s population, concerted action by all Nations, or at least a large group of Nations, is necessary if a permanent measure of value, including both gold and silver, is eventually to be made a world standard. To arrive at that point, we must seek every possibility for world agreement, although it may turn out that this Nation will ultimately have to take such independent action on this phase of the matter as its interests require. The success of the London Conference in consummating an international agreement on silver, which has now been ratified by all the Governments concerned, makes such further agreement worth seeking. The ebb and flow of values in almost all parts of the world have created many points of pressure for readjustments of internal and international standards. At no time since the efforts of this Nation to secure international agreement on silver began in 1878, have conditions been more favorable for making progress along this line. 394

After the Gold Standard, 1931–1999 Accordingly, I have begun to confer with some of our neighbors in regard to the use of both silver and gold, preferably on a coordinated basis, as a standard of monetary value. Such an agreement would constitute an important step forward toward a monetary unit of value more equitable and stable in its purchasing and debt-paying power.

395

9 August 1934 Presidential Proclamation (No. 2092) of Franklin D. Roosevelt to facilitate the Coinage of Silver.

Source: Roosevelt, The Public Papers and Addresses of Franklin D. Roosevelt, vol. 3, no. 145, pp. 375–8.

WHEREAS, by paragraph (2) of Section 43, Title III, of the Act of Congress, approved May 12, 1933 (Public No. 10), as amended by the Gold Reserve Act of 1934, the President is authorised ‘by proclamation to fix the weight of the gold dollar in grains nine-tenths fine and also to fix the weight of the silver dollar in grains nine-tenths fine at a definite fixed ratio in relation to the gold dollar at such amount as he finds necessary from his investigation to stabilise domestic prices or to protect the foreign commerce against the effect of depreciated foreign currencies, and to provide for the unlimited coinage of such gold and silver at the ratio so fixed …’ and ‘The President, in addition to the authority to provide for the unlimited coinage at the ratio so fixed, under such terms and conditions as he may prescribe, is further authorised to cause to be issued and delivered to the tenderer of silver coinage, silver certificates in lieu of the standard silver dollars to which the tendered would be entitled and in an amount in dollars equal to the number of coined standard silver dollars that the tenderer of such silver coinage would receive in standard silver dollars;’ and ‘The President is further authorised to issue silver certificates in such denominations as he may prescribe against any silver bullion, silver, or standard silver dollars in the Treasury not then held for redemption of any outstanding silver certificates, and to coin standard silver dollars or subsidiary currency for the redemption of such silver certificates;’ and WHEREAS the Silver Purchase Act of 1934, approved June 19, 1934, provides in part, as follows: ‘Whenever in the judgement of the President such action is necessary to effectuate the policy of this act, he may by Executive order require the delivery to the United States Mints of any or all silver by whomever owned or possessed. The silver so delivered shall be coined into standard silver dollars or 396

After the Gold Standard, 1931–1999 otherwise added to the monetary stocks of the United States as the President may determine; and there shall be returned therefor in standard silver dollars, or any other coin or currency of the United States, the monetary value of the silver so delivered less such deductions doe seigniorage, brassage, coinage, and other Mint charges as the Secretary of the Treasury with the approval of the President shall have determined: Provided, That in no case shall the value of the amount returned therefor be less than the fair value at the time of such order of the silver required to be delivered as such value is determined by the market price over a reasonable period terminating at the time of such order.’ NOW, THEREFORE, finding it necessary, in my judgement, to effectuate the policy of the Silver Purchase Act of 1934, to assist in increasing and stabilising domestic prices, to protect our foreign commerce against the adverse effect of depreciated foreign currencies, and to promote the objectives of the proclamation of the 21st day of December, 1933, relating to the coinage of silver; by virtue of the power in me vested by the acts of Congress above cited, and other legislation designated for national recovery, and by virtue of all other authority in me vested; I, Franklin D. Roosevelt, President of the United States of America, do proclaim and direct that each United States Mint shall receive for coinage or for addition to the monetary stocks of the United States, as hereinafter determined, any silver which such Mint, subject to the regulations prescribed hereunder by the Secretary of the Treasury, is satisfied was situated on the effective date hereof in the continental United States, including the Territory of Alaska. The silver so delivered shall be added to the monetary stocks of the United States and shall be coined from time to time into standard silver dollars in such amounts as are required to carry out the provisions of this proclamation and to provide for the redemption of silver certificates; and there shall be returned therefor in standard silver dollars, silver certificates, or any other coin or currency of the United States, the monetary value of the silver so delivered (that is, $1.2929+ a fine troy ounce), less a deduction of 618/25 percent thereof for seigniorage, brassage, coinage, and other Mint charges, such deduction having been determined by the Secretary of the Treasury with my approval. The provisions hereof are supplemental to the provisions of the proclamation of the 21st day of December 1933, and the United States coinage Mints shall continue to receive for coinage in accordance with the provisions of such proclamation silver which such Mint, subject to regulations prescribed thereunder by the Secretary of the Treasury, is satisfied has been mined subsequently to the date of such proclamation, from natural deposits in the United States or any place subject to the jurisdiction thereof: Provided, how397

The Monetary History of Gold ever, That the Director of the Mint shall, at the option of the tenderer of such silver, deliver silver certificates in lieu of the standard silver dollars to which the tenderer of such silver for coinage would receive in standard silver dollars. The Secretary of the Treasury is authorised to prescribe regulations to carry out the purposes of this proclamation. Notice is hereby given that I reserve the right by virtue of the authority vested in me to revoke or modify this proclamation as the interest of the United States may seem to require.

398

25 September – 13 October 1936 Tripartite Agreement between the United States, France and the United Kingdom on international monetary Cooperation

The first major agreement on international monetary cooperation involved an exchange of notes between the United States, France and the United Kingdom. The subscribing nations agreed to buy and sell gold freely from and to each other in exchange for each others’ currency. Belgium, Switzerland and the Netherlands also adhered to the agreement. The documents excerpted below include the statements of the three main parties and two statements of the US Secretary of the Treasury on the status of the agreement. Source: The Tripartite Agreement of September 26, 1936, and Subsequent Monetary Arrangements (Basel, Switzerland: Bank for International Settlements, Monetary and Economic Department, 1937), pp. 3–8.

Statement of French Government relating to monetary agreement reached between France, United States and Great Britain. September 25, 1936. 1. The French Government, after consultation with the United States Government and the British Government, join with them in affirming a common desire to foster those conditions which will safeguard peace and will best contribute to the restoration of order in international economic relations, and to pursue a policy which will tend to promote prosperity in the world and to improve the standard of living of peoples. 2. The Governments of the United States of America and of Great Britain must, of course, in their policy towards international monetary relations, take into full account the requirements of internal prosperity of the American Republic and of the British Empire, as corresponding considerations will be taken into account by the French Government in regard to the economic system of the country itself and of its overseas possessions. They welcome this opportunity to reaffirm their purpose to continue the policy which they have pursued in the course of recent years, one constant object of which is to maintain the greatest possible equilibrium in the system of international exchanges and to avoid to the utmost extent the creation of any disturbance of that 399

The Monetary History of Gold system by American or British monetary action. The French Government share with the Governments of the United States and of Great Britain the conviction that the continuation of this two-fold policy will serve the general purpose which all Governments should pursue. 3. The French Government, judging that the desired stability of the principal currencies cannot be ensured on a solid basis except after the reestablishment of a lasting equilibrium between the various economic systems, have decided with this object to propose to their Parliament the readjustment of their currency. The Governments of the United States and of Great Britain have welcomed this decision in the hope that it will establish more solid foundations for the stability of international economic relations. The Governments of the United States of America, of Great Britain and of France declare their intention to continue to use the appropriate available resources so as to avoid [… ] as far as possible any disturbance of the basis of international exchanges resulting from the proposed readjustment. They will arrange for such consultation for this purpose as may prove necessary with the other two Governments and the authorised agencies. 4. The French Government are moreover convinced, as are also the Governments of the United States of America and of Great Britain, that the success of the policy set forth above is linked with the development of international trade. In particular, they attach the greatest importance to action being taken without delay to relax progressively the present system of quotas and exchange controls with a view to their abolition. 5. The French Government, in common with the Governments of the United States of America and of Great Britain, desire and invite the cooperation of the other nations to realise the policy laid down in the present declaration. They trust that no country will attempt to obtain an unreasonable competitive exchange advantage and thereby hamper the effort to restore more stable economic relations which it is the aim of the three Governments to promote. ***** Statement of British Treasury relating to monetary agreement reached between Great Britain, France and United States. September 25, 1936. 1. His Majesty’s Government, after consultation with the United States Government and the French Government, join with them in affirming a common desire to foster those conditions which will safeguard peace and will best contribute to the restoration of order in international economic relations, and to pursue a policy which will tend to promote prosperity in the world and to improve the standard of living. 400

After the Gold Standard, 1931–1999 2. His Majesty’s Government must, of course, in its policy towards international monetary relations, take into full account the requirements of internal prosperity of the countries of the Empire, as corresponding considerations will be taken into account by the Governments of France and of the United States of America. They welcome this opportunity to reaffirm their purpose to continue the policy which they have pursued in the course of recent years, one constant object of which is to maintain the greatest possible equilibrium in the system of international exchanges and to avoid to the utmost extent the creation of any disturbance of that system by British monetary action. His Majesty’s Government share with the Governments of France and the United States the conviction that the continuation of this two-fold policy will serve the general purpose which all Governments should pursue. 3. The French Government inform His Majesty’s Government that, judging that the desired stability of the principal currencies cannot be ensured on a […] solid basis except after the reestablishment of a lasting equilibrium between the various economic systems, they have decided with this object to propose to their Parliament the readjustment of their currency. His Majesty’s Government have, as also the United States Government, welcomed this decision in the hope that it will establish more solid foundations for the stability of international economic relations. His Majesty’s Government, as also the Governments of France and of the United States of America, declare their intention to continue to use the appropriate available resources so as to avoid as far as possible any disturbance of the basis of international exchanges resulting from the proposed readjustment. They will arrange for such consultation for this purpose as may prove necessary with the other two Governments and the authorised agencies. 4. His Majesty’s Government are moreover convinced, as are also the Governments of France and the United States of America, that the success of the policy set forth above is linked with the development of international trade. In particular, they attach the greatest importance to action being taken without delay to relax progressively the present system of quotas and exchange controls with a view to their abolition. 5. His Majesty’s Government, in common with the Governments of France and the United States of America, desire and invite the cooperation of the other nations to realise the policy laid down in the present declaration. They trust that no country will attempt to obtain an unreasonable competitive exchange advantage and thereby hamper the effort to restore more stable economic relations which it is the aim of the three Governments to promote. ***** 401

The Monetary History of Gold Statement of United States’ Secretary of the Treasury announcing the monetary agreement reached between United States, France and Great Britain. September 25, 1936. By authority of the President, the Secretary of the Treasury makes the following statement: 1. The Government of the United States, after consultation with the British Government and the French Government, joins with them in affirming a common desire to foster those conditions which safeguard peace and will best contribute to the restoration of order in international economic relations and to pursue a policy which will tend to promote prosperity in the world and to improve the standard of living of peoples. 2. The Government of the United States must, of course, in its policy toward international monetary relations take into full account the requirements of internal prosperity, as corresponding considerations will be taken into account by the Governments of France and Great Britain; it welcomes this [… ] opportunity to reaffirm Its purpose to continue the policy which it has pursued in the course of recent years, one constant object of which is to maintain the greatest possible equilibrium in the system of international exchange and to avoid to the utmost extent the creation of any disturbance of that system by American monetary action. The Government of the United States shares with the governments of France and Great Britain the conviction that the continuation of this two-fold policy will serve the general purpose which all the governments should pursue. 3. The French Government informs the United States Government that, judging that the desired stability of the principal currencies cannot be insured on a solid basis except after the reestablishment of a lasting equilibrium between the various economic systems, it has decided with this object to propose to its Parliament the readjustment of its currency. The Government of the United States, as also the British Government, has welcomed this decision in the hope that it will establish more solid foundations for the stability of international economic relations. The United States Government, as also the British and French Governments, declares its intention to continue to use appropriate available resources so as to avoid as far as possible any disturbance of the basis of international exchange resulting from the proposed readjustment. It will arrange for such consultation for this purpose as may prove necessary with the other two governments and their authorised agencies. 4. The Government of the United States is moreover convinced, as are also the governments of France and Great Britain, that the success of the policy set forth above is linked with the development of international trade. In particular it attaches the greatest importance to action being taken without delay to 402

After the Gold Standard, 1931–1999 relax progressively the present system of quotas and exchange controls with a view to their abolition. 5. The Government of the United States, in common with the Governments of France and Great Britain, desires and invites the cooperation of the other nations to realise the policy laid down in the present declaration. It trusts that no country will attempt to obtain an unreasonable competitive exchange advantage and thereby hamper the effort to restore more stable economic relations, which it is the aim of the three governments to promote. [… ] ***** Statement of United States’ Secretary of Treasury of October 13, 1936, regarding sale of gold for export. Supplementing the announcements made by him on January 31 and February 1, 1934, to the effect that the Treasury would buy gold, and on January 31, 1934, referring to the sale of gold for export, the Secretary of the Treasury states that (hereafter, and until, on twenty-four hours’ notice, this statement of intention may be revoked or altered) the United States will also sell gold for immediate export to, or earmark for the account of, the exchange equalisation or stabilisation funds of those countries whose funds likewise are offering to sell gold to the United States, provided such offerings of gold are at such rates and upon such terms and conditions as the Secretary may deem most advantageous to the public interest. The Secretary announces herewith, and will hereafter announce daily, the names of the foreign countries complying with the foregoing conditions. All such sales of gold will be made through the Federal Reserve Bank of New York, as fiscal agent of the United States, upon the following terms and conditions which the Secretary of the Treasury deems most advantageous to the public interest: Sales of gold will be made at $35 per fine ounce plus one-quarter per cent handling charge, and sales and earmarking will be governed by the regulations issued under the Gold Reserve Act of 1934. ***** Statement of United States’ Secretary of Treasury of October 13, 1936, relating to foreign countries complying with the conditions specified for selling gold for export. The Secretary of the Treasury today named Great Britain and France as complying with the conditions specified in his press release of October 13, 1936, for the purchase of gold from the United States for immediate export or earmark. 403

27 September 1936 Swiss Federal Council Decree, 1936

This is a translation of the Swiss Federal Council decree that abandoned the gold standard in 1936. The decree suspended the obligation of the Swiss National Bank to redeem its notes in gold and devalued the Swiss franc in terms of gold. However, the Swiss National Bank remained under an obligation to back the currency in circulation with a set proportion of gold in its vaults. Source: London, Bank of England Archives, OV48/10.

TRANSLATION DECREE OF THE FEDERAL COUNCIL INSTITUTING CURRENCY MEASURES (dated 27 September 1936) Under Art. 53, par.l, of the Federal Decree of 31st January 1936, relating to new extraordinary measures for the restoration of equilibrium in the Federal Budgets of 1936 and 1937, the Swiss Federal Council decrees: Art. 1. The bank notes of the National Bank of Switzerland are declared legal tender. Consequently all payments made by means of these bank notes constitute a full discharge in the country. Art. 2. The National Bank of Switzerland is released from the obligation to repay its notes in gold or gold foreign exchange as laid down in rts.20 and 20bis of the Federal Law of 7th April 1921/20th December 1929 on the National Bank of Switzerland. It is, however, obliged to maintain their legal cover. Art.3. The National Bank of Switzerland has been commissioned to maintain the gold parity of the franc between 190 and 215 milligrammes fine gold, which equals an average devaluation of the franc of 30 per cent. Art.4. This decree comes into force on the 28th September BERNE, 27th September 1936. In the name of the Swiss Federal Council: President of the Confederation, MEYER Chancellor of the Confederation, G. BOVET. 404

5 October 1936 Memorandum to the Governor of the Bank of England concerning the Devaluation of the Italian Lira by forty per cent

In 1936, most of the countries that remained on the gold standard were forced to devalue. This excerpt from the Bank of England’s archives reports a conversation relating to the devaluation of the Italian lira in October 1936. Source: London, Bank of England Archives, OV48/10, 1539/1, No. 67.

Mr Capodanno called this afternoon on instructions from Signor Azzolini to communicate to you the decision taken this morning by the Italian Government. The Italian lira is to be devalued by approximately 40 per cent, which will mean new rates of about $1 = L.19 and £1 = L.90. The lira will be given a new gold content on this basis, but the Head of Government will have discretion to effect a further devaluation of not more than 10 per cent if this should prove necessary. Mr Capodanno pointed out that this decision brings the lira into line with the £ and the $ at the rates settled at the time of the stabilisation of the lira in 1927. Mr Capodanno does not anticipate a return to convertibility or any other essential change in the present monetary régime. He has no information about the future of the tourist lire. A number of subsidiary decrees have been published to prevent undue increase in costs, etc.

405

7 October 1936 Report on the Devaluation of the Italian Lira, issued by the Overseas and Foreign Department

This Report links the devaluation of the lira explicitly to the rate at which the US dollar was devalued in 1934. It reflects the shift of international financial and economic predominance from London to New York (and from Great Britain to the United States). Source: London, Bank of England Archives, OV48/10, 1539/1, No. 69.

By decree dated 5th October, the gold content of the lira is reduced from 7.919 gr. fine to 4.6777 gr. fine per lire 100. The devaluation is thus one of 40.94 per cent and corresponds exactly with that of the dollar. The fact that, as in the case of the US, provision has been made for a further depreciation of about 10 per cent suggests that the attempt is to maintain a stable lira – dollar rate of about lire 19 to the $ (the old gold parity rate was 18.9989). The profit of the Banca d’Italia’s gold holding is to be credited to the Treasury. It is estimated by Italian sources at about lire 1 milliard. In order to prevent a rise in prices, the ad valorem duty of 10/15 per cent on all imports has been abolished, and reductions amounting in certain cases to 50 per cent of specific duties over and above the ad valorem duty will also be effected. The ‘tourist’ lira and the export subsidy of 15 per cent will presumably disappear as a result of the devaluation. However, the ‘tourist’ lira is at present available at 100 to the £ as compared with 82.10 before devaluation.

406

7 October 1936 Bank of England Memorandum on the Devaluation of the French Franc

The French devaluation was accompanied by a series of fiscal and monetary measures which are listed in this excerpt. Source: London, Bank of England Archives, OV48/10, 1539/1, No. 70.

Gold standard suspended by Law of 1st October 1936 promulgated 3rd October. New gold franc to be defined later – depreciation not to be less than 25.19 per cent nor more than 34.35 per cent. Bank of France and Colonial Central Banks to revalue gold and exchange now on the basis of 25.19 per cent depreciation. Profit to Treasury (Fcs 16/17 milliards) of which Fcs 10 milliards to form Exchange Account. All gold transactions subject to Bank of France authorisation. Compulsory declaration of gold and devisen dealings 1–26 September. 50 per cent tax on profits on forward Bourse bargains dated 21–26 September. Suppression of all remaining Laval economy ‘cuts’ of 1935. Compulsory arbitration in cases of marked rise in cost of living by 31st December. Powers taken to compensate ‘rentiers’ if necessary. Treasury to advance Fcs 3 milliards to reduce interest rates on mortgages.

407

7 October 1936 Reuters News Wire Report, from Belgrade, on the likely Adjustment of the Yugoslav Dinar

Source: London, Bank of England Archives, OV48/10, 1539/1, No. 70.

While official statements have been made that the dinar will not follow the franc and other foreign currencies which have been devalued recently, it is rumoured in normally well-informed circles that the dinar will be allowed quietly and gradually to sink to the level which will allow of the continued exporting of Yugoslav produce to countries which have devalued. On the exchange the dinar has fallen but slightly, but on the unofficial market outside the exchange, where the £ fell immediately after the fall of the franc rate to as low as 210 dinars, there has been a steady upward movement of the £ to 245. It is believed the dinar may fall to its former level of 275 per £. Now that the Italian lira has been devalued it is almost certain that the dinar must be allowed to sink to a similar level so that trade between the countries on the basis of the recently concluded trade agreement can be carried on unhindered. A jump in the price of gold on the open market in Yugoslavia is felt to confirm this belief that the dinar is to be allowed to fall gradually to a level comparable to that of the French and Swiss francs and the Italian lira. As the dinar rate has for many years been an artificial rate strictly controlled by intervention of the national bank, this readjustment can be made easily and without perturbation in the money market.

408

28 October 1936 Declaration of the Swiss Government, through the Federal Finance and Customs Department, and the National Bank of Switzerland regarding the Purchase and Sale of Gold

Source: London, Bank of England Archives, OV48/10, 1539/1, No. 84.

The Swiss Government, represented by the head of the Federal Finance and Customs Department, and the National Bank of Switzerland, represented by its Direktorium, hereby declare and confirm to the Government of the United States of America: 1.) In conformity with the federal law of 7th April 1921/20th December 1929 regarding the National Bank of Switzerland, the National Bank of Switzerland is required to maintain the gold cover of its notes in circulation at a level of at least 40 per cent. The Bank had also to redeem its notes either in gold or in gold currency of a country having a free gold market, the rate of conversion into such gold currencies being calculated on the basis of the rate of exchange at the time of the operation. In accordance with its ‘Business Conditions’ the Bank had the further obligation of purchasing gold from banks of issue at the price Fr.3,429.44 per kg. of fine gold and of selling it at the price of Fr.3,444.44 per kg. of fine gold. 2.) By the terms of the Decree of the Federal Council of 27th September 1936 the Bank is released from the obligation to redeem its notes in gold or gold foreign exchange; on the other hand it is still obliged to maintain the legal cover of the notes. It is also required to maintain the gold parity of the franc at a value between 190 and 215 milligrams of fine gold. By special instructions from the Federal Council the Bank is directed to keep the franc at a level corresponding to a devaluation of approximately 30 per cent in relation to the parity fixed by the federal monetary law of 3rd June 1931. 3.) In dealing with the United States of America the Bank undertakes, in virtue of the Decree of the Federal Council of 27th September 1936 and until

409

The Monetary History of Gold further notice, to sell gold at Fr.4,973.92 per kg. of fine gold taken in Berne and to buy gold at Fr.4,869.80 per fine kg. of fine gold delivered in Berne. The Bank makes this declaration in reliance upon the declaration of the reciprocity contained in the Statement dated 12th October 1936 of Mr Morganthau, Secretary of the Treasury, whereby the United States of America undertake to buy and sell gold on the basis of 35 dollars per ounce of fine gold. In the said Statement the United States of America reserved the right to cancel their declaration at any time on giving twenty-four hours’ notice; the National Bank of Switzerland has a similar right. 4.) The Bank effects its gold operations either for its own account or for account of a special equalisation fund intended to keep the exchange between the new limits by means of purchases and sales of gold and foreign exchange. The Bank has the sole right of disposition in respect to this fund. ***** In witness whereof the present declaration has been signed for despatch to the Secretary of the Treasury in Washington.

410

2 November 1936 Table of Currency Devaluations in the United States and Europe following the Devaluation of the Pound in 1931

Source: London, Bank of England Archives, OV48/11, 1539/2, No. 1. Note that the table itself is undated, but it accompanies a memorandum dated 2 November 1936.

Country

Date

United Kingdom

21st Sept. 1931

USA.

Gold Embargo March 1933 Devaluation Jan. 1934 26th Sept. 1936

France

Italy

Switzerland

Austria

Rate on Sterling Before After

Depreciation¹ 40%

Rate rose gradually from 3.4 – 5.0 between Mar. 1933 and Jan. 1934 75 105

41%

30%

5th Oct. 1936

64

93

41%

26th Sept. 1936

15

21

30%

De facto not de jure devaluation during 1st half of 1932

22

27

22%

411

Comments Immediate depreciation 30%. Gradually increased to 40% in July 1934. Gold content of dollar reduced by 41% with power to reduce it up to 50% of old parity. Bill passed to devalue franc between 25% – 34%. Lira devalued on same conditions as dollar. Swiss franc devalued by same proportion as French franc.

The Monetary History of Gold Hungary

No official devaluation

17

(33 In December 1935 1/3%) premium on free foreign exchange was unified at 50% = a de facto depreciation of 33 1/3%. Greece 16th Apr. 1932 297 550 59% Linked to sterling from 28th Sept. 1936. Sweden 28th Sept. 1931 40% Linked to sterling. Esthonia 18th June 1933 13 18 40% Linked to sterling. Danzig 2nd May 1935 18 26 42% Czechoslovakia 17th Feb. 1934 104 122 16% Devaluation limits 9th Oct. 1936 122 138 16% 27.75% – 32.32%. =30% Yugoslavia No official devaluation. Unofficial premium on sterling 35% up to 26th September, giving rate of 239: thereafter 50% giving rate of 250. National Bank sold sterling at 250 on 6th October. Poland A depreciation of 25% would give a rate of 32.3 A depreciation of 30% would give a rate of 34.0 ¹ Present depreciation on old gold parity.

412

(17 + 50% pre = 25.5)

1937–9 Reports of Machinery and Technical Transport Ltd., International Shipping and Forwarding Agents, ‘Ling House’, South Street, Finsbury Pavement, London EC2, to the Bank of England, Foreign Exchange Department, for the attention of Mr Bolton, with Attachments, concerning Movements in Gold

Source: London, Bank of England Archives, C43/142, 1945/4, Nos. 21, 41a, 43a– 43c, 159.

EDITOR’S NOTE: In response to a request from the Bank of England, evidently in regard to the Bank’s concern over the movement of gold between Switzerland and Italy, Machinery and Technical Transport delivered these reports, based on information obtained from Swiss authorities, concerning gold movements to and from Switzerland. The report in no. 21 indicates that large amounts of gold were exported from Switzerland to Germany in February (12,704 kilos), May (820 kilos), June (666 kilos) of 1937, although no shipments were received in Switzerland of gold in amounts greater than five hundred kilos in any month during the same period. The report also attests to a continuous flight of large amounts of gold from Czechoslovakia to Switzerland from January to May 1937, and additional imports into Switzerland from Czechoslovakia in November of that year, while there was no month during the period from January 1937 to March 1938 in which Czechoslovakia imported more than five hundred kilos from Switzerland. The report in no. 41a indicates that Germany imported into Switzerland only thirty-nine kilos of gold from the beginning of January to the end of June 1938 while exporting during the same period 17,692 kilos. The report in no. 159 indicates that imports of gold from Germany into Switzerland during the first nine months of 1939 amounted to 1826 kilos, while exports from Switzerland to Germany amounted to 24,021 kilos.

413

31 August 1939 Letter of N. M. Rothschild & Sons, giving the Price of Gold at the Time of the Morning Fixing, to the Chief Cashier of the Bank of England, on Letterhead of the Royal Mint Refinery, New Court, St Swithin’s Lane, London EC4

Less than twenty-four hours after the letter had been sent, Germany attacked Poland, and two days after that, Britain and France declared war on Germany. With the start of the Second World War, gold was no longer traded on open markets in the United Kingdom. Source: London, Bank of England Archives, C43/142, 1945/4, No. 129.

We have pleasure in informing you that at the time of fixing the price of Gold this morning, the market estimated that the price of 159/- represented a discount of 3d. per fine ounce, calculated at a dollar rate of 4.36½.

414

26 June 1940 Bank of England Memorandum, consisting of a Report on the Distribution of Gold Reserves of Countries occupied by Germany to determine the Quantity that may have fallen into German Hands

During the Second World War, as Germany occupied many of its neighbouring countries, the fate of their gold reserves became a matter of great importance to the British Government. This excerpt is one attempt to establish the location of gold owned by governments that were occupied by Germany Source: London, Bank of England Archives, OV48/12, 1539/3, No. 39a.

(£ millions) BELGIUM

DENMARK

FRANCE

NORWAY

Total holding (1.5.40) of which:

195 At Bank of England (18.6.40) USA. (probably) Unknown (possibly in France)

Total holding (30.3.40) of which: USA. (possibly) Denmark (probably) Total holding (30.5.40) of which: At Bank of England (18.6.40) Canada (possibly) Unknown (bulk probably on way to USA.) Total holding (30.3.40) of which: At Bank of England (18.6.40) Unknown (probably all in U.K. and USA.)

* Fairly certain that none fell into German hands.

415

87 42 66 13 1 12 480 70 170 240 20 2½ 17½*

26 June 1940 Bank of England Memorandum, giving Estimates of the Amount of Gold from Occupied Countries that may have fallen into German Hands

This excerpt provides an explicit assessment of how much gold the German government might have been able to seize. Source: London, Bank of England Archives, OV48/12, 1539/3, No. 39b.

SECRET Germany may have been able to seize the following amounts of gold from the Central Banks of the invaded countries:– £ millions 12 nil 40

Denmark Norway Holland

Probably Practically Possibly

Belgium

Possibly

66

France

If shipments to America went as intended, they should have been practically completed prior to the fall of the Reynaud Government. Thus the amount was practically

nil

416

In addition, a very small amount belonging to the Exchange Account. This was the amount believed to be on the Franco-Belgian frontier on the 10th May. although we have no definite information of the whereabouts of 410. In addition we have no information about the holding of the Exchange Fund.

19 July 1940 Bank of England Memorandum, giving updated Estimates of French, Belgian and Polish Gold Holdings at the Time of the German Occupation

With the exception of 130 tonnes of French gold, most of the gold held by France, Belgium and Poland seemed to be out of reach of the German occupation authorities. The Belgian and Polish gold listed in Dakar was under the control of the Vichy regime. Source: London, Bank of England Archives, OV48/12, 1539/3, No. 40. (all figures in £mn.) France

(Bank of France only) Bank of England Canada Martinique USA.

Unknown

about

Bank of England USA. Dakar

probably

70 94 61 127 —— 352 130 —— 482 ====

Belgium

417

87 42 66 —— 195 ====

The Monetary History of Gold Poland Bank of England Sweden Roumania Dakar

2.8* 1.3 0.8 16.3 —— 21.2 ====

* subsequently £0.5mn. to N. York and £2.3mn swapped against gold in Ottawa.

418

22 July 1944 Articles of Agreement of the International Monetary Fund, 1944

The United Nations Monetary and Financial Conference held at Bretton Woods in July 1944 concluded with the creation of the IMF. These excerpts contain the major articles dealing with the objectives and obligations of the member states as well as the articles relating to the relationship between gold, the dollar and other currencies of member states. Source: House of Commons, House of Commons Parliamentary Papers, 1945–6 (London: House of Commons, 1946), vol. 26, cmnd. 6885, pp. 757–811. See also J. Keith Horsefield (ed.), The International Monetary Fund, 1945–1965: Twenty Years of International Monetary Cooperation, vol. III: Documents (Washington: International Monetary Fund, 1969), pp. 187–213.

The Governments on whose behalf the present Agreement is signed agree as follows: INTRODUCTORY ARTICLE The International Monetary Fund is established and shall operate in accordance with the following provisions: ARTICLE I. PURPOSES The purposes of the International Monetary Fund are: (i.) To promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems. (ii.) To facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy. (iii.) To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation. 419

The Monetary History of Gold (iv.) To assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade. (v.) To give confidence to members by making the Fund’s resources available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity. (vi.) In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members. The Fund shall be guided in all its decisions by the purposes set forth in this Article. ARTICLE II. MEMBERSHIP SECTION 1. Original members. – The original members of the Fund shall be those of the countries represented at the United Nations Monetary and Financial Conference whose governments accept membership before the date specified in Article XX, Section 2 (e). SECTION 2. Other members. – Membership shall be open to the governments of other countries at such times and in accordance with such terms as may be prescribed by the Fund.

ARTICLE III. QUOTAS AND SUBSCRIPTIONS SECTION 1. Quotas. – Each member shall be assigned a quota. The quotas of the members represented at the United Nations Monetary and Financial Conference which accept membership before the date specified in Article XX, Section 2 (e), shall be those set forth in Schedule A. The quotas of other members shall be determined by the Fund. SECTION 2. Adjustment of quotas. – The Fund shall at intervals of five years review, and if it deems it appropriate propose an adjustment of, the quotas of the members. It may also, if it thinks fit, consider at any other time the adjustment of any particular quota at the request of the member concerned. A fourfifths majority of the total voting power shall be required for any change in quotas and no quota shall be changed without the consent of the member concerned. SECTION 3. Subscriptions: time, place, and form of payment. – (a) The subscription of each member shall be equal to its quota and shall be paid in full to the Fund at the appropriate depository on or before the date when the member becomes eligible under Article XX, Section 4 (c) or (d), to buy currencies from the Fund.

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After the Gold Standard, 1931–1999 (b) Each member shall pay in gold, as a minimum, the smaller of (i.) twenty-five percent of its quota; or (ii.) ten percent of its net official holdings of gold and United States dollars as at the date when the Fund notifies members under Article XX, Section 4 (a) that it will shortly be in a position to begin exchange transactions. Each member shall furnish to the Fund the data necessary to determine its net official holdings of gold and United States dollars. (c) Each member shall pay the balance of its quota in its own currency. (d) If the net official holdings of gold and United States dollars of any member as at the date referred to in (b) (ii.) above are not ascertainable because its territories have been occupied by the enemy, the Fund shall fix an appropriate alternative date for determining such holdings. If such date is later than that on which the country becomes eligible under Article XX, Section 4 (c) or (d), to buy currencies from the Fund, the Fund and the member shall agree on a provisional gold payment to be made under (b) above, and the balance of the member’s subscription shall be paid in the member’s currency, subject to appropriate adjustment between the member and the Fund when the net official holdings have been ascertained. SECTION 4. Payments when quotas are changed. – (a) Each member which consents to an increase in its quota shall, within thirty days after the date of its consent, pay to the Fund twenty-five percent of the increase in gold and the balance in its own currency. If, however, on the date when the member consents to an increase, its monetary reserves are less than its new quota, the Fund may reduce the proportion of the increase to be paid in gold. (b) If a member consents to a reduction in its quota, the Fund shall, within thirty days after the date of the consent, pay to the member an amount equal to the reduction. The payment shall be made in the member’s currency and in such amount of gold as may be necessary to prevent reducing the Fund’s holdings of the currency below seventy-five percent of the new quota. SECTION 5. Substitution of securities for currency. – The Fund shall accept from any member in place of any part of the member’s currency which in the judgment of the Fund is not needed for its operations, notes or similar obligations issued by the member or the depository designated by the member under Article XIII, Section 2, which shall be non-negotiable, non-interest bearing and payable at their par value on demand by crediting the account of the Fund in the designated depository. This Section shall apply not only to currency subscribed by members but also to any currency otherwise due to, or acquired by, the Fund. 421

The Monetary History of Gold ARTICLE IV. PAR VALUES OF CURRENCIES 1. Expression of par values. – (a) The par value of the currency of each member shall be expressed in terms of gold as a common denominator or in terms of the United States dollar of the weight and fineness in effect on July 1, 1944. (b) All computations relating to currencies of members for the purpose of applying the provisions of this Agreement shall be on the basis of their par values. SECTION 2. Gold purchases based on par values. – The Fund shall prescribe a margin above and below par value for transactions in gold by members, and no member shall buy gold at a price above par value plus the prescribed margin, or sell gold at a price below par value minus the prescribed margin. SECTION 3. Foreign exchange dealings based on parity. – The maximum and the minimum rates for exchange transactions between the currencies of members taking place within their territories shall not differ from parity (i.) in the case of spot exchange transactions, by more than one percent; and (ii.) in the case of other exchange transactions, by a margin which exceeds the margin for spot exchange transactions by more than the Fund considers reasonable. SECTION 4. Obligations regarding exchange stability. – (a) Each member undertakes to collaborate with the Fund to promote exchange stability, to maintain orderly exchange arrangements with other members, and to avoid competitive exchange alterations. (b) Each member undertakes, through appropriate measures consistent with this Agreement, to permit within its territories exchange transactions between its currency and the currencies of other members only within the limits prescribed under Section 3 of this Article. A member whose monetary authorities, for the settlement of international transactions, in fact freely buy and sell gold within the limits prescribed by the Fund under Section 2 of this Article shall be deemed to be fulfilling this undertaking. SECTION 5. Changes in par values. – (a) A member shall not propose a change in the par value of its currency except to correct a fundamental disequilibrium. (b) A change in the par value of a member’s currency may be made only on the proposal of the member and only after consultation with the Fund. (c) When a change is proposed, the Fund shall first take into account the changes, if any, which have already taken place in the initial par value of the member’s currency as determined under Article XX, Section 4. If the SECTION

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After the Gold Standard, 1931–1999 proposed change, together with all previous changes, whether increases or decreases, (i.) does not exceed ten percent of the initial par value, the Fund shall raise no objection; (ii.) does not exceed a further ten percent of the initial par value, the Fund may either concur or object, but shall declare its attitude within seventy-two hours if the member so requests; (iii.) is not within (i.) or (ii.) above, the Fund may either concur or object, but shall be entitled to a longer period in which to declare its attitude. (d) Uniform changes in par values made under Section 7 of this Article shall not be taken into account in determining whether a proposed change falls within (i.), (ii.), or (iii.) of (c) above. (e) A member may change the par value of its currency without the concurrence of the Fund if the change does not affect the international transactions of members of the Fund. (f) The Fund shall concur in a proposed change which is within the terms of (c) (ii.) or (c) (iii.) above if it is satisfied that the change is necessary to correct a fundamental disequilibrium. In particular, provided it is so satisfied, it shall not object to a proposed change because of the domestic social or political policies of the member proposing the change. SECTION 6. Effect of unauthorised changes. – If a member changes the par value of its currency despite the objection of the Fund, in cases where the Fund is entitled to object, the member shall be ineligible to use the resources of the Fund unless the Fund otherwise determines; and if, after the expiration of a reasonable period, the difference between the member and the Fund continues, the matter shall be subject to the provisions of Article XV, Section 2 (b). SECTION 7. Uniform changes in par values. – Notwithstanding the provisions of Section 5 (b) of this Article, the Fund by a majority of the total voting power may make uniform proportionate changes in the par values of the currencies of all members, provided each such change is approved by every member which has ten percent or more of the total of the quotas. The par value of a member’s currency shall, however, not be changed under this provision if, within seventy-two hours of the Fund’s action, the member informs the Fund that it does not wish the par value of its currency to be changed by such action. SECTION 8. Maintenance of gold value of the Fund’s assets. (a) The gold value of the Fund’s assets shall be maintained notwithstanding changes in the par or foreign exchange value of the currency of any member. 423

The Monetary History of Gold (b) Whenever (i.) the par value of a member’s currency is reduced, or (ii.) the foreign exchange value of a member’s currency has, in the opinion of the Fund, depreciated to a significant extent within that member’s territories, the member shall pay to the Fund within a reasonable time an amount of its own currency equal to the reduction in the gold value of its currency held by the Fund. (c) Whenever the par value of a member’s currency is increased, the Fund shall return to such member within a reasonable time an amount in its currency equal to the increase in the gold value of its currency held by the Fund. (d) The provisions of this Section shall apply to a uniform proportionate change in the par values of the currencies of all members, unless at the time when such a change is proposed the Fund decides otherwise. SECTION 9. Separate currencies within a member’s territories. – A member proposing a change in the par value of its currency shall be deemed, unless it declares otherwise, to be proposing a corresponding change in the par value of the separate currencies of all territories in respect of which it has accepted this Agreement under Article XX, Section 2 (g). It shall, however, be open to a member to declare that its proposal relates either to the metropolitan currency alone, or only to one or more specified separate currencies, or to the metropolitan currency and one or more specified separate currencies. ARTICLE V. TRANSACTIONS WITH THE FUND SECTION I. Agencies dealing with the Fund. – Each member shall deal with the Fund only through its Treasury, central bank, stabilisation fund, or other similar fiscal agency and the Fund shall deal only with or through the same agencies. SECTION 2. Limitation on the Fund’s operations. – Except as otherwise provided in this Agreement, operations on the account of the Fund shall be limited to transactions for the purpose of supplying a member, on the initiative of such member, with the currency of another member in exchange for gold or for the currency of the member desiring to make the purchase. SECTION 3. Conditions governing use of the Fund’s resources. – (a) A member shall be entitled to buy the currency of another member from the Fund in exchange for its own currency subject to the following conditions: (i.) The member desiring to purchase the currency represents that it is presently needed for making in that currency payments which are consistent with the provisions of this Agreement;

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After the Gold Standard, 1931–1999 (ii.) The Fund has not given notice under Article VII, Section 3, that its holdings of the currency desired have become scarce; (iii.) The proposed purchase would not cause the Fund’s holdings of the purchasing member’s currency to increase by more than twentyfive percent of its quota during the period of twelve months ending on the date of the purchase nor to exceed two hundred percent of its quota, but the twenty-five percent limitation shall apply only to the extent that the Fund’s holdings of the member’s currency have been brought above seventy-five percent of its quota if they had been below that amount; (iv.) The Fund has not previously declared under Section 5 of this Article, Article IV, Section 6, Article VI, Section 1, or Article XV, Section 2 (a), that the member desiring to purchase is ineligible to use the resources of the Fund. (b) A member shall not be entitled without the permission of the Fund to use the Fund’s resources to acquire currency to hold against forward exchange transactions. SECTION 4. Waiver of conditions. – The Fund may in its discretion, and on terms which safeguard its interests, waive any of the conditions prescribed in Section 3 (a) of this Article, especially in the case of members with a record of avoiding large or continuous use of the Fund’s resources. In making a waiver it shall take into consideration periodic or exceptional requirements of the member requesting the waiver. The Fund shall also take into consideration a member’s willingness to pledge as collateral security gold, silver, securities, or other acceptable assets having a value sufficient in the opinion of the Fund to protect its interests and may require as a condition of waiver the pledge of such collateral security. SECTION 5. Ineligibility to use the fund’s resources. – Whenever the Fund is of the opinion that any member is using the resources of the Fund in a manner contrary to the purposes of the Fund, it shall present to the member a report setting forth the views of the Fund and prescribing a suitable time for reply. After presenting such a report to a member, the Fund may limit the use of its resources by the member. If no reply to the report is received from the member within the prescribed time, or if the reply received is unsatisfactory, the Fund may continue to limit the member’s use of the Fund’s resources or may, after giving reasonable notice to the member, declare it ineligible to use the resources of the Fund. SECTION 6. Purchases of currencies from the fund for gold. – (a) Any member desiring to obtain, directly or indirectly, the currency of another member for gold shall, provided that it can do so with equal advantage, acquire it by the sale of gold to the Fund. 425

The Monetary History of Gold (b) Nothing in this Section shall be deemed to preclude any member from selling in any market gold newly produced from mines located within its territories. SECTION 7. Repurchase by a member of its currency held by the fund. – (a) A member may repurchase from the Fund and the Fund shall sell for gold any part of the Fund’s holdings of its currency in excess of its quota. (b) At the end of each financial year of the Fund, a member shall repurchase from the Fund with gold or convertible currencies, as determined in accordance with Schedule B, part of the Fund’s holdings of its currency under the following conditions: (i.) Each member shall use in repurchases of its own currency from the Fund an amount of its monetary reserves equal in value to onehalf of any increase that has occurred during the year in the Fund’s holdings of its currency plus one-half of any increase, or minus onehalf of any decrease, that has occurred during the year in the member’s monetary reserves. This rule shall not apply when a member’s monetary reserves have decreased during the year by more than the Fund’s holdings of its currency have increased. (ii.) If after the repurchase described in (i.) above (if required) has been made, a member’s holdings of another member’s currency (or of gold acquired from that member) are found to have increased by reason of transactions in terms of that currency with other members or persons in their territories, the member whose holdings of such currency (or gold) have thus increased shall use the increase to repurchase its own currency from the Fund. (c) None of the adjustments described in (b) above shall be carried to a point at which (i.) the member’s monetary reserves are below its quota, or (ii.) the Fund’s holdings of its currency are below seventy-five percent of its quota, or (iii.) the Fund’s holdings of any currency required to be used are above seventy-five percent of the quota of the member concerned. SECTION 8. Charges. – (a) Any member buying the currency of another member from the Fund in exchange for its own currency shall pay a service charge uniform for all members of three-fourths percent in addition to the parity price. The Fund in its discretion may increase this service charge to not more than one percent or reduce it to not less than one-half percent. (b) The Fund may levy a reasonable handling charge on any member buying gold from the Fund or selling gold to the Fund. 426

After the Gold Standard, 1931–1999 (c) The Fund shall levy charges uniform for all members which shall be payable by any member on the average daily balances of its currency held by the Fund in excess of its quota. These charges shall be at the following rates: (i.) On amounts not more than twenty-five percent in excess of the quota: no charge for the first three months; one-half percent per annum for the next nine months; and thereafter an increase in the charge of one-half percent for each subsequent year. (ii.) On amounts more than twenty-five percent and not more than fifty percent in excess of the quota: an additional one-half percent for the first year; and an additional one-half percent for each subsequent year. (iii.) On each additional bracket of twenty-five percent in excess of the quota: an additional one-half percent for the first year; and an additional one-half percent for each subsequent year. (d) Whenever the Fund’s holdings of a member’s currency are such that the charge applicable to any bracket for any period has reached the rate of four percent per annum, the Fund and the member shall consider means by which the Fund’s holdings of the currency can be reduced. Thereafter, the charges shall rise in accordance with the provisions of (c) above until they reach five percent and failing agreement, the Fund may then impose such charges as it deems appropriate. (e) The rates referred to in (c) and (d) above may be changed by a threefourths majority of the total voting power. (f) All charges shall be paid in gold. If, however, the member’s monetary reserves are less than one-half of its quota, it shall pay in gold only that proportion of the charges due which such reserves bear to one-half of its quota, and shall pay the balance in its own currency. […] ARTICLE VII. SCARCE CURRENCIES SECTION 1. General scarcity of currency. – If the Fund finds that a general scarcity of a particular currency is developing, the Fund may so inform members and may issue a report setting forth the causes of the scarcity and containing recommendations designed to bring it to an end. A representative of the member whose currency is involved shall participate in the preparation of the report.

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The Monetary History of Gold SECTION 2. Measures to replenish the fund’s holdings of scarce currencies. – The Fund may, if it deems such action appropriate to replenish its holdings of any member’s currency, take either or both of the following steps: (i.) Propose to the member that, on terms and conditions agreed between the Fund and the member, the latter lend its currency to the Fund or that, with the approval of the member, the Fund borrow such currency from some other source either within or outside the territories of the member, but no member shall be under any obligation to make such loans to the Fund or to approve the borrowing of its currency by the Fund from any other source. (ii.) Require the member to sell its currency to the Fund for gold. SECTION 3. Scarcity of the Fund’s holdings. – (a) If it becomes evident to the Fund that the demand for a member’s currency seriously threatens the Fund’s ability to supply that currency, the Fund, whether or not it has issued a report under Section 1 of this Article, shall formally declare such currency scarce and shall thenceforth apportion its existing and accruing supply of the scarce currency with due regard to the relative needs of members, the general international economic situation, and any other pertinent considerations. The Fund shall also issue a report concerning its action. (b) A formal declaration under (a) above shall operate as an authorisation to any member, after consultation with the Fund, temporarily to impose limitations on the freedom of exchange operations in the scarce currency. Subject to the provisions of Article IV, Sections 3 and 4, the member shall have complete jurisdiction in determining the nature of such limitations, but they shall be no more restrictive than is necessary to limit the demand for the scarce currency to the supply held by, or accruing to, the member in question; and they shall be relaxed and removed as rapidly as conditions permit. (c) The authorisation under (b) above shall expire whenever the Fund formally declares the currency in question to be no longer scarce. SECTION 4. Administration of restrictions. – Any member imposing restrictions in respect of the currency of any other member pursuant to the provisions of Section 3 (b) of this Article shall give sympathetic consideration to any representations by the other member regarding the administration of such restrictions. SECTION 5. Effect of other international agreements on restrictions. – Members agree not to invoke the obligations of any engagements entered into with other members prior to this Agreement in such a manner as will prevent the operation of the provisions of this Article.

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After the Gold Standard, 1931–1999 ARTICLE VIII. GENERAL OBLIGATIONS OF MEMBERS SECTION 1. Introduction. – In addition to the obligations assumed under other articles of this Agreement, each member undertakes the obligations set out in this Article. SECTION 2. Avoidance of restrictions on current payments. – (a) Subject to the provisions of Article VII, Section 3 (b), and Article XIV, Section 2, no member shall, without the approval of the Fund, impose restrictions on the making of payments and transfers for current international transactions. (b) Exchange contracts which involve the currency of any member and which are contrary to the exchange control regulations of that member maintained or imposed consistently with this Agreement shall be unenforceable in the territories of any member. In addition, members may, by mutual accord, cooperate in measures for the purpose of making the exchange control regulations of either member more effective, provided that such measures and regulations are consistent with this Agreement. SECTION 3. Avoidance of discriminatory currency practices. – No member shall engage in, or permit any of its fiscal agencies referred to in Article V, Section 1, to engage in, any discriminatory currency arrangements or multiple currency practices except as authorised under this Agreement or approved by the Fund. If such arrangements and practices are engaged in at the date when this Agreement enters into force the member concerned shall consult with the Fund as to their progressive removal unless they are maintained or imposed under Article XIV, Section 2, in which case the provisions of Section 4 of that Article shall apply. SECTION 4. Convertibility of foreign held balances. – (a) Each member shall buy balances of its currency held by another member if the latter, in requesting the purchase, represents (i.) that the balances to be bought have been recently acquired as a result of current transactions; or (ii.) that their conversion is needed for making payments for current transactions. The buying member shall have the option to pay either in the currency of the member making the request or in gold. (b) The obligation in (a) above shall not apply (i.) when the convertibility of the balances has been restricted consistently with Section 2 of this Article, or Article VI, Section 3; or (ii.) when the balances have accumulated as a result of transactions effected before the removal by a member of restrictions maintained or imposed under Article XIV, Section 2; or (iii.) when the balances have been acquired contrary to the exchange regulations of the member which is asked to buy them; or

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The Monetary History of Gold (iv.) when the currency of the member requesting the purchase has been declared scarce under Article VII, Section 3 (a); or (v.) when the member requested to make the purchase is for any reason not entitled to buy currencies of other members from the Fund for its own currency. SECTION 5. Furnishing of information. – (a) The Fund may require members to furnish it with such information as it deems necessary for its operations, including, as the minimum necessary for the effective discharge of the Fund’s duties, national data on the following matters: (i.) Official holdings at home and abroad, of (1.) gold, (2.) foreign exchange. (ii.) Holdings at home and abroad by banking and financial agencies, other than official agencies, of (1.) gold, (2.) foreign exchange. (iii.) Production of gold. (iv.) Gold exports and imports according to countries of destination and origin. (v.) Total exports and imports of merchandise, in terms of local currency values, according to countries of destination and origin. (vi.) International balance of payments, including (1.) trade in goods and services, (2.) gold transactions, (3.) known capital transactions, and (4.) other items. (vii.) International investment position, i. e., investments within the territories of the member owned abroad and investments abroad owned by persons in its territories so far as it is possible to furnish this information. (viii.) National income. (ix.) Price indices, i. e., indices of commodity prices in wholesale and retail markets and of export and import prices. (x.) Buying and selling rates for foreign currencies. (xi.) Exchange controls, i. e., a comprehensive statement of exchange controls in effect at the time of assuming membership in the Fund and details of subsequent changes as they occur. (xii.) Where official clearing arrangements exist, details of amounts awaiting clearance in respect of commercial and financial transactions, and of the length of time during which such arrears have been outstanding. (b) In requesting information the Fund shall take into consideration the varying ability of members to furnish the data requested. Members shall be under no obligation to furnish information in such detail that the affairs of individuals or corporations are disclosed. Members undertake, 430

After the Gold Standard, 1931–1999 however, to furnish the desired information in as detailed and accurate a manner as is practicable, and, so far as possible, to avoid mere estimates. (c) The Fund may arrange to obtain further information by agreement with members. It shall act as a centre for the collection and exchange of information on monetary and financial problems, thus facilitating the preparation of studies designed to assist members in developing policies which further the purposes of the Fund. SECTION 6. Consultation between members regarding existing international agreements. – Where under this Agreement a member is authorised in the special or temporary circumstances specified in the Agreement to maintain or establish restrictions on exchange transactions, and there are other engagements between members entered into prior to this Agreement which conflict with the application of such restrictions, the parties to such engagements will consult with one another with a view to making such mutually acceptable adjustments as may be necessary. The provisions of this Article shall be without prejudice to the operation of Article VII, Section 5. […] ARTICLE XIII. OFFICES AND DEPOSITORIES SECTION 1. Location of offices. – The principal office of the Fund shall be located in the territory of the member having the largest quota, and agencies or branch offices may be established in the territories of other members. SECTION 2. Depositories. – (a) Each member country shall designate its central bank as a depository for all the Fund’s holdings of its currency, or if it has no central bank it shall designate such other institution as may be acceptable to the Fund. (b) The Fund may hold other assets, including gold, in the depositories designated by the five members having the largest quotas and in such other designated depositories as the Fund may select. Initially, at least one-half of the holdings of the Fund shall be held in the depository designated by the member in whose territories the Fund has its principal office and at least forty percent shall be held in the depositories designated by the remaining four members referred to above. However, all transfers of gold by the Fund shall be made with due regard to the costs of transport and anticipated requirements of the Fund. In an emergency the Executive Directors may transfer all or any part of the Fund’s gold holdings to any place where they can be adequately protected. SECTION 3. Guarantee of the Fund’s assets. – Each member guarantees all assets of the Fund against loss resulting from failure or default on the part of the depository designated by it.

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The Monetary History of Gold ARTICLE XIV. TRANSITIONAL PERIOD SECTION 1. Introduction. – The Fund is not intended to provide facilities for relief or reconstruction or to deal with international indebtedness arising out of the war. SECTION 2. Exchange restrictions. – In the post-war transitional period members may, notwithstanding the provisions of any other articles of this Agreement, maintain and adapt to changing circumstances (and, in the case of members whose territories have been occupied by the enemy, introduce where necessary) restrictions on payments and transfers for current international transactions. Members shall, however, have continuous regard in their foreign exchange policies to the purposes of the Fund; and, as soon as conditions permit, they shall take all possible measures to develop such commercial and financial arrangements with other members as will facilitate international payments and the maintenance of exchange stability. In particular, members shall withdraw restrictions maintained or imposed under this Section as soon as they are satisfied that they will be able, in the absence of such restrictions, to settle their balance of payments in a manner which will not unduly encumber their access to the resources of the Fund. SECTION 3. Notification to the Fund. – Each member shall notify the Fund before it becomes eligible under Article XX, Section 4 (c) or (d), to buy currency from the Fund, whether it intends to avail itself of the transitional arrangements in Section 2 of this Article, or whether it is prepared to accept the obligations of Article VIII, Sections 2, 3, and 4. A member availing itself of the transitional arrangements shall notify the Fund as soon thereafter as it is prepared to accept the above-mentioned obligations. SECTION 4. Action of the Fund relating to restrictions. – Not later than three years after the date on which the Fund begins operations and in each year thereafter, the Fund shall report on the restrictions still in force under Section 2 of this Article. Five years after the date on which the Fund begins operations, and in each year thereafter, any member still retaining any restrictions inconsistent with Article VIII, Sections 2, 3, or 4, shall consult the Fund as to their further retention. The Fund may, if it deems such action necessary in exceptional circumstances, make representations to any member that conditions are favorable for the withdrawal of any particular restriction, or for the general abandonment of restrictions, inconsistent with the provisions of any other article of this Agreement. The member shall be given a suitable time to reply to such representations. If the Fund finds that the member persists in maintaining restrictions which are inconsistent with the purposes of the Fund, the member shall be subject to Article XV, Section 2 (a).

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After the Gold Standard, 1931–1999 SECTION. 5. Nature of transitional period. – In its relations with members, the Fund shall recognise that the post-war transitional period will be one of change and adjustment and in making decisions on requests occasioned thereby which are presented by any member it shall give the member the benefit of any reasonable doubt. […]

ARTICLE XX. FINAL PROVISIONS SECTION 1. Entry into force. – This Agreement shall enter into force when it has been signed on behalf of governments having sixty-five percent of the total of the quotas set forth in Schedule A and when the instruments referred to in Section 2 (a) of this Article have been deposited on their behalf, but in no event shall this Agreement enter into force before May 1, 1945. SECTION 2. Signature. – (a) Each government on whose behalf this Agreement is signed shall deposit with the Government of the United States of America an instrument setting forth that it has accepted this Agreement in accordance with its law and has taken all steps necessary to enable it to carry out all of its obligations under this Agreement. (b) Each government shall become a member of the Fund as from the date of the deposit on its behalf of the instrument referred to in (a) above, except that no government shall become a member before this Agreement enters into force under Section 1 of this Article. (c) The Government of the United States of America shall inform the governments of all countries whose names are set forth in Schedule A, and all governments whose membership is approved in accordance with Article II, Section 2, of all signatures of this Agreement and of the deposit of all instruments referred to in (a) above. (d) At the time this Agreement is signed on its behalf, each government shall transmit to the Government of the United States of America one one-hundredth of one percent of its total subscription in gold or United States dollars for the purpose of meeting administrative expenses of the Fund. The Government of the United States of America shall hold such funds in a special deposit account and shall transmit them to the Board of Governors of the Fund when the initial meeting has been called under Section 3 of this Article. If this Agreement has not come into force by December 31, 1945, the Government of the United States of America shall return such funds to the governments that transmitted them.

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The Monetary History of Gold (e) This Agreement shall remain open for signature at Washington on behalf of the governments of the countries whose names are set forth in Schedule A until December 31, 1945. (f) After December 31, 1945, this Agreement shall be open for signature on behalf of the government of any country whose membership has been approved in accordance with Article II, Section 2. (g) By their signature of this Agreement, all governments accept it both on their own behalf and in respect of all their colonies, overseas territories, all territories under their protection, suzerainty, or authority and all territories in respect of which they exercise a mandate. (h) In the case of governments whose metropolitan territories have been under enemy occupation, the deposit of the instrument referred to in (a) above may be delayed until one hundred eighty days after the date on which these territories have been liberated. If, however, it is not deposited by any such government before the expiration of this period the signature affixed on behalf of that government shall become void and the portion of its subscription paid under (d) above shall be returned to it. (i.) Paragraphs (d) and (h) shall come into force with regard to each signatory government as from the date of its signature. SECTION 3. Inauguration of the fund. – (a) As soon as this Agreement enters into force under Section 1 of this Article, each member shall appoint a governor and the member having the largest quota shall call the first meeting of the Board of Governors. (b) At the first meeting of the Board of Governors, arrangements shall be made for the selection of provisional executive directors. The governments of the five countries for which the largest quotas are set forth in Schedule A shall appoint provisional executive directors. If one or more of such governments have not become members, the executive directorships they would be entitled to fill shall remain vacant until they become members, or until January 1, 1946, whichever is the earlier. Seven provisional executive directors shall be elected in accordance with the provisions of Schedule C and shall remain in office until the date of the first regular election of executive directors which shall be held as soon as practicable after January 1, 1946. (c) The Board of Governors may delegate to the provisional executive directors any powers except those which may not be delegated to the Executive Directors. SECTION 4. Initial determination of par values. – (a) When the Fund is of the opinion that it will shortly be in a position to begin exchange transactions, it shall so notify the members and shall 434

After the Gold Standard, 1931–1999 request each member to communicate within thirty days the par value of its currency based on the rates of exchange prevailing on the sixtieth day before the entry into force of this Agreement. No member whose metropolitan territory has been occupied by the enemy shall be required to make such a communication while that territory is a theater of major hostilities or for such period thereafter as the Fund may determine. When such a member communicates the par value of its currency the provisions of (d) below shall apply. (b) The par value communicated by a member whose metropolitan territory has not been occupied by the enemy shall be the par value of that member’s currency for the purposes of this Agreement unless, within ninety days after the request referred to in (a) above has been received, (i.) the member notifies the Fund that it regards the par value as unsatisfactory, or (ii.) the Fund notifies the member that in its opinion the par value cannot be maintained without causing recourse to the Fund on the part of that member or others on a scale prejudicial to the Fund and to members. When notification is given under (i.) or (ii.) above, the Fund and the member shall, within a period determined by the Fund in the light of all relevant circumstances, agree upon a suitable par value for that currency. If the Fund and the member do not agree within the period so determined, the member shall be deemed to have withdrawn from the Fund on the date when the period expires. (c) When the par value of a member’s currency has been established under (b) above, either by the expiration of ninety days without notification, or by agreement after notification, the member shall be eligible to buy from the Fund the currencies of other members to the full extent permitted in this Agreement, provided that the Fund has begun exchange transactions. (d) In the case of a member whose metropolitan territory has been occupied by the enemy, the provisions of (b) above shall apply, subject to the following modifications: (i.) The period of ninety days shall be extended so as to end on a date to be fixed by agreement between the Fund and the member. (ii.) Within the extended period the member may, if the Fund has begun exchange transactions, buy from the Fund with its currency the currencies of other members, but only under such conditions and in such amounts as may be prescribed by the Fund. (iii.) At any time before the date fixed under (i.) above, changes may be made by agreement with the Fund in the par value communicated under (a) above. 435

The Monetary History of Gold (e) If a member whose metropolitan territory has been occupied by the enemy adopts a new monetary unit before the date to be fixed under (d) (i.) above, the par value fixed by that member for the new unit shall be communicated to the Fund and the provisions of (d) above shall apply. (f) Changes in par values agreed with the Fund under this Section shall not be taken into account in determining whether a proposed change falls within (i.), (ii.), or (iii.) of Article IV, Section 5 (c). (g) A member communicating to the Fund a par value for the currency of its metropolitan territory shall simultaneously communicate a value, in terms of that currency, for each separate currency, where such exists, in the territories in respect of which it has accepted this Agreement under Section 2 (g) of this Article, but no member shall be required to make a communication for the separate currency of a territory which has been occupied by the enemy while that territory is a theater of major hostilities or for such period thereafter as the Fund may determine. On the basis of the par value so communicated, the Fund shall compute the par value of each separate currency. A communication or notification to the Fund under (a), (b) or (d) above regarding the par value of a currency, shall also be deemed, unless the contrary is stated, to be a communication or notification regarding the par value of all the separate currencies referred to above. Any member may, however, make a communication or notification relating to the metropolitan or any of the separate currencies alone. If the member does so, the provisions of the preceding paragraphs (including (d) above, if a territory where a separate currency exists has been occupied by the enemy) shall apply to each of these currencies separately. (h) The Fund shall begin exchange transactions at such date as it may determine after members having sixty-five percent of the total of the quotas set forth in Schedule A have become eligible, in accordance with the preceding paragraphs of this Section, to purchase the currencies of other members, but in no event until after major hostilities in Europe have ceased. (i) The Fund may postpone exchange transactions with any member if its circumstances are such that, in the opinion of the Fund, they would lead to use of the resources of the Fund in a manner contrary to the purposes of this Agreement or prejudicial to the Fund or the members. (j) The par values of the currencies of governments which indicate their desire to become members after December 31, 1945, shall be determined in accordance with the provisions of Article II, Section 2.

436

After the Gold Standard, 1931–1999 Done at Washington, in a single copy which shall remain deposited in the archives of the Government of the United States of America, which shall transmit certified copies to all governments whose names are set forth in Schedule A and to all governments whose membership is approved in accordance with Article II, Section 2.

SCHEDULE A. QUOTAS [In millions of United States dollars] Australia . . . . . . . . . . . . . . . . . . 200 Belgium. . . . . . . . . . . . . . . . . . . 225 Bolivia. . . . . . . . . . . . . . . . . . . . . 10 Brazil. . . . . . . . . . . . . . . . . . . . . 150 Canada . . . . . . . . . . . . . . . . . . . 300 Chile . . . . . . . . . . . . . . . . . . . . . . 50 China . . . . . . . . . . . . . . . . . . . . 550 Colombia . . . . . . . . . . . . . . . . . . 50 Costa Rica . . . . . . . . . . . . . . . . . . 5 Cuba . . . . . . . . . . . . . . . . . . . . . . 50 Czechoslovakia . . . . . . . . . . . . . 125 Denmark. . . . . . . . . . . . . . . . . . . (l) Dominican Republic. . . . . . . . . . . 5 Ecuador. . . . . . . . . . . . . . . . . . . . . 5 Egypt. . . . . . . . . . . . . . . . . . . . . . 45 El Salvador . . . . . . . . . . . . . . . . 2.5 Ethiopia . . . . . . . . . . . . . . . . . . . . 6 France . . . . . . . . . . . . . . . . . . . . 450 Greece . . . . . . . . . . . . . . . . . . . . 40 Guatemala . . . . . . . . . . . . . . . . . . 5 Haiti . . . . . . . . . . . . . . . . . . . . . . . 5 Honduras . . . . . . . . . . . . . . . . . 2.5 Iceland . . . . . . . . . . . . . . . . . . . . . 1 India . . . . . . . . . . . . . . . . . . . . . 400 Iran . . . . . . . . . . . . . . . . . . . . . . . 25 Iraq . . . . . . . . . . . . . . . . . . . . . . . . 8 Liberia. . . . . . . . . . . . . . . . . . . . 0.5 Luxembourg . . . . . . . . . . . . . . . . 10 Mexico . . . . . . . . . . . . . . . . . . . . 90 Netherlands . . . . . . . . . . . . . . . 275 437

The Monetary History of Gold New Zealand . . . . . . . . . . . . . . . .50 Nicaragua . . . . . . . . . . . . . . . . . . .2 Norway . . . . . . . . . . . . . . . . . . . .50 Panama . . . . . . . . . . . . . . . . . . . 0.5 Paraguay . . . . . . . . . . . . . . . . . . . .2 Peru . . . . . . . . . . . . . . . . . . . . . . .25 Philippine Commonwealth . . . . .15 Poland . . . . . . . . . . . . . . . . . . . .125 Union of South Africa . . . . . . .100 Union of Soviet Socialist Republics. . . . . . . . . . . . . . . .1, 200 United Kingdom . . . . . . . . . .1, 300 United States . . . . . . . . . . . .2, 750 Uruguay. . . . . . . . . . . . . . . . . . . .15 Venezuela . . . . . . . . . . . . . . . . . .15 Yugoslavia . . . . . . . . . . . . . . . . . .60 Total . . . . . . . . . . . . . . . . . 8, 800 1 The quota of Denmark shall be determined by the Fund after the Danish Government has declared its readiness to sign this Agreement but before signature takes place.

438

11 March 1947 Exchange Control Act, 1947, United Kingdom: ‘An Act to confer Powers, and impose Duties and Restrictions, in Relation to Gold, Currency, Payments, Securities, Debts, and the Import, Export, Transfer and Settlement of Property, and for Purposes connected with the Matters aforesaid’

The following excerpt reproduces only the first three, out of forty-four, sections of the Act, as they are the only sections that specifically address the gold issue. Source: Exchange Control: The Act and the Instruments, as in Operation on 1st March 1979 (London: Her Majesty’s Stationery Office, 1979).

Be it enacted by the King’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows: Part I. GOLD AND FOREIGN CURRENCY. 1.

(1.) Except with the permission of the Treasury, no person, other than an authorised dealer, shall, in the United Kingdom, and no person resident in the United Kingdom, other than an authorised dealer, shall, outside the United Kingdom, buy or borrow any gold or foreign currency from, or sell or lend any gold or foreign currency to, any person other than an authorised dealer. (2.) Where a person buys or borrows any gold or foreign currency in the United Kingdom or, being a resident in the United Kingdom, buys or borrows gold or foreign currency outside the United Kingdom, he shall comply with such conditions as to the use to which it may be put or the period for which it may be retained as may from time to time be notified to him by the Treasury. 439

The Monetary History of Gold

2.

(3.) In this Act – (a) the expression ‘foreign currency’ does not include any currency or notes issued by the Government or under the law of any part of the scheduled territories but, save as aforesaid, includes any currency other sterling and any notes of a class which are or have at any time been legal tender in any territory outside the United Kingdom, and any reference to foreign currency, except so far as the context otherwise requires, includes a reference to any right to receive foreign currency in respect of any credit or balance at a bank; and (b) the expression ‘the scheduled territories’ means the territories specified in the First Schedule to this Act, so, however, that the Treasury may at any time by order amend the said Schedule, either by the addition or exclusion of territories or otherwise, and the said expression shall be construed accordingly. (1.) Every person in or resident in the United Kingdom who is entitled to sell, or to procure the sale of, any gold, pr any foreign currency to which this section applies, and is not an authorised dealer, shall offer it, or cause it to be offered, for sale to an authorised dealer, unless the Treasury consent to his retention and use thereof or he disposes thereof to any person with the permission of the Treasury. The foreign currency to which this section applies is such foreign currency (hereafter in this Act referred to as ‘specified currency’) as may from time to time be specified by order of the Treasury. (2.) If a person who has obtained the consent of the Treasury to his retention and use of any gold or specified currency, and has stated in an application for the consent that he requires it for a particular purpose, no longer requires the gold or currency for that purpose, the preceding subsection shall thereupon apply to him in relation to that gold or currency as if the Treasury had revoked their consent to his retention thereof. (3.) A person who acquires any gold or specified currency from an authorised dealer shall be treated for the purposes of this section as if the Treasury had consented to the retention and use by him of that gold or currency (subject, however, to any conditions notified to him in accordance with subsection (2) of the preceding section), and as if any statement made by him in an application for that gold or currency as to the purpose for which he requires it had been made by him in an application for the Treasury’s consent to his retention and use thereof. (4.) Where a person has become bound under this section to offer or cause to be offered any gold or specified currency for sale to an authorised dealer, he shall not be deemed to comply with that obligation by any offer made or caused to be made by him, if the offer is an offer to sell 440

After the Gold Standard, 1931–1999

3.

at a price exceeding that authorised by the Treasury [i.e., ‘the current London market price’, in accordance with a Treasury announcement of 23 March 1954, one day after the London gold market reopened for the first time since the outbreak of the Second World War], or without payment of any usual and proper charges of the authorised dealer, or otherwise in any unusual terms. (5.) Where a person has become bound under this section to offer or cause to be offered any gold or specified currency for sale to an authorised dealer and has not complied with that obligation, the Treasury may direct that that gold or currency shall vest in the Treasury, and it shall vest in the Treasury accordingly free from any mortgage, pledge or charge, and the Treasury may deal with it as they think fit, but the Treasury shall pay to the person who would but for the direction be entitled to the gold or currency such sum as he would have received therefor if he had sold it to an authorised dealer in pursuance of an offer made under this section at the time when the vesting occurred. (6.) In any proceedings in respect of a failure to comply with the provisions of this section, it shall be presumed, until the contrary is shown, that the gold or currency in question has not been offered for sale to an authorised dealer. (1.) Every person in the United Kingdom by who or to whose order (whether directly or indirectly) any gold or any specified currency in the form of notes is held in the United Kingdom but who is not entitled to sell it or procure its sale shall notify the Bank of England in writing that he so holds that gold or currency. (2.) The Treasury may direct any person in the United Kingdom by whom or to whose order (whether directly or indirectly) any gold or any specified currency in the form of notes is held in the United Kingdom, whether or not he is entitled to sell it or procure its sale, to cause that gold or currency to be kept at all times in the custody of such banker as may be specified in that direction.

441

19 September 1949 Memoranda concerning new Gold Prices as a Consequence of the Devaluation of Sterling The two memoranda reproduced here were sent by H. S. Clarke. The first was sent to the Principal at the Bullion Office of the Bank of England, and the second to a Mr Fisher (probably Allan G. B. Fisher, Chief of Publications and Reports Division, Research Department, International Monetary Fund). Source: London, Bank of England Archives, C43/144, 1946/2, Nos. 112–13.

[no. 112] Please note that as from the opening of business on Tuesday, 20th September, the following buying prices will become effective: – ‘Good delivery’ bar gold ‘Bad delivery’ bar gold Sovereign or pair of half sovereigns US dollars Sundry Gold Coin

248/-d. per fine ounce 247/11d. per fine ounce 58/-d. 11/11d. 246/9d. per fine ounce

Gold will be made available to the Authorised Dealers for issue to the Trade under the same terms and conditions as at present at the price of 252/-d. per fine ounce. [no. 113] Brief for talk with Sir Harry Goldsmith Gold Prices Following the devaluation of sterling we have a new parity price of gold of 250/ - per fine ounce. We shall buy from U.K. residents under the Exchange Control Act at the following prices: – Bar gold Sovereigns

248/-d. per fine ounce 58/-d. each 442

After the Gold Standard, 1931–1999 US dollars Sundry Gold Coin

11/11d. each 246/9d. per fine ounce

Gold will be made available to the trade under the same terms and conditions as at present at the price of 252/-d. per fine ounce. Our policy with regard to silver is to maintain, for the time being at any rate, our present relationship with the price in New York. This will give a price in London of approximately 63¾d. (Note for your own information: it does not pay to melt 925 [sic] coin until the price reaches approximately 72d.)

443

1 November 1949 Memorandum concerning the Case of Emile Katz, seen as a Contravention of the Statute stipulated in the Exchange Control Act of 1947 prohibiting the private Ownership of Gold

This document indicates both the nature of prosecutions for holding gold and the exemptions that existed to the regime. Source: London, Bank of England Archives, C43/144, 1946/2, No. 127.

The Case of Emile Katz Emile Katz was brought before the magistrates at Bow Street on Friday, the 28th October, to answer a charge of being in possession of gold which he should have offered for sale to the Treasury. The gold was in the form of a lump and two small sheets. The interest in the case turned on the definition of bullion within the meaning of the Exchange Control Act. We had already been told that if the decision of the Court went against the defendant there would be an appeal, and the Public Prosecutor was also considering similar action if the case went against the Crown. Mr Newman, of the Mint, had been subpoenaed by the prosecution to give his definition of ‘gold bullion’. This was that all gold was bullion unless it was in wholly-manufactured form. This definition suited us – we had in fact always held that view. Mr Barry, of the Office of the Controller of Public Prosecutions, has asked if I would attend at the Court in order to assist the magistrate over any points which might arise in connection with the administration of the Exchange Control Act insofar as it affected gold. This request was later confirmed by the Treasury. The gold in the form of a lump had been derived from scrap, whereas the two pieces of sheet had been bought from Johnson, Matthey & Co. Ltd., Authorised Dealers in gold, and the Defence tried to prove that, by reason of our practice during the last ten years of permitting scrap to be ploughed back 444

After the Gold Standard, 1931–1999 into the industry, we had condoned this dealing in scrap, and we could not therefore suddenly change our minds and bring a man before the Courts as a criminal. The agreement which we made with the trade in the early days of the war was, of course, designed to enable the trade to continue its work and presupposed that the scrap would remain in the hands of the genuine traders. No attempt was made however to prove that Katz was a genuine trader, primarily, I think, because Johnson Matthey had accepted his bona fides to the extent of selling some sheet gold to him. I had been told by Barry, before the case started, that the magistrates found it difficult to accept sheet as bullion. We can therefore regard his final opinion that all gold other than wholly-manufactured articles is bullion with some satisfaction. His decision that Katz should offer the bar to us for sale also implied that he did not regard him as a genuine member of the trade, although this was never contested by the Prosecution. The magistrate’s decision that the sheet gold should be retained by Katz was also right on the evidence produced, because Katz had, on his own declaration, bought it from an Authorised Dealer. The fine of £1 was regarded as purely nominal. The matter cannot, however, be allowed to rest here. We must consider firstly whether our attitude towards dealings in scrap gold remains unchanged and secondly whether we shall in future require Authorised Dealers to obtain an undertaking in writing from their customers that gold sold to them, whether emanating from the Bank of England or not, is required for the customers’ own use in trade; in other words, that the gold is not going to be resold to a third party. This may put Johnson Matthey in a worse position than, say, Sheffield Smelting and other members of the Federation of British Bullion Dealers, who, not being Authorised Dealers, will not be required to obtain such a declaration but who will, nevertheless, be handling scrap gold. These points require careful consideration and will be commented on at some length in a further memorandum. It must not be assumed that Johnson Matthey were necessarily negligent in selling sheet gold to Katz – if indeed they did. It might well be that Katz acquired the sheet from them against the surrender of scrap gold. There was, however, no doubt from the evidence given by Johnson Matthey’s representatives that they regarded Katz as a member of the trade. It would be difficult for me to express an opinion on this, as no evidence was produced to the contrary; but I was certainly left with the impression, having seen Katz and knowing that the gold was found tucked away in a safe deposit, that his connection with the jewellery trade was extremely remote.

445

9 November 1953 Report entitled ‘The London Gold Market’

The Report outlined a scheme for the reestablishment of the London Gold Market prior to the restoration of full convertibility of sterling. Source: London, Bank of England Archives, ADM14/37, 806/3, No. 23, ‘The London Gold Market’.

Part I: Market Technique […] Each day at 11am (or such other time as might be agreed) the price of gold on the basis of supply and demand would be fixed in sterling terms in shillings and pence per fine ounce in multiples of one halfpenny by the members of the London Bullion Market. […] Gold dealt in at the fixing would consist of bars of such weight, fineness, melting and assay as would conform to the ‘Specification of Bars acceptable on the London Gold Market’. Other bars would be dealt in subject to the payment of an agreed charge to cover the cost of converting them into good delivery bars. […] The normal practice would be for all deals in the Bullion Market to be conducted in sterling terms. This would not prevent individual transactions as between non-resident buyer/seller and Authorised Dealers in gold being conducted on a dollar basis. […] Direct access to the London Bullion Market would be reserved to the members of the market (i.e., at present the six houses specified in paragraph 13 below who acted as brokers in gold before the war and who, with the Bank of England, are the present authorised dealers in gold under the Exchange Control Act). […] The London Bullion Market consists of six members. There is neither committee nor constitution. The six firms in question are members not by election or test but by custom and tradition. The market at the outbreak of war consisted of –

446

After the Gold Standard, 1931–1999 (a)

Four brokers – S. Montegu & Co. Mocatta & Goldsmid Sharps & Wilkins Pixley & Abell most of whom were dealers as well, and (b) Two dealers – N. M. Rothschild & Sons Johnson Matthey & Co. who, in addition to refining and fabricating, also acted in the capacity of brokers. The significance of membership of the market was the right to take part in the gold fixing and, as brokers, to handle the business of non-members of the market for which a commission was charged. Rothschilds took the Chair and the ‘fixing’ took place at their premises. Regulations, e.g., regarding the specifications of good delivery bars, were drawn up by agreement of the six, the Bank being consulted, and were issued by the Rothschilds. Other banks dealt actively in gold but were not members of the market. […]

447

19 March 1954 Press Release from H. M. Treasury, concerning the Reopening of the London Gold Market for the first Time since the Outbreak of the Second World War

Source: London, Bank of England Archives, C43/159, 1949/1, No. 148.

Not for publication before 00.30 hrs., G. M. T., Saturday, 20th March, 1954. London Gold Market Reopens: Sterling Transferable Area Greatly Extended 1. The Treasury announce that the Government have decided to allow the reopening of the London Gold Market on a restricted basis as from 22nd March, 1954. 2. The Market will operate under the general supervision of the Bank of England. Dealings in the Market will be conducted in sterling terms, but the Market will afford no additional element of convertibility for sterling. Gold purchases in the Market on account of non-residents of the sterling area will be paid for in American Account or Canadian sterling, or sterling which has been purchased with dollars or gold. Purchases of gold for account of residents of the sterling area, whether for trade or other purposes, will continue to require prior permission from the Bank of England and will be strictly limited as at present. 3. Prior to World War II London was the premier centre of the world for dealings in gold. The opening of this Market is in line with the Government’s general policy of creating, by the reopening in the United Kingdom of international markets, growing opportunities for traders, merchants and bankers, so that they may make the fullest contribution to towards the increased overseas earnings which the United Kingdom and the sterling area need. 4. At the same time the opportunity has been taken to unify, with a few exceptions for the time being, all non-resident sterling other than that on American, Canadian and Blocked Accounts. The present restrictions on the use of transferable accounts for capital transactions will be removed and the

448

After the Gold Standard, 1931–1999 existing Transferable Account area will be extended to include all countries outside the Scheduled Territories except (a) those whose residents have American or Canadian Accounts, (b) for the time being, Persia, Turkey and Hungary. The effect will be that balances on Transferable Accounts may be transferred freely and without formality for any purpose, capital or current, within the Transferable Account area and, of course, to the Scheduled Territories. 5. These moves mark a stage in the strengthening of London as an international financial centre and of sterling as an international currency.

449

20 March 1954 Correspondence of R. A. O. Bridge, Bank of England, to Mr Joseph J. Moran, Vice President, Bank of Manhattan Co., 40 Wall Street, New York, concerning the Reopening of the London Gold Market

Source: London, Bank of England Archives, C20/2, No. 6.

My dear Joe, I feel quite ashamed that it is such a long time since I have written to you – all the more so because I have had the benefit of a resumption of your weekly market reports which we so much appreciate. I am glad that your South American trip was both interesting and successful. By the time this letter reaches you we shall have made a further step – or more precisely two steps – towards greater freedom and towards the order of things to which I think both you and I are more accustomed. The first of these steps is a reopening of the London Gold Market as from Monday, 22nd March. For the time being the Gold Market will be in a slightly more restricted form than pre-war for two reasons – (a) Exchange Control within the U.K. and the rest of the Sterling Area continues. (b) The £ is not fully convertible and therefore the distinction between dollar and non-dollar countries must for the time being still be maintained. But within these limitations the intention is that the London Gold Market shall, at least so far as other countries are concerned, function in the same way as it used to do in the old days. To overcome the difficulties arising from the fact that dollar countries and non-dollar countries cannot yet be treated as one and the same thing, it has been decided to introduce a new kind of sterling account called a ‘Registered’ account. Such accounts will be available only to banks and others resident in countries outside the Dollar Area and balances on these accounts will effectively have the same qualities, attributes and privi450

After the Gold Standard, 1931–1999 leges as balances on American accounts. (The same result could have been achieved, of course, by allowing Belgians, Siamese and the like to open ‘American’ accounts and the only reason for using the term ‘Registered’ is in order to avoid a geographical contradiction!) I hope and believe that the result will be that London will once again become the world centre for the disposal of new production and for international gold trading. A by-product of this particular move might incidentally be to solve one or two delicate problems for your own authorities. At the same time it has been decided to carry out a cleaning up and simplifying operation in regard to the rules for the transferability of sterling between the accounts of non-residents. As you know, it has for a long while been general policy to allow sterling in the hands of non-residents to be used as freely as possible. As part and parcel of the of this policy certain transfers, across geographical boundaries, have been able to automatically, e.g., between countries included within the Transferable Accounts Area. But over and above this a lot of transfers have been permitted administratively even though they could not take place automatically. The effect of the present move is to give automatic permission which will allow sterling to move freely between the accounts of residents in any country outside both the Dollar and the Sterling Area – with the exceptions for the time being of Iran, Hungary, and Turkey. It is hoped that this move will not only make sterling appear more acceptable to those who wish to hold it but that also it will simplify the carrying out of international trade which is traditionally done in terms of pounds. When you and your friends in the New York market have had time to reflect upon the implications of these two changes I shall be most interested to hear your reactions to them. With kindest regards from George Preston and myself.

451

4 February 1965 Excerpt from a Press Conference of French President Charles de Gaulle at the Palais de l’Élysée calling for the Return of a ‘Gold Exchange Standard’

Source: Charles De Gaulle, Discours et Messages: Pour l’Effort (Paris; Plons, 1971), vol. 4, pp. 325–42, esp. pp. 330–4. The English translation printed here has been provided by the World Gold Council.

Q. – Mr President, when France changed part of its holdings from dollars into gold, it caused certain reactions which exposed defects in the present-day monetary system. Are you in favour of reforming this system, and, if so, how? Q. – My question, Mr President, is linked to the previous one. Can you please state your policy as far as foreign investments in France are concerned, and particularly American investments? A. – I will try and explain my thoughts on these points. As the countries of Western Europe, decimated and ruined by two world wars, were recovering, the relationships that had developed between them following their losses of strength now appeared to be inadequate, even unreasonable and dangerous. Nothing, however, in this meant that they, and in particular France, were in any way unfriendly towards other countries, in particular America. Because, the fact that these countries wanted, to a greater extent every day, to act for themselves in every field of international relations arises simply from a natural progress of events. This has been the case for the monetary relationships practised throughout the world since the tests that Europe underwent caused it to lose its balance. I am talking – and who can have failed to understand? – about the system that appeared immediately after the Great War and which became established after the Second World War. We know that, with effect from the Genoa Conference in 1922, this system had granted two currencies, the pound and the dollar, the privilege of automatically being held as equivalents to gold for all external payments, while the others were not. Subsequently, the pound having been devalued in 1931 and the dollar in 1933, this distinct advantage could have seemed to be compromised. But America was getting over its great crisis. After which, the Second 452

After the Gold Standard, 1931–1999 World War ruined the currencies of Europe by creating raging inflation. As just about all the gold reserves in the world were then being held by the United States, who, as universal suppliers, had been able to maintain the value of their own currency, it might appear natural for the other countries to introduce dollars or gold indiscriminately into their foreign exchange reserves and for their balance of payments to be established by transfers of credits or of American monetary tokens, as well as precious metals. Particularly as America was experiencing no problem in settling its debts in gold if it was asked to. This international monetary system, this ‘Gold Exchange Standard’, was subsequently accepted, practically from then onwards. However, it no longer seems today to comply with what is needed and, all of a sudden, has disadvantages which are becoming worse and worse. As the problem may be considered under the desired conditions of serenity and of objectivity – as the current situation contains nothing that is either very urgent nor very alarming – now is the time to do it. The conditions that, not long ago, gave rise to the ‘Gold Exchange Standard’ have now been modified. The currencies of the countries of Western Europe have today been restored, to such an extent that the total gold reserves of the Six is today equivalent to that of the Americans. They decided to convert all the dollars that they had in their account into precious metals. In other words, the convention that gives the dollar an over-riding value as an international currency no longer has its initial basis, namely the possession by America of the great majority of the gold in the world. But in addition, the fact that a large number of countries accept, out of principle, dollars in the same way as gold to compensate, when appropriate, any deficits that arise to their advantage from the American balance of payments, leads the United States to become voluntarily indebted to foreign countries. Indeed, what they owe them, they pay them at least in part, with dollars that they hold just for these payments, instead of paying them totally in gold, the value of which is real, that you can only possess if you have earned it and that you cannot transfer to others without risk and without sacrifice. This unilateral facility which America has been given contributes to the idea that the dollar is an impartial and international symbol of foreign exchanges being blurred, while it is an appropriate means of credit for a country. Obviously, there are other consequences to this situation. There is, in particular, the fact that the United States, for want of having necessarily to pay in gold, at least totally, for their negative balances of payment in accordance with the old rules, that required countries to take the required steps, sometimes rigorously, to remedy their imbalance, is suffering year after year from a deficit balance. No less because the total of their commercial exchanges is to their disadvantage. Quite the opposite! Their material exports always exceed their 453

The Monetary History of Gold imports. But that is also the case for dollars, exports of which are always in excess of imports. In other words, capital sums are being built up in America, by means of what should really be called inflation, which, in the form of dollar loans granted to countries or to private individuals, are being exported. As, in the United States itself, the increase in currency circulation that results from this makes investments within the country less remunerative, there is an increasing trend there to invest abroad. This leads, for certain countries, to a sort of expropriation of some of their companies. Certainly, such a practice has greatly facilitated, and still encourages to a certain extent, the multiple and considerable aid that the United States is providing to a large number of countries, to be used for their development, and from which we, on other occasions, have ourselves widely benefited. But circumstances are such today that we can even wonder how far the problem would go if the countries that hold dollars wanted, sooner or later, to change them into gold? Although such a general movement would never take place, it is still the fact that there is an imbalance that is, to a certain extent, fundamental. For all these reasons, France is in favour of the system being changed. We know that France said this, in particular, at the Tokyo Monetary Conference. Given the universal jolt that a crisis in this field would probably cause, we have every reason to hope that the steps to avoid it are taken in time. We therefore believe it to be necessary for international exchanges to be established, as was the case before the world’s great misfortunes, on an unquestionable monetary basis, that does not carry the mark of any particular country. What basis? Indeed, we cannot see that, in this respect, there can be any other criterion, any other standard, than gold. Oh, yes! Gold, which never changes its nature, which can be shaped into bars, ingots or coins, which has no nationality and which is eternally and universally-accepted as the unalterable fiduciary value par excellence. Moreover, despite everything that could be imagined, said, written, done, as huge events happened, it is a fact that there is still today no currency that can compare, either by a direct or an indirect relationship, real or imagined, with gold. Without doubt, we could think of imposing on each country the way it should behave within its borders. But the supreme law, the golden rule – we can truly say – that should be reapplied, with honour, to international economic relationships, is an obligation to make up, between one monetary zone and the next, by effective deliveries and withdrawals of precious metals, the balance of payments resulting from their foreign exchanges. Indeed the end of the sharp jolts of the ‘Gold Exchange Standard’, the restoration of the gold standard, and the additional transition measures that could be essential, particularly as far as the organisation of international credit 454

After the Gold Standard, 1931–1999 on this new basis is concerned, should be jointly arranged carefully among the countries, particularly those whose economic and financial capacity gives them a particular responsibility. Moreover, there are already frameworks in which it would be normal for such studies and negotiations to be carried out. The International Monetary Fund, set up to ensure, as far as is possible, mutual responsibility for currencies, would provide all the countries with an appropriate meeting place, as soon as it was contemplated not to perpetuate the ‘Gold Exchange Standard’, but rather to replace it. The ‘Committee of Ten’, which groups together, alongside the United States and England, on the one hand, France, Germany, Italy, Holland and Belgium, and on the other hand, Japan, Sweden and Canada, would prepare the proposals for the creation of a European economic community, to work out between them and to represent them outside the solid system that good sense recommends and which provides an answer to the renascent power of Europe. France, for its part, is ready to participate actively in the vast reform that is now required in the interests of the whole world.

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12 June 1965 The London Gold Market and the Devaluation of Sterling

This is a revised draft of a ‘top secret’ paper, written by or under the direction of J. S. Fforde (Editor-in-Chief of the Bank’s Quarterly Report and Deputy Head of Central Banking Information). The paper covers the position of the British government regarding the operation of the London Gold Market in the event of a devaluation of sterling. Sterling’s devaluation in November 1967 eventually led to the disbanding of the official Gold Pool in 1968, although the London Gold Market continued to function. Source: London, Bank of England Archives, OV44/133, 2278/1.

LONDON GOLD MARKET (REVISE) The instantaneous effect of a devaluation of sterling would be to raise the sterling price of gold on the London market in line with the devaluation itself. This would be followed by a massive increase in the market demand for gold. The change in the sterling parity would not only create expectations of changes in other parities: it would cast great doubt on the ability of the US Treasury to maintain its selling price of $35 per ounce. Gold would therefore be preferred to currencies unless and until these doubts were either:– (i.) removed by wholly convincing national and international actions, or (ii.) confirmed by the adoption of a new structure of gold parities that was expected to endure. Those in a position to exercise their preference for gold would do so. Increased demand would not necessarily be confined to private account. The monetary authorities in many of the smaller countries, who are not members of the Ten and for whom considerations of international monetary cooperation are bound to be less strong, might well seek further to increase the proportion of gold in their reserves; and would place their orders on the London market if they preferred to avoid the risk of incurring the displeasure of the USA. by earmarking in New York. This attempt to diversify reserves, in favour of gold, could occur 456

After the Gold Standard, 1931–1999 within the Sterling Area as well as outside it. Countries with low gold reserves but with gold-guaranteed debts to the I.M.F. would be particularly anxious to get into gold. Apart from operations on behalf of the selling consortium, the supply of gold to the London market comes mainly from South Africa. This is occasionally supplemented by Russian selling. The supply from South Africa has recently exceeded new output there owing to a deterioration in that country’s balance of payments. The Russians have sold no gold since April 1964. In the situation following a devaluation of sterling, the supply would become erratic, because a steady flow of sales could not be expected to continue during a period of extreme uncertainty. In these circumstances, therefore, the burden of maintaining orderly conditions in the free gold markets would at times fall entirely upon the sales consortium operating through London. Until recently, only $270 million of gold was available for this purpose (of which, at the end of June $150 million has been sold). But at the Basle meeting early in March this year it was agreed that sales should go on even if the $270 million were reached, pending a further review of the situation by the members. It is clear that the market demand for gold that would follow a sterling devaluation would require consortium operations much larger than have yet been contemplated. Maintenance of the international monetary price of gold at $35 per ounce, following a devaluation of sterling, would almost certainly depend upon the effectiveness of international cooperation. If the Americans could rely on sufficient short-term assistance to protect their gold stock against a crisis of confidence, the corner could be turned – on the assumption that the basic deficit in the American balance of payments was beyond doubt being eliminated. If international support for the dollar were forthcoming, the question of how best to handle the market demand for gold would have to be answered in that context. It cannot, however, be assumed that the main countries of Continental Europe would be prepared to support the present price of gold, or even that they would be prepared to refrain from action that would positively provoke a change. Much would depend upon what had happened to sterling. Provided the manner and extent of the sterling devaluation were not such as to provoke immediate retaliatory moves by any of the leading countries, cooperation in support of the present price of gold could probably be maintained for a time. But some European members of the consortium might prove unwilling to continue their support for very long, or indefinitely. In the event of international cooperation, in defence of the dollar, breaking down the gold sales consortium would break up. The most likely defectors would be France, Belgium and Holland. Italy would stay with the Americans for as long as she could. The 457

The Monetary History of Gold Germans would be undecided. But confident prediction, at the time of writing, is impossible. Suffice to say that a break-up of the consortium, and the associated wider breakdown of cooperation, would create a quite different set of circumstances to the one outlined in the preceding paragraph; and that the question of how best to handle the market demand for gold would have to be answered in a different context. The remainder of this note therefore discusses the gold market problem in terms of these two alternative sets of circumstances. First, let it be assumed that measures for the cooperative defence of the dollar were taken by the Ten. Even so, no member would enjoy losing gold in any quantity, least of all the Americans who have a 50 per cent share in the gold sales consortium. Someone in the US Administration might therefore again suggest that the London market should be closed, stabilisation operations brought to a halt, and US sales confined to monetary authorities for ‘legitimate monetary purposes’. This proposition might well find support in some quarters on the Continent, both because it might appear as an attractive means of relieving the burden on the consortium and, in certain cases, because of an ingrained jealousy of London’s predominance. In practice, however, closing the London market would make matters worse, as the Federal Reserve fully realise. Demand would merely be transferred to other less efficient markets among which no single one would be likely to dominate – though the Swiss market would probably be the largest. On these markets gold would go to a heavy premium over $35 per ounce; and this premium would attract a substantial proportion of new supplies. The existence of these disorderly conditions would cause a further lack of confidence in currencies and particularly in the US dollar. One way or another, the Americans would find themselves subject to a drain of gold ‘for legitimate monetary purposes’, some of which would inevitably trickle through to supply the premium markets. We would therefore advise very strongly against closing the London market, and suspending stabilisation operations, in the circumstances envisaged. Conditions in exchange markets would be bad enough. It would make no sense to aggravate them by deliberately engineering disorderly gold markets. By the same token, there would be no sense in suspending stabilisation operations while keeping the London market open and allowing the price to go where it would. It should not be thought that stabilisation operations could easily and effectively be resumed, if these were subsequently considered necessary, once the London market were cloned. The London market is a dominant market, and the world market price can be effectively controlled by official intervention there, with a minimum of technical difficulty. Effective intervention through 458

After the Gold Standard, 1931–1999 the various other markets, London being closed, would be technically much more difficult and complicated. The alternative assumption, a breakdown of cooperation, must now be considered. In these circumstances the burden off holding down the London market price would fall entirely upon the Americans. We ourselves would have no appreciable resources to deploy. So long as the Americans considered that the battle was worth fighting, they would be very well advised to go on providing us with resources to conduct stabilisation operations. For it would be more than ever vital to demonstrate to world opinion that the Americans had the strength and determination to carry through their declared policy. It would, in addition, be highly impolitic to close the London market and allow demand to be transferred to free markets in countries unfriendly to the policy of maintaining monetary gold at $35 per ounce. If the Americans rejected our advice, and refused to continue supplying us with the gold needed, we would have to choose between closing the market or allowing the London price to move freely. In our view it would be better to keep the market open rather than transfer business to other markets. Some official intervention, then or subsequently, would be desirable; and there would accordingly be both an immediate and longer-run advantage in maintaining London as the dominant market where the bulk of new supplies were sold. If, nevertheless, the Americans requested us to close the market we might have little option but to comply. This would, however, depend upon Anglo-American financial relationships at the time – which cannot be confidently predicted. The Americans might, alternatively, decide the battle was not worth fighting and might then act to protect their gold stock by temporarily suspending all sales of gold for legitimate monetary purposes. The presumption would then be that sales would only be resumed at a very much higher price. In that event, there would be no point in continuing to hold down the London price. Stabilisation operations would be suspended and a period of disorder would ensue pending a realignment of the gold parities of all the main currencies. During such a period of disorder, it might well be necessary to close the London gold market for a short period until dealings could be resumed on a rational basis. Conclusions (i.) We would advise very strongly against closing the London market and suspending stabilisation operations, following a devaluation of sterling, unless it became clear that a move in the sterling parity had pulled the foundations out of the entire structure and that everything was immediately in a state of flux. 459

The Monetary History of Gold (ii.) If our advice were rejected by the Americans, it would still be better to keep the market open, allowing the price to move freely (subject to some modest intervention on our own account), rather than transfer the business to other markets. But we recognise that we might in some circumstances be unable to resist an American request that the market be closed.

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16 June 1965 United Kingdom, Treasury: Meeting Notes, labelled ‘top secret’, including Considerations about the Effects of the planned Devaluation of the Pound Sterling on the London Gold Market

The excerpt below is a note on a meeting held between ten Treasury and Bank of England officials regarding the potential consequences of the devaluation of sterling. The main topics of the discussion were the effects of the devaluation on the operations of the London Gold Market and the group’s unanimous rejection of a system of flexible exchange rates. Almost two and half years later, in November 1967, the pound was devalued to $2.40, the rate discussed in the excerpt reproduced here as ‘for illustrative purposes’. Source: London, Bank of England Archives, OV44/133, 2278/1, unnumbered [48BIS].

F.U.(65)7th Meeting Note of a Meeting held in Sir William Armstrong’s room, Treasury Chambers, Great George Street, S.W.1. at 11.15 a.m. on WEDNESDAY, 16th JUNE, 1965 […] 1.

LONDON GOLD MARKET The group had before them F.U.(65)23(Revise), a paper by the Bank of England. In discussion the following main points were made: (a) Mr Parsons said that in his view the initial shock of a sterling devaluation would have the effect of securing the maintenance of close cooperation as an insurance against the risk of immediate collapse of the world monetary system. But it was difficult to assess the likely attitudes of the members of the consortium over 461

The Monetary History of Gold a longer period, and though they might be willing to cooperate initially to keep the London Gold Market open, they might be unwilling to do this indefinitely. (b) The main question was whether the Americans would be willing to meet at $35 per ounce the heavy demand for gold which was almost certain to follow a sterling devaluation. For them not to do so would be a major retreat from their formal obligation to buy and sell gold freely, and would cast doubt on the stability of the dollar: the price of gold would rise immediately in the disorderly markets that would develop. Although the United States would probably wish to explore the possibility it was unlikely to be practicable in the circumstances envisaged to restrict gold sales through the London market to central monetary institutions. The Bank of Prance was known to operate in the domestic French gold market and would probably not be willing to participate in a restrictive scheme; there would be other serious difficulties in attempting to enforce segregation of sales. (c) There was general agreement with the main conclusion of the paper that the London market should be kept open unless the devaluation had so struck at the foundations of the monetary system that everything was immediately in a state of flux. The paper did not however deal with the U.K. attitude in a situation in which our own reserves would be seriously depleted and where the Americans were themselves unwilling to help in keeping the market open. It was agreed that if,in spite of our advice bo the contrary the Americans were unwilling to continue to support the market we would have no option but to close it. Mr Fforde undertook to prepare a revise of the concluding paragraphs of the paper to include this contingency. (d) The paper had been written on the basis that sterling devaluation would take place when the dollar was relatively strong. If in fact the dollar was very weak we might find ourselves in fact unable to devalue, and it was obviously important to consider the impact of our own actions on the position of the dollar. The provisional view of the group was that if the American authorities showed themselves determined to maintain the gold price at $35 an ounce, although this might be expensive initially, they would probably be able to hold the parity of the dollar. Mr Parsons undertook to set in hand the preparation of a paper on the consequences of a sterling devaluation for the world monetary system. 462

After the Gold Standard, 1931–1999 2.

FIXED OR FLEXIBLE RATES

The group had before them F.U.(65)2l(2nd Revise). Sir William Armstrong said that although the present paper had been described as a revise of the earlier paper on the same subject, the latter should be regarded as a separate statement of the personal position of Mr Neild and would be included as such in the dossier of papers for Ministers. The present paper by the Bank (F.U.(65)2l(2nd Revise) was intended as an objective assessment of the position expressing the views of the group as a whole. In discussion the following main points were made: (a) It was agreed that although section 2 stated very fairly the case for a flexible rate the argument in section 3 needed strengthening to clarify that the considerations against flexible rates were felt to override those in their favour. (b) The first sentence of section 4 suggested that there were still advocates of flexible rates who denied the need for some sort of stabilisation mechanism. This was clearly not the case and it was agreed that the sentence would be better omitted. (c) It would be useful to include a reference at the beginning of section 5 to Canadian experience of flexible rates, though emphasising in particular the difference between the Canadian situation and that envisaged for the U.K. (d) The main argument given in section 3 against flexible rates was of course that it was impossible both to have a flexible rate and to retain sterling’s capacity as a reserve currency. The risk that others would adopt discriminatory import licencing was an obvious possibility together with other forms of retaliation: but these ought to be distinguished as longer term phenomena unlikely to follow immediately after the adoption of flexible rates. It was agreed that greater emphasis should be put on the main difficulties enunciated at the foot of page 2 and that the paragraph on page 3 should be re-drafted to put the references to retaliation into a rather longer term perspective. (e) Section 6 of the paper discussed the possibility of adopting a [floor] of $2.40 to the £ and a ceiling of $2.60 to the £ for a United interim period. These rates were used only for illustrative purposes and the paper would be revised to clarify this where necessary. (f) It was stated at the beginning of section 4 that the improvement in our external position in 1931 was probably in no way due to 463

The Monetary History of Gold our not adopting a new fixed parity forthwith. This was felt to be controvertible: one of the main arguments for adopting flexible rates was that speculative flows would turn in our favour at an early stage. On the other hand it was arguable that the assumption of flexible rates would lead to official withdrawals of funds from London which might more than offset the speculative inflow; the rate, might, in any event, have to fall a considerable distance before any significant speculative inflow was achieved. (g) A variation on the course of temporary adoption of flexible rates as discussed in the Bank’s paper would be to refrain from announcing either a floor or ceiling for the rate, though declaring (as in the Bank’s formula) the intention to revert to a new fixed parity within a specified period. Assigning a floor to the movement of the rate in fact compromised our ability to achieve the objective since we would be sacrificing the possibility of letting the rate fall below the floor level – reversing speculators’ expectations if the initial speculative reaction was to force the rate heavily down. A further advantage of not specifying floor and ceiling rates was that this avoided the difficult problem of selecting the right rates: clearly the adoption of very wide margins would be interpreted as showing little confidence in sterling and yet with narrow margins few of the advantages of flexibility would be reaped. Sir William Armstrong said that there would have to be further discussion of the present paper in particular on the point covered at (g) above. A meeting would be arranged to take place in the course of the following week after which the paper could be revised and re-circulated. It had become clear in the course of discussion that there would have to be close consultations with the United States and with the International Monetary Fund in respect of the London Gold Market and if we were to adopt flexible rates, respectively: Mr Jenkyns was asked to take these into account in the preparation of a further note on the various possible operations that had been discussed. Treasury Chambers Great George Street London, S.W.1.

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30 January 1968 Statement by Secretary of the Treasury Henry H. Fowler, 30 January 1968, before the Senate Banking and Currency Committee, on Legislation to remove the Gold Cover

The requirement that the United States maintain a cover for 25 per cent of the dollar notes in circulation prevented the US government from using those gold reserves to defend the international position of the dollar. In 1968, the growth in foreign demand for gold and domestic demand for currency pushed the US Government to abandon its domestic gold cover in order to free up its gold reserves to meet international monetary obligations. Source: Treasury Department, Annual Report of the Secretary of the Treasury on the State of the Finances (Washington: Government Printing Office, 1969), pp. 224–6.

I am grateful to you for the opportunity to appear before you promptly in support of the President’s recommendation for removal of the gold cover. The legislation before you would eliminate the 25 percent gold reserve requirement from Federal Reserve notes and the $156 million reserve held against US notes and Treasury notes of 1890. The Administration believes that prompt action to remove the cover requirement is necessary for three principal reasons: – Prospective normal increases in currency holdings – Federal Reserve notes – by the public will ‘lock up’ more and more of our ‘free’ gold and soon reach a point inhibiting further expansion of our pocket cash, one portion of our domestic money supply. Obviously we cannot tolerate such a situation. – There should be no doubt whatsoever that our total gold stock is available to insure the free international convertibility between the dollar and gold at the fixed price of $35 an ounce. – The world knows as a fact that the strength of the dollar depends upon the strength of the US economy rather than upon a legal 25 percent reserve requirement against Federal Reserve notes, and it is clearly appropriate for this fact now to be recognised in legislation.

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The Monetary History of Gold Despite these facts, the gold reserve requirement against Federal Reserve notes, instituted at a time when gold circulated freely in the domestic economy, is still part of our law. It should be removed. The need for prompt removal is apparent from a look at the simple arithmetic of the problem. The US gold stock is now at $12 billion – the cover requirement is approximately $10.7 billion – the balance remaining is $1.3 billion. The normal increase in notes will absorb over $500 million annually and a further $150 million or more will be absorbed each year for domestic artistic and industrial purposes. These two factors taken together mean that about $700 million a year of our free gold will be absorbed for domestic reasons. There is thus but 2 years grace at most even if one assumes that no gold at all will be needed for international purposes. Clearly we cannot proceed on such an assumption. Since the passage of the Federal Reserve Act more than a half century ago, the function of gold in our monetary system has undergone a fundamental transformation. Gold no longer circulates freely as domestic currency in any major country in the world. We Americans have not used gold as domestic currency since 1934. Gold belongs in a nation’s international reserves. The dollar serves as a reserve currency to the world; the US gold supply is available to convert dollars held by national monetary authorities at a fixed price. As such, it is one cornerstone – and a very main cornerstone – of our international monetary system. Today, the strength of the dollar is not a function of this legal tie to gold – a tie which is only applicable to one portion of our total money supply, Federal Reserve notes. The value of the dollar – whether it he in the form of a bank balance, a coin, or ‘folding money’ – is dependent on the quantity and quality of goods and services which it can purchase. It is the strength and soundness of the American economy which stands behind the dollar. Balanced growth at home and a strong competitive position internationally give the dollar we use as everyday pocket money its strength. An expanding US economy needs an expanding supply of currency. Our main form of currency is Federal Reserve notes. In the years ahead, we can expect increases in Federal Reserve note circulation of about $2 billion a year. This growth is a normal response to the public’s demand for cash in a growing economy. It is basically a trend development, reflecting a growing population, a growing economy, and a growing number of transactions. Not to move on the cover requirement at this time would only mean putting off the inevitable. We cannot afford to permit an outmoded provision of our law to impinge on the nation’s supply of pocket money. 466

After the Gold Standard, 1931–1999 Removal of this requirement is also of key importance from the viewpoint of the role of the dollar and of gold in the international monetary system. I know most members of this committee are well versed in the functions of gold and the dollar in the international monetary system. Rather than take up your time with a description at this point, I would refer you to a Treasury report which was issued 2 weeks ago, entitled ‘Maintaining the Strength of the United States Dollar in a Strong Free World Economy.’ If this system, which has served the entire free world so admirably in the past 20 years, is to continue to facilitate the growth of world trade and prosperity, we must assure that confidence in the system and in the strength of the dollar is maintained. This requires action on four fronts : – We must continue the long-standing US policy of maintaining the golddollar relationship at $35 per ounce. This must not be open to question, and the best way to make continuation of that policy crystal clear is to free our entire gold stock for that purpose. – We must assure that the US economy grows in an environment of cost and price stability through enactment of the anti-inflation tax and through expenditure controls and appropriate monetary policy. – We must achieve sustained equilibrium in our balance of payments. – We and the rest of the free world must put into place the plan for the creation of a new reserve asset agreed upon in Rio last September. Our policy of maintaining the fixed relationship between gold and the dollar at $35 an ounce for legitimate monetary purposes is one of the reasons why virtually all countries hold dollars in their reserves and why many of them hold very large amounts of dollars. In addition, of course, countries hold dollars because, unlike gold, they can invest them in interest earning assets. The monetary authorities of most of the major industrialised countries understand full well that the link between gold and domestic currencies is no longer a pertinent and relevant fact and that gold is an international asset. Only three other countries in the Group of Ten plus Switzerland, the major industrialised countries, still maintain some link between their domestic currencies and gold. While foreign authorities are aware of the fact that the Federal Reserve can suspend the cover requirement, they find it difficult to understand why the United States, the world’s major reserve currency country, still maintains this legal impediment to the free international use of gold. Thus, legislative action on the cover requirement, by making it clear to the world that the Congress as well as the Executive Branch are committing our total gold stock to international use, is necessary to maintain confidence in the dollar. Removal of the gold cover will not solve the US balance of payments problem nor is it a substitute for the solution of that problem. 467

The Monetary History of Gold The need to achieve sustained equilibrium in our international payments position is essential to confidence in the dollar and the future stability of the international monetary system. The series of measures announced by the President on January 1, with which you are all familiar, are designed to bring us to, or close to, equilibrium this year. It is vital that they be successful. […] I urge the committee to consider and act promptly on the gold cover legislation before you in order that, domestically, we can continue to be assured that the Federal Reserve will be able to supply appropriate amounts of currency to meet the needs of our growing economy for cash, and in order that our policy of maintaining the gold-dollar relationship – one of the major elements of confidence in the dollar and the international monetary system – will not be open to question.

468

March 1968 Memoranda on the Gold Pool by Walt Rostow, Special Assistant for National Security Affairs, to President Johnson

In early 1968, the Gold Pool came under increasing speculative pressure. By March, only an emergency airlift of gold from Fort Knox to the London Gold Market enabled the Gold Pool to meet its obligations. These documents reveal the concern that leading US officials had for the sustainability of the dollar at its official price of $35/oz in the late 1960s. The first memo indicates the progress on legislation removing the gold-backing requirements placed on the Treasury (see the following document). The first hints of a change in the dollar price of gold can be seen in the second memo to US President Lyndon Johnson from his National Security Advisor, Walt Rostow. Both memos illustrate the high priority the US administration placed on maintaining the dollar’s international convertibility even as one began to arrange the disbanding of the Gold Pool. Source: United States State Department, Foreign Relations of the United States 1964–8, Vol VIII (Washington: Government Printing Office, 1998), Documents 187, 188, 189.

Memorandum From the President’s Special Assistant (Rostow) to President Johnson Washington, March 9, 1968, 4:45 p.m. SUBJECT: The Gold Issue Walter Heller1 gave me a rundown on last night’s meeting of the Dillon Committee. […] They met informally in New York to go over the options on gold and the balance of payments and will report to Sec. Fowler2 1. [Editor’s note:] President of the Council of Economic Advisors, 1961–4, economic advisor to President Johnson. 2. [Editor’s note:] Secretary of the Treasury, 1965–8.

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The Monetary History of Gold Their conclusions were: 1. The tax bill is a must. They agree on a strong public statement which they will release next week after going over it with Fowler. 2. They are unanimously opposed to an increase in the price of gold as a way of dealing with the present crisis. 3. Most would prefer to keep the present gold pool arrangement going but they do not believe it will be possible to negotiate with the Europeans the arrangements necessary (specifically, the gold certificate proposal) to turn the market around and restore calm. 4. They, therefore, believe we will have to close the gold pool operation and let the market price go. They believe it is essential we do this in cooperation with our gold pool partners and preferably at their request. 5. They were somewhat fuzzy on particular plans for getting non-gold pool members to cooperate and suggest we perhaps can use the IMF for this purpose. They believe we will have to act within 30 days and must have a clear idea of where we want to go and how we plan to get there. Comment: As you can see, these views are not very different from our own. After the meeting of the Central Bankers in Basel this weekend, we will have a better idea of what the Europeans are willing to do, what the prospects are of keeping the gold market open and quiet, and what would be the most orderly way of bringing about change. Deming1 returns tonight, and Bill Martin2 on Monday. Fowler is working to get the gold cover bill on the floor of the Senate on Tuesday. Passage of the bill should help quiet things down. Walt3

1. [Editor’s note:] Frederick Deming, President of the Federal Reserve Bank of Minneapolis, 1957–65. 2. [Editor’s Note:] Chairman of the Federal Reserve Board, 1951–70. 3. [Editor’s Note:] Walt W. Rostow, National Security Advisor, 1966–9.

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After the Gold Standard, 1931–1999 Memorandum From the President’s Special Assistant (Rostow) to President Johnson Washington, March 12, 1968, 6:25 p.m. Mr President: Here, as we understand it, is what Bill Martin found out and will report to you. 1. With respect to a change in the price of gold, the British and Dutch are inclined to flirt with this option. The Germans are wobbly. The Italians, Belgians and Swiss are strongly against. 2. He achieved agreement on the statement and the willingness to back the gold pool with $500 million, with another $500 million contingent. (At the rate the market in London is going, this will only last a matter of days.) 3. The Europeans realise that we all may face soon some quite unpleasant choices; but they are not clear about what these choices are and what will be required of them if we are to hold the system together. They are prepared to close down the London gold market and let the free market price of gold float. What they have not thought through are the terms of the intimate collaboration which will be required to make that kind of system work – especially how to deal with the consequences of a two-price gold system. 4. In the light of this situation, Treasury, State, Federal Reserve, Council of Economic Advisers, and White House staff people have been driving all day […] to get in shape an operational scenario [….] The essential object of the scenario would be to get certain minimum essential commitments from the other members of the gold pool before the closing of the gold pool was announced. On this basis we could proceed in reasonable order to a monetary conference. 5. We do not yet know Joe Fowler’s or Bill Martin’s personal views of this particular scenario. But we will be presenting it to them either late this evening or tomorrow morning. 6. It emerged from the Basel meeting that the US tax bill and the austerity of the British budget of March 19 are absolutely critical factors. Joe Fowler and Bill Martin have been working Mills1 over hard on this point. They are also talking to the Republican Policy Committee this afternoon. 1. [Editor’s note:] probably Wilbur Mills, Chairman of the House Ways and Means Committee, 1957–74.

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The Monetary History of Gold My own feeling is that the moment of truth is close upon us; and we shall have to convert some such scenario into action within the next few days. Walt

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After the Gold Standard, 1931–1999 Memorandum From the President’s Special Assistant (Rostow) to President Johnson Washington, March 14, 1968. SUBJECT: Gold Your senior advisers are agreed: 1. We can’t go on as is, hoping that something will turn up. 2. We need a meeting of the gold pool countries this weekend in Washington. 3. We want to negotiate the following package: – Interim rules on gold. – Measures to keep order in the financial markets. – Acceleration of the SDR’s. 4. With the right kind of interim package, we could maintain our gold commitment to official holders. 5. If we can’t get this package, we would have to suspend gold convertibility for official dollar holders, at least temporarily, and call for an immediate emergency conference. 6. This probably would mean a period of chaos in world financial markets, but it may be the only way to push the others into a sensible long-run arrangement which avoids a rise in the official price of gold. We are unanimously agreed that a rise in the price of gold is the worst outcome. The decision you must make now is whether the London gold market should be closed at once (a) Arguments for closing: – Avoid losing perhaps $1 billion in gold tomorrow (we lost $372 million today).

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The Monetary History of Gold – Such a gold loss would further shake the confidence of central banks and trigger their coming to us for gold. – Makes it easier to arrange an emergency meeting of the gold pool countries this weekend. – Evidence of US decisiveness. (b) Arguments against closing: – Involves US taking the lead in throwing in the towel. – Closing the market will strengthen the hand of those who believe the official price of gold will be increased. – May reduce the US bargaining position with the Europeans. – Gives us another fling at the Gold Certificate proposal. Walt

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14 March 1968 Statement by Secretary of the Treasury Henry H. Fowler and Chairman William M. Martin of the Federal Reserve Board

Due to the haemorrhaging of US gold reserves, the United States requested that the Government of the United Kingdom close the London Gold Market (see the following document). Despite the setback, the United States sought to prevent a devaluation of the dollar through central bank cooperation. Conspicuously absent from the list of central bank governors invited to discuss the gold crisis was the President of the Bank of France. Source: Treasury Department, Annual Report of the Secretary of the Treasury on the State of the Finances (Washington: Government Printing Office, 1969), p. 370.

The temporary closing of the London market does not affect United States undertaking to buy and sell gold in transactions with monetary authorities at the official price of $35 per ounce. We have invited the central bank governors of the active gold pool countries to consult with us on coordinated measures to ensure orderly conditions in the exchange markets and to support the present pattern of exchange rates based on the fixed price of $35 per ounce of gold. The central bank governors invited are: Hubert Ansiaux, Governor, Banque National de Belgique, Belgium; Dr Karl Blessing, President, Deutsche Bundesbank, Germany; Guido Carli, Governor, Banca d’ltalia, Italy; Prof. J. Zijlstra, President, De Nederlandsche Bank, Netherlands; Dr E. Stopper, President, Banque National Swisse, Switzerland, and Sir Leslie Kenneth O’Brien, Governor, Bank of England, United Kingdom.

475

15 March 1968 H.M. Treasury Press Statement on the London Gold Market

The United States was unable to sustain its commitments to the London Gold Pool and asked, late in the evening of 14 March 1968, that the Gold Pool be suspended. The British Government, at 1a.m. the next morning, complied with the American request and temporarily closed the London Gold Market. The London Gold Pool itself was dissolved on 17 March 1968. When the London Gold Market opened two week later, a two-tiered market for gold became operational. It consisted on the one hand of transactions between central banks at the official price of $35/oz, and on the other of a private market where gold was much more expensive. Source: ‘Statement by the Treasury’, The Times, 15 March 1968, Issue 57201, p. 1, col. A.

The London Gold Market will be closed today, Friday, March 15. This is at the request of the United States Government. At a meeting of the Privy Council held this morning at Buckingham Palace, Her Majesty the Queen approved a proclamation appointing Friday, 15th March, to be observed as a Bank Holiday throughout the United Kingdom. The banks are, however, being asked to provide their domestic customers with normal cash requirements in sterling. The authorities are requesting that the stock exchanges also be closed.

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17 March 1968 Washington Communique

After the closure of the London Gold Market, the governors of the leading Western central banks (with the exception of France) met in Washington to attempt to salvage the system. They reiterated their commitment to the Bretton Woods’ parities, announced the end of the Gold Pool, and provided additional financial support for sterling. They also took note of the United States’ removal of the gold cover for notes in domestic circulation (see document of 30 January 1968 above on US Financial Policy). Source: Treasury Department, Annual Report of the Secretary of the Treasury on the State of the Finances (Washington: Government Printing Office, 1969), pp. 370–1.

The Governors of the Central Banks of Belgium, Germany, Italy, the Netherlands, Switzerland, the United Kingdom, and the United States met in Washington on March 16 and 17, 1968, to examine operations of the gold pool, to which they are active contributors. The Managing Director of the International Monetary Fund and the General Manager of the Bank for International Settlements also attended the meeting. The Governors noted that it is the determined policy of the US Government to defend the value of the dollar through appropriate fiscal and monetary measures and that substantial improvement of the US balance of payments is a high-priority objective. They also noted that legislation approved by Congress makes the whole of the gold stock of the nation available for defending the value of the dollar. They noted that the US Government will continue to buy and sell gold at the existing price of $35 an ounce in transactions with monetary authorities. The Governors support this policy, and believe it contributes to the maintenance of exchange stability. The Governors noted the determination of the U.K. authorities to do all that is necessary to eliminate the deficit in the U.K. balance of payments as soon as possible and to move to a position of large and sustained surplus.

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The Monetary History of Gold Finally, they noted that the Governments of most European countries intend to pursue monetary and fiscal policies that encourage domestic expansion consistent with economic stability, avoid as far as possible increases in interest rates or a tightening of money markets, and thus contribute to conditions that will help all countries move towards payments equilibrium. The Governors agreed to cooperate fully to maintain the existing parities as well as orderly conditions in their exchange markets in accordance with their obligations under the Articles of Agreement of the International Monetary Fund. The Governors believe that henceforth officially held gold should be used only to effect transfers among monetary authorities and, therefore, they decided no longer to supply gold to the London gold market or any other gold market. Moreover, as the existing stock of monetary gold is sufficient in view of the prospective establishment of the facility for Special Drawing Rights, they no longer feel it necessary to buy gold from the market. Finally, they agreed that henceforth they will not sell gold to monetary authorities to replace gold sold in private markets. The Governors agreed to cooperate even more closely than in the past to minimise flows of funds contributing to instability in the exchange markets, and to offset as necessary any such flows that may arise. In view of the importance of the pound sterling in the international monetary system, the Governors have agreed to provide further facilities which will bring the total of credits immediately available to the U.K. authorities (including the IMF standby) to $4 billion. The Governors invite the cooperation of other central banks in the policies set forth above.

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18 March 1968 Notice instructing Authorised Dealers in Gold not to transact in Gold before 1 April 1968

When the London Gold Market was closed in the wake of the collapse of the Gold Pool, the British Treasury prescribed further commercial sales until new arrangements could be created (see also the following document). Source: London, Bank of England Archives, C43/236, 1966/2.

Notice to Authorised Dealers in Gold Exchange Control Act of 1947 The Bank of England have been instructed by H. M. Treasury to exercise certain powers delegated to them by H. M. Treasury under Section 37 of the Exchange Control Act [of] 1947. In exercise of the powers conferred upon H. M. Treasury by Section 34(2) of that Act and delegated as aforesaid, the Bank of England hereby direct Authorised Dealers in Gold not to buy or borrow or to sell or lend any gold bullion until the opening of business on Monday, the 1st April 1968.

479

29 March 1968 Instructions to Authorised Dealers in Gold concerning the scheduled Reopening of the London Gold Market on 1 April 1968

Source: London, Bank of England Archives, C43/236, 1966/2.

Notice to Authorised Dealers in Gold and Foreign Currency 1. This notice sets out the arrangements for the reopening of the London gold market on the 1st April 1968. 2. The terms and conditions of the Notice E.C.62 will continue to apply to transactions in gold, except to the extent that they are superseded by the terms of this Notice. 3. Authorised Dealers may NOT enter into forward transactions in gold without the prior permission of the Bank of England. 4. Without the prior permission of the Bank of England, Authorised Banks may NOT finance purchases of gold by non-residents by lending foreign currency nor may they accept gold as collateral against advances of foreign currency to their non-resident customers. Where such facilities exist at the date of the Notice they should be withdrawn as soon as possible unless Bank of England consent is obtained.

480

15 August 1971 Address by US President Nixon to the Nation outlining a New Economic Policy ‘The Challenge of Peace’

In his address to the nation, US President Richard Nixon announced the ‘temporary’ suspension of the dollar’s convertibility into gold. While the dollar had struggled throughout most of the 1960s within the parity established at Bretton Woods, this crisis marked the breakdown in the system. While attempts were made to preserve the system, the closing of the gold window signified the end of the Bretton Woods system. The excerpts below indicate that this decision was part of a broader economic plan that, in addition to its monetary measures, included wage and price controls, tax breaks and reductions in government expenditures. Source: Public Papers of the Presidents, Richard Nixon, Containing the Public Messages, Speeches, and Statements of the President, 1971 (Washington: Government Printing Office, 1972), pp. 886–90.

Good evening: I have addressed the Nation a number of times over the past 2 years on the problems of ending a war. Because of the progress we have made toward achieving that goal, this Sunday evening is an appropriate time for us to turn our attention to the challenges of peace. America today has the best opportunity in this century to achieve two of its greatest ideals: to bring about a full generation of peace, and to create a new prosperity without war. This not only requires bold leadership ready to take bold action – it calls forth the greatness in a great people. Prosperity without war requires action on three fronts: We must create more and better jobs; we must stop the rise in the cost of living; we must protect the dollar from the attacks of international money speculators. We are going to take that action – not timidly, not half-heartedly, and not in piecemeal fashion. We are going to move forward to the new prosperity without war as befits a great people – all together, and along a broad front. 481

The Monetary History of Gold The time has come for a new economic policy for the United States. Its targets are unemployment, inflation, and international speculation. And this is how we are going to attack those targets. First, on the subject of jobs. We all know why we have an unemployment problem. Two million workers have been released from the Armed Forces and defense plants because of our success in winding down the war in Vietnam. Putting those people back to work is one of the challenges of peace, and we have begun to make progress. Our unemployment rate today is below the average of the 4 peacetime years of the 1960s. […] I will propose to provide the strongest short term incentive in our history to invest in new machinery and equipment that will create new jobs for Americans: a 10 percent Job Development Credit for 1 year, effective as of today, with a 5 percent credit after August 15, 1972. This tax credit for investment in new equipment will not only generate new jobs; it will raise productivity; it will make our goods more competitive in the years ahead. Second, I will propose to repeal the 7 percent excise tax on automobiles, effective today. This will mean a reduction in price of about $200 per car. I shall insist that the American auto industry pass this tax reduction on to the nearly 8 million customers who are buying automobiles this year. Lower prices will mean that more people will be able to afford new cars, and every additional 100,000 cars sold means 25,000 new jobs. Third, I propose to speed up the personal income tax exemptions scheduled for January 1, 1973, to January 1, 1972 – so that taxpayers can deduct an extra $50 for each exemption 1 year earlier than planned. This increase in consumer spending power will provide a strong boost to the economy in general and to employment in particular. […] To offset the loss of revenue from these tax cuts which directly stimulate new jobs, I have ordered today a $4.7 billion cut in Federal spending. Tax cuts to stimulate employment must be matched by spending cuts to restrain inflation. To check the rise in the cost of Government, I have ordered a postponement of pay raises and a 5 percent cut in Government personnel. I have ordered a 10 percent cut in foreign economic aid. In addition, since the Congress has already delayed action on two of the great initiatives of this Administration, I will ask Congress to amend my proposals to postpone the implementation of revenue sharing for 3 months and welfare reform for 1 year. In this way, I am reordering our budget priorities so as to concentrate more on achieving our goal of full employment. The second indispensable element of the new prosperity is to stop the rise in the cost of living. […] 482

After the Gold Standard, 1931–1999 The time has come for decisive action – action that will break the vicious circle of spiralling prices and costs. I am today ordering a freeze on all prices and wages throughout the United States for a period of 90 days. In addition, I call upon corporations to extend the wage-price freeze to all dividends. I have today appointed a Cost of Living Council within the Government. I have directed this Council to work with leaders of labor and business to set up the proper mechanism for achieving continued price and wage stability after the 90-day freeze is over. Let me emphasise two characteristics of this action: First, it is temporary. To put the strong, vigorous American economy into a permanent strait jacket would lock in unfairness; it would stifle the expansion of our free enterprise system. And second, while the wage-price freeze will be backed by Government sanctions, if necessary, it will not be accompanied by the establishment of a huge price control bureaucracy. I am relying on the voluntary cooperation of all Americans – each one of you: workers, employers, consumers – to make this freeze work. Working together, we will break the back of inflation, and we will do it without the mandatory wage and price controls that crush economic and personal freedom. The third indispensable element in building the new prosperity is closely related to creating new jobs and halting inflation. We must protect the position of the American dollar as a pillar of monetary stability around the world. In the past 7 years, there has been an average of one international monetary crisis every year. Now who gains from these crises? Not the workingman; not the investor; not the real producers of wealth. The gainers are the international money speculators. Because they thrive on crises, they help to create them. In recent weeks, the speculators have been waging an all-out war on the American dollar. The strength of a nation’s currency is based on the strength of that nation’s economy – and the America: economy is by far the strongest in the world. Accordingly, I have directed the Secretary of the Treasury to take the action necessary to defend the dollar against the speculators. I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States. Now, what is this action – which is very technical – what does it mean for you? Let me lay to rest the bugaboo of what is called devaluation. If you want to buy a foreign car or take a trip abroad, market conditions may cause your dollar to buy slightly less. But if you are among the overwhelm483

The Monetary History of Gold ing majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today. The effect of this action, in other words, will be to stabilise the dollar. Now, this action will not win us any friends among the international money traders. But our primary concern is with the American workers, and with fair competition around the world. To our friends abroad, including the many responsible members of the international banking community who are dedicated to stability and the flow of trade, I give this assurance: The United States has always been, and will continue to be, a forward-looking and trustworthy trading partner. In full cooperation with the International Monetary Fund and those who trade with us, we will press for the necessary reforms to set up an urgently needed new international monetary system. Stability and equal treatment is in everybody’s best interest. I am determined that the American dollar must never again be a hostage in the hands of international speculators. I am taking one further step to protect the dollar, to improve our balance of payments, and to increase jobs for Americans. As a temporary measure, I am today imposing an additional tax of 10 percent on goods imported into the United States. This is a better solution for international trade than direct controls on the amount of imports. This import tax is a temporary action. It isn’t directed against any other country. It is an action to make certain that American products will not be at a disadvantage because of unfair exchange rates. When the unfair treatment is ended, the import tax will end as well. As a result of these actions, the product of American labor will be more competitive, and the unfair edge that some of our foreign competition has will be removed. This is a major reason why our trade balance has eroded over the past 15 years. At the end of World War II the economies of the major industrial nations of Europe and Asia were shattered. To help them get on their feet and to protect their freedom, the United States has provided over the past 25 years $143 billion in foreign aid. That was the right thing for us to do. Today, largely with our help, they have regained their vitality. They have become our strong competitors, and we welcome their success. But now that other nations are economically strong, the time has come for them to bear their fair share of the burden of defending freedom around the world. The time has come for exchange rates to be set straight and for the major nations to compete as equals. There is no longer any need for the United States to compete with one hand tied behind her back. The range of actions I have taken and proposed tonight – on the job front, on the inflation front, on the monetary front – is the most comprehensive new economic policy to be undertaken in this Nation in four decades. […] 484

18 December 1971 Remarks by US President Nixon announcing a Monetary Agreement following a Meeting of the Group of Ten

The President’s announcement refers to the Smithsonian Agreement (see the following document) signed between the United States, West Germany, the United Kingdom, France, Japan, Italy, Canada, Belgium, the Netherlands and Sweden (Switzerland also participated in the discussions). Source: Public Papers of the Presidents, Richard Nixon, Containing the Public Messages, Speeches, and Statements of the President, 1971 (Washington: Government Printing Office, 1972), pp. 1193–4.

Ladies and gentlemen: It is my very great privilege to announce on behalf of the Finance Ministers and the other representatives of the ten countries involved, the conclusion of the most significant monetary agreement in the history of the world. I know that may seem to be an overstatement, but when we compare this agreement with Bretton Woods, which, of course, was the last very significant agreement of this kind, we can see how enormous this achievement has been. Bretton Woods came at a time when the United States, immediately after World War II, was predominant in economic affairs in the world and the decision of the United States was, perhaps, the most important one to be made at that time. Now we have a new world, fortunately a much better world economically, where instead of just one strong economic nation, the nations of Europe, Japan and Asia, Canada and North America, all of these nations are strong economically, strong competitors, and, as a result, it was necessary in these meetings for a negotiation to take place between equally strong nations insofar as their currencies were concerned. And the fact that these gentlemen, over a period of weeks, finally culminating in the last 2 days, have reached agreement on the realignment of exchange rates, is, indeed, the most significant event that has occurred in world financial history. I express appreciation to them for 485

The Monetary History of Gold the work they have done and I would say finally this. The question will inevitably be asked when each returns to his country, as it will be asked of Secretary Connally and me when we refer to the Congress: Who won, who lost? The answer is: When agreements are reached in which all parties bargain hard and fight hard for their position, when that agreement is mutually reached, then it is an agreement which is to the mutual benefit of both. What has happened here is that the whole free world has won, because as a result of this agreement, we will have, from a financial and monetary standpoint, a more stable world. We will have a world in which competition can be more fair. We will have a world in which we can have more true prosperity than would be the case if we continue to have an alignment which was inevitably doomed to fail because of the instability. And so congratulations, in this historic room, to these men for their achievement, for their service to the cause of financial stability in the world, for progress economically in the world, and, of course, in the long run, to a more peaceful world. Thank you. : The President spoke […] in the Commons Room at the Smithsonian Institution Building.

NOTE

486

December 1971 Smithsonian Agreement of the Group of Ten

Heralded by American President Richard Nixon as ‘the most significant monetary agreement in the history of the world’, the Smithsonian Agreement in fact consisted of a series of agreements signed in Washington, DC in December 1971. As part of this agreement, the American government approved the re-evaluation of the dollar against gold, and several countries altered their central rate against the dollar. The three documents excerpted here include the Group of Ten’s ministerial press communiqué, the IMF’s Executive Board decision on central rates (both documents are dated 18 December 1971) and an IMF press release, dated 30 December 1971, providing member states with information on the new exchange rate regime. Source: The relevant press releases and IMF Executive Board decision can be found in International Monetary Fund, International Financial News Summary Vol. XXIII, No. 50 (22–30 December 1971), pp. 417–21.

DOCUMENT A. PRESS COMMUNIQUÉ OF THE MINISTERIAL MEETING (18 DECEMBER 1971) Ministerial Meeting of Group of Ten 1. The Ministers and Central Bank Governors of the en countries participating in the General Arrangements to Borrow met at the Smithsonian Institution in Washington on December 17 and 18, 1971, in executive session, under the Chairmanship of Mr J.B. Connally, the Secretary of the Treasury of the United States Mr P.-P. Schweitzer, the Managing Director of the International Monetary Fund, took part in the meeting, which was also attended by the President of the Swiss National Bank, Mr E. Stopper, and in part by the Secretary-General of the Organization for Economic Cooperation and Development, Mr E. van Lennep, the General Manager of the Bank for International Settlements, Mr R. Larre, and the Vice-President of the Commission of the European Economic Community, Mr R. Barre The Ministers and Governors welcomed a report from the Managing Director of the Fund on a meeting held between their Deputies and the Executive Directors of the Fund 487

The Monetary History of Gold 2. The Ministers and Governors agreed on an interrelated set of measures designed to restore stability to international monetary arrangements and to provide for expanding international trade These measures will be communicated promptly to other governments It is the hope of the Ministers and Governors that all governments will cooperate through the International Monetary Fund to permit implementation of these measures in an orderly fashion 3. The Ministers and Governors reached agreement on a pattern of exchange rate relationships among their currencies These decisions will be announced by individual governments, in the form of par values or central rates as they desire. Most of the countries plan to close their exchange markets on Monday. The Canadian Minister informed the Group that Canada intends temporarily to maintain a floating exchange rate and intends to permit fundamental market forces to establish the exchange rate without intervention except as required to maintain orderly conditions. 4. It was also agreed that, pending agreement on longer-term monetary reforms, provision will be made for 2¼ per cent margins of exchange rate fluctuation above and below the new exchange rates. The Ministers and Governors recognised that all members of the Intel national Monetary Fund not attending the present discussions will need urgently to reach decisions, in consultation with the International Monetary Fund, with respect to their own exchange rates. It was the view of the Ministers and Governors that it is particularly important at this time that no country seek improper competitive advantage through its exchange rate policies. Changes in panties can only be justified by an objective appraisal which establishes a position of disequilibrium. 5. Questions of trade arrangements were recognised by the Ministers and Governors as a relevant factor in assuring a new and lasting equilibrium in the international economy. Urgent negotiations are now under way between the United States and the Commission of the European Community, Japan, and Canada to resolve pending short-term issues at the earliest possible date, and with the European Community to establish an appropriate agenda for considering more basic issues in a framework of mutual cooperation in the course of 1972 and beyond The United States agreed to propose to Congress a suitable means for devaluing the dollar in terms of gold to $38.00 per ounce as soon as the related set of short-term measures is available for Congressional scrutiny. Upon passage of required legislative authority in this framework, the United States will propose the corresponding new par value of the dollar to the International Monetary Fund 6. In consideration of the agreed immediate realignment of exchange rates, the United States agreed that it will immediately suppress the recently 488

After the Gold Standard, 1931–1999 imposed 10 per cent import surcharge and related provisions of the Job Development Credit. 7. The Ministers and Governors agreed that discussions should be promptly undertaken, particularly in the framework of the International Monetary Fund, to consider reform of the international monetary system over the longer term It was agreed that attention should be directed to the appropriate monetary means and division of responsibilities for defending stable exchange rates and for insuring a proper degree of convertibility of the system; to the proper role of gold, of reserve currencies, and of special drawing rights in the operation of the system; to the appropriate volume of liquidity; to reexamination of the permissible margins of fluctuation around established exchange rates and other means of establishing a suitable degree of flexibility; and to other measures dealing with movements of liquid capital. It is recognised that decisions in each of these areas are closely linked.

DOCUMENT B. IMF EXECUTIVE BOARD DECISION (18 DECEMBER 1971) Preamble This decision is adopted by the Executive Directors in order to indicate practices that members may wish to follow in present circumstances consistently with Article IV, Section 4(a) and Board of Governors Resolution No. 26–9, which called on all members to collaborate with the Fund and with each other in order to maintain a satisfactory structure of exchange rates within appropriate margins. The decision is intended to enable members to observe the purposes of the Fund to the maximum extent possible during the temporary period preceding the resumption of effective par values with appropriate margins in accordance with the Articles. Paragraph 1. Par Values and Wider Margins (a) A member will be deemed to be acting in accordance with Article IV, Section 4(a) and Resolution No. 26-9 if it takes appropriate measures, consistent with the Articles, to permit spot exchange transactions between its currency and the currencies of other members taking place within its territories only at rates within 2¼ per cent from the effective parity relationship among currencies as determined by the Fund, provided that these margins may be within 4½ per cent from the said relationship if they result from the maintenance by the member of rates within margins of 2¼ per cent from the said relationship for spot exchange transactions between its currency and its intervention currency. 489

The Monetary History of Gold (b) A member that avails itself of wider margins under (a) above shall notify the Fund. Paragraphs 5 and 6 of this decision shall then apply to the member. (c) A member’s intervention currency means a currency which the member represents to the Fund that it stands ready to buy and sell in order to perform its obligations regarding exchange stability. Paragraph 2. Central Rates (a) A member which temporarily does not maintain rates based on a par value for its currency in accordance with Article IV, Section 3 and Decision No. 904-(59/32) but, by means of appropriate measures consistent with the Articles, maintains a stable rate as the basis for exchange transactions in its territories may communicate to the Fund a rate for its currency for the purposes of this decision. This rate or a rate subsequently communicated in accordance with this paragraph shall take effect as the central rate for the purposes of this decision unless the Fund finds it unsatisfactory. (b) A central rate for a member’s currency may be communicated in gold, units of special drawing rights, or another member’s currency. Paragraph 3. Central Rates with Wider Margins A member that communicates a central rate under paragraph 2(a) and avails itself of the wider margins of paragraph 1(a) on the basis of its central rate shall notify the Fund, and if the Fund has not found the central rate unsatisfactory the member will be deemed to be acting in accordance with Article IV, Section 4(a) and Resolution No. 26-9 if it takes appropriate measures, consistent with the Articles, to permit spot exchange transactions between its currency and the currencies of other members taking place within its territories only at rates within 2¼ per cent from the central rate, provided that these margins may be within 4½ per cent from the central rate if they result from the maintenance by the member of rates within margins of 2¼ per cent from the central rate for spot exchange transactions between its currency and its intervention currency. In addition, paragraphs 5 and 6 shall apply. Paragraph 4. Central Rates without Wider Margins If a member that communicates a central rate under paragraph 2(a) does not notify the Fund under paragraph 3 that it avails itself of the wider margins of that paragraph, the member shall take appropriate measures to ensure that the margins on either side of the central rate for exchange transactions between its currency and the currencies of other members taking place within its territories shall be no wider than the equivalent of the margins of Article IV, Section 3 and Decision No. 904-(59/32). 490

After the Gold Standard, 1931–1999 Paragraph 5. Multiple Currency Practices and Discriminatory Currency Arrangements Notwithstanding paragraphs 1 and 3 above, no member shall permit, except as approved or authorised under Article VIII, Section 3 or Article XIV, Section 2, (i.) a spread between the buying and selling rates for spot exchange transactions between its currency and the currencies of other members in excess of 2 per cent, or (ii.) (1.) a difference between buying or between selling rates for spot exchange transactions between its currency and the currency of another member, or (2.) a relationship among the buying rates, or among the selling rates, for the currencies of other members, that the Fund regards as inconsistent with promotion of exchange stability, the maintenance of orderly exchange arrangements with other members, and the avoidance of competitive exchange alterations. Paragraph 6. Intervention Appropriate measures for the purposes of paragraphs 1(a), 2(a), and 3 above shall include intervention by a member’s authorities in the exchange markets within the member’s territories in order to maintain rates for spot exchange transactions in accordance with this decision. In their intervention in exchange markets members shall refrain from actions incompatible with the purposes of the Fund. Paragraph 7. Members Maintaining Narrow Margins Against an Intervention Currency (a) A member will be deemed to be acting in accordance with Article IV, Section 4(a) and Board of Governors Resolution No. 26-9, if (a) the rate for its currency is maintained consistently with the Articles or the member’s Membership Resolution, (b) the member permits transactions between its currency and its intervention currency only within margins of 1 per cent of the said rate in terms of the intervention currency, and (c) the intervention currency is the currency of a member which maintains rates within margins consistent with this decision. (b) Subparagraph (a) shall apply to a member in respect of the separate currency of a territory under Article XX, Section 2(g) for which margins of 1 per cent are maintained for transactions between the separate currency and the metropolitan currency. Decision No. 3463-(71/126) December 18, 1971 491

The Monetary History of Gold DOCUMENT C. IMF PRESS RELEASE ON EXCHANGE RATES (30 DECEMBER 1971) Information on Exchange Rates In connection with the current realignment of exchange rates, member countries have notified the Fund of their action with respect to par values, central rates, and wider margins. The Fund has acted on these notifications as necessary. The tables below summarise the notifications. As indicated in the tables, many members have decided that they will continue to maintain unchanged the par values of their currencies in terms of gold. Some members have proposed changes in their par values which have been acted upon by the Fund, while considerably more members have communicated central rates for their currencies. The majority of all these members have indicated that they are availing themselves of the wider margins of up to 2¼ per cent, under the provisions of the decision establishing a temporary regime of wider margins and central rates. In addition to these notifications with respect to the maintenance of par values, establishment of central rates, and use of wider margins, other members have also notified the Fund of their exchange rate practices. These members are not availing themselves of wider margins of up to 2¼ per cent, and the overwhelming majority are maintaining their exchange rates unchanged in terms of their intervention currency. A large group of members, all of whose exchange rates are agreed under their membership resolutions, have maintained their rates fixed in terms of French francs. These include Dahomey, Ivory Coast, Malagasy Republic, Mauritania, Niger, Senegal, Togo, and Upper Volta. Algeria has similarily maintained its exchange rate. Those that had effective par values prior to August 15, 1971 and are maintaining their exchange rates unchanged in terms of U.S dollars include China, El Salvador, Iran, Liberia, Nepal, and Thailand. Many other members have also maintained their exchange rates unchanged in terms of US dollars or have free markets, including Argentina, Brazil, Canada, Chile, Costa Rica, Ecuador, Egypt, Indonesia, Korea, Lebanon, Pakistan, Paraguay, Peru, Philippines, Sudan, Syrian Arab Republic, Viet-Nam, and Yemen Arab Republic. Venezuela made a small appreciation of 2.28 per cent in its rates in terms of US dollars. Parity rates and central rates are expressed in the tables in terms both of the national currency rate for the US dollar and the US dollar rate for the national currency on the basis of the relative exchange rates of, currencies resulting from the realignment. Central rates have been expressed in US dollar terms even though some members have expressed them in other terms. The percentage change in terms of US dollars refers to the percentage change in the 492

After the Gold Standard, 1931–1999 amount of US dollars required to purchase a unit of national currency and is calculated on the basis of the parities in effect on May 1, 1971. Some members have not yet notified the Fund definitely of the action they intend to take with respect to exchange rates, and it is planned to provide this information at a later date.

I. PAR VALUES MAINTAINED UNCHANGED1 Currency Units per US Dollar US Dollars per Currency Unit Australia* 0.822370 1.21600 Gambia, The 1.91886 0.521143 Libyan Arab Rep.* 0.328947 3.04000 Nigeria* 0.328947 3.04000 Somalia 6.57894 0.152000

Barbados 1.84211 0.542857 Iraq* 0.328947 3.04000 Malawi 0.767544 1.30286 Rwanda* 92.1053 0.010857 Spain* 64.4737 0.0155102

Cyprus* 0.383772 2.60571 Ireland* 0.383772 2.60571 Malaysia 2.81955 0.354666 Saudi Arabia 4.14475 0.241269 Tunisia* 0.483552 2.06803

Ethiopia* 2.30263 0.434285 Jamaica* 0.767544 1.30286 Morocco* 4.66098 0.214547 Sierra Leone 0.767544 1.30286 United Kingdom* 0.383772 2.60571

France* 5.11570 0.195477 Kuwait 0.328947 3.04000 New Zealand* 0.822370 1.21600 Singapore* 2.81955 0.354666 United Kingdom: Hong Kong 5.58213 0.179143

* Member is availing itself of the wider margins of up to 2 1/4 per cent. 1 The change in the rates from May 1971 represents an appreciation of 8.57 per cent in terms of the US dollar.

493

The Monetary History of Gold II. PAR VALUES CHANGED

Botswana2 Ghana* Kenya* Lesotho2 South Africa Swaziland2 Tanzania* Uganda* Yugoslavia* Zambia* Netherlands: Surinam* United Kingdom: Bahama Islands

Currency Units per US Dollars per US Dollar Currency Unit 0.750000 1.33333

Percentage Change in Terms of US Dollars -4.76

1.81818 7.14286 0.750000

0.550000 0.140000 1.33333

-43.88 0.00 -4.76

0.750000 0.750000

1.33333 1.33333

-4.76 -4.76

7.14286 7.14286 17.0000 0.714286 1.78876

0.140000 0.140000 0.0588235 1.40000 0.559047

0.00 0.00 -11.76 0.00 +5.43

0.969999

1.03093

+3.09

* Member is availing itself of the wider margins of up to 2 ¼ per cent. 2 The currency is the South African rand.

494

After the Gold Standard, 1931–1999 III. MEMBERS WHICH HAVE ESTABLISHED CENTRAL RATES

Austria*

Central Rate Expressed in Terms of US Dollars 23.3000

0 0429185

Belgium* Burma* Denmark* Dominican Rep. Finland* Germany* Greece* Guyana* Haiti Honduras Iceland India* Israel*

44..8159 5.34870 6.98000 1.00000 4.10000 3.22250 30.0000 2.00000 5.00000 2.00000 88.0000 7.27927 4.20000

0.0223135 0.186961 0.143266 1.00000 0.243902 0.310318 0.0333333 0.500000 0.200000 0.500000 0.0113636 0.137376 0.238095

Italy* Japan* Jordan* Luxembourg* Malta* Mexico Netherlands* Nicaragua Norway* Panama Portugal* Sweden* Turkey* Zaire* Netherlands: Netherlands Antilles

581.500 308.000 0.357143 44.8159 0.374412 12.5000 3.24470 7.00000 6.64539 1 00000 27.2500 4.81290 14.0000 0.500000 1.79000

0.00171969 0.00324675 2.80000 0.0223135 2.67086 0.0800000 0.308195 0.142857 0.150480 1.00000 0.0366972 0.207775 0.0714286 2.00000 0.558659

US Dollars per Currency Unit

Percentage Change in Terms of US Dollars +11.59 3 +1157 -10..97 +7.45 0.00 +2.44 +13.58 0.00 0.00 0.00 0.00 0.00 +3.03 -16.67 3 +7.48 +16.88 0.00 +11.57 +11.29 0.00 +11.57 0.00 +7.49 0.00 +5.50 +7.49 +7.14 0.00 +5.35

* Member is availing itself of the wider margins of up to 2¼ per cent. 3 Includes the changes in par values since May 1, 1971.

495

31 March 1972 Par Value Modification Act, 1972

In line with its commitment in the Smithsonian Agreement, the United States devalued the dollar by approximately 8.5 per cent from $35 to $38 per ounce of gold. Source: Statutes at Large of the United States of America 1972 (Washington: Government Printing Office, 1973), pp. 116–17.

AN ACT To provide for a modification in the par value of the dollar, and for other purposes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, Section 1. This Act may be cited as the ‘Par Value Modification Act’. Section 2. The Secretary of the Treasury is hereby authorised and directed to take the steps necessary to establish a new part value of the dollar of $1 equals one thirty-eighth of a fine troy ounce of gold. When established such par value shall be the legal standard for defining the relationship of the dollar to gold for the purpose of issuing gold certificates pursuant to section 14© of the Gold Reserve Act of 1934 (31 U.S.C. 405b). Section 3. The Secretary of the Treasury is authorised and directed to maintain the value in terms of gold of the holdings of the United States dollars of the International Monetary Fund, the International Bank for Reconstruction and Development, the Inter-American Development Bank, the International Development Association, and the Asian Development Bank to the extent provided in the articles of agreement of such institutions. There is hereby authorised to be appropriated, to remain available until expended, such amounts as may be necessary to provide for such maintenance of value. Section 4. The increase in the value of the gold held by the United States (including the gold held as security for gold certificates) resulting from the change in the par value of the dollar authorised by section 2 of this Act shall be covered into the Treasury as miscellaneous receipt. 496

2 May 1972 Summary of Regulations on Gold currently in Force in European Countries

This document contains a summary of the various controls on gold that existed in the major countries of Western Europe just prior to the collapse of the Bretton Woods System. The cover letter (not printed here) indicates that this summary was compiled by the Overseas Office of the Bank of England and is drawn primarily from the IMF’s book of exchange restrictions. Source: London, Bank of England Archives, C43/236, 1966/2.

GOLD The regulations currently in force in countries to which you refer are summarised as follows: – E.E.C. Belgium – Luxembourg Residents may freely purchase, hold, and sell gold in the form of coins or bars, at home or abroad. Imports and exports of gold in these forms by residents and non-residents are unrestricted and free of license. Settlements in respect of gold transactions with convertible area countries may be made through the free market, through financial accounts in Belgian or Luxembourg francs, or in domestic or foreign banknotes. No customs duties or other charges are levied on imports or exports of gold, except on imports for industrial or handicraft purposes. Licenses are required for imports of semiprocessed gold; these are issued to professional users, who are authorised to make payment through the official market.* * – transactions in monetary gold, i.e., coins and bars, are exempt from the value-added tax introduced in Belgium on January 1, 1971.

497

The Monetary History of Gold France Residents are free to hold, acquire, and dispose of gold in any form in France. They may continue to hold abroad any gold they held there prior to November 25, 1968. There is a free gold market for bars and coins in Paris, to which residents have free and anonymous access. Imports and exports of gold into or from the territory of continental France require prior authorisation by the Bank of France, which is not normally granted for monetary gold but usually is given for industrial gold. Exempt from this requirement are (1.) imports ana exports of gold addressed to or shipped by the Bank of France; (2.) imports and exports of manufactured articles containing only a minor quantity of gold, such as gold-filled and gold-plated articles; (3.) imports and exports of gold objects (other than medals, coins and bars, but including both personal and other jewellery) whose combined weight does not exceed $00 grams; and (4.) collectors’ items of gold and gold antiques that are exported under ‘02 licenses’ granted with the approval of the Directorate of Museums. Both licensed and exempt imports of gold are subject to customs declaration. The import and export of certain gold objects that are considered merchandise, such as gold watches, is subject to both the regular import and export licensing arrangements and to licensing by the Bank of France. In domestic trading, purchases of monetary gold (bars and coins) are not subject to value – added tax. Imports of monetary gold are exempt from customs duty and value-added tax. Germany Residents may freely hold gold in any form at home and abroad and may negotiate gold in any form with residents or non-residents at home and abroad. There is a free gold market in Frankfurt. Imports require a license from the Federal Office for Trade and Industry when the gold is purchased in or originates in Rhodesia or the Eastern Bloc. With this exception, imports and exports by residents and non-residents of gold in any form are unrestricted and free of license; a customs declaration, however, is required. Imports of unworked gold and gold alloys are free of customs duty but are subject to value-added tax at a rate of 11 per cent. Imports of monetary gold by the Bundesbank and imports of gold coins that are legal tender, including sovereigns, are exempt from this tax and from customs duty; imports of other gold coins are subject to value-added tax at a rate of 5.5 per cent. Domestic purchases of gold (alloys and coins that are not legal tender) are subject to value-added tax at a rate of 11 per cent. Commercial imports and exports of articles containing gold are subject to the general foreign trade regulations and in most cases are liberalised. 498

After the Gold Standard, 1931–1999 Italy Residents may freely hold and negotiate gold in any form in Italy. The monetary authorities may freely acquire unrefined gold abroad. Agent banks that have been authorised by the Ministry of the Treasury may acquire unrefined gold abroad upon submission of licenses issued by the Ministry of Foreign Trade to Italian firms for industrial use. Imports of wrought and semimanufactured gold, including jewellery, are subject to licensing. Exports of wrought and semimanufactured gold other than jewellery also require licenses. Commercial imports of articles containing a minor quantity of gold, such as watches, are liberalised for most countries of origin. Netherlands The Netherlands Bank engages in gold transactions only with monetary authorities and international financial institutions. Neither the Bank nor any government agency imports or markets gold for industrial use. Authorised banks and other residents may freely purchase, hold, and sell gold (fine gold, gold coin, and gold alloys) in the Netherlands or abroad; gold held abroad, however, must be kept on deposit with the foreign correspondent of an authorised depository. Imports and exports of gold require neither exchange licenses nor import and export licenses. There is a free gold market in Amsterdam. Domestic sales of gold coins are subject to value-added tax at 4 per cent (except those of Belgium, Denmark, South Africa, the United Kingdom, and the United States, which are exempt); the value-added tax on medallions and commemorative coins that are not legal tender is 14 per cent;* sales of gold bars and nuggets are exempt. Commercial imports of gold jewellery and of articles containing minor quantities of gold, such as watches, require import licenses only when originating in Hong Kong, Japan, or state trading countries. * – with effect from January 1, 1971, when the general rate of value-added tax was increased from 12 per cent to 14 per cent. E.F.T.A. Austria Transactions in gold (excluding jewellery and medallions, which are considered jewellery) are governed by the Foreign Exchange Law. The Austrian National Bank is authorised by this law to deal in gold as defined therein; the Bank has granted a number of general permissions widely liberalising the domestic gold trade, but does not itself buy or sell gold or gold coins, except in transactions with monetary authorities of other countries or with international financial institutions. The Bank has authorised credit institu499

The Monetary History of Gold tions, exchange offices, and coin dealers to buy or sell gold coins that are not legal tender on their own behalf or on their customers’ behalf; the prices are based on those for coins and unmanufactured gold in free markets abroad. The Mint releases certain types of gold coins to authorised credit institutions for resale to the public. Residents may hold gold in any form, including bars, in Austria, and they may acquire in Austria any gold coins that are not legal tender and any gold medals or medallions; furthermore, domestic trading between residents in gold with a fineness of less than 0.585 is unrestricted. With the exception of coins, medal and gold with a fineness of less than 0.585, the acquisition from residents of gold subject to the Foreign Exchange Law is reserved for the monetary authorities, authorised industrial users, dentists, and jewelers; the Mint, gold refiners, and jewelers are permitted to trade or exchange among themselves gold in any form. Where the Foreign Trade Law prescribes import licenses for gold imports (e.g., for gold sheets), the license is either issued by the Ministry of Trade, Commerce, and Industry, which usually grants any license applied for by industrial users, or by the customs office concerned, which issues licenses automatically for certain gold imports within its competence. Where this law does not require an import license for imports (e.g., for the import of gold bars), the Foreign Exchange Law prescribes a license issued by the National Bank covering the purchase of gold; such licenses are issued after consideration of the merits of each case. Exports of gold in any form other than jewellery require authorisation by the National Bank. The National Bank!s imports and exports do not require import, exchange, or export licenses. Commercial imports of jewellery and of articles containing a minor amount of gold, such as watches, are liberalised, licenses being issued automatically by the customs; commercial exports of a number of such articles, however, must be licensed by the Ministry of Trade, Commerce, and Industry. Denmark Residents may freely buy, hold, and sell gold coins in Denmark. Residents other than the monetary authorities and authorised industrial users are not allowed to acquire gold abroad. Imports and exports of gold normally require licenses issued by the Ministry of Commerce; such licenses are not normally granted except for imports and exports by or on behalf of the monetary authorities and industrial users. Imports of gold in bars or coins, unless made by or on behalf of the monetary authorities, are subject, to valueadded tax at a rate of 15 per cent but not to customs duty. Domestic transactions also are taxed at a rate of 15 per cent. 500

After the Gold Standard, 1931–1999 Finland Residents may freely hold, buy, and sell gold in any form at home. Imports of gold in any form other than jewellery require licenses issued by the Licensing Office; such licenses are not normally granted except for imports by or on behalf of the monetary authorities and industrial users. Commercial imports of articles containing gold require licenses issued by the Licensing Office; for most such articles these are granted freely. Exports of gold are subject to the same regulations as exports of other commodities, i.e., an export control declaration approved by the Licensing Office is usually sufficient. Iceland Residents may hold and acquire gold in Iceland, subject to certain legal requirements. Imports and exports of gold in any form other than jewellery require licenses issued by the Central Bank; such licenses are not normally granted except for imports and experts by or or behalf of the monetary authorities and industrial users. However, citizens returning to Iceland after a period of residence abroad may freely bring in any gold in their possession. Norway Residents may hold and acquire gold coins in Norway for numismatic purposes. With this exception, residents other than the monetary authorities and authorised industrial users are not allowed to hold or acquire gold in any form other than jewellery, at home or abroad. Imports and exports of gold in any form other than jewellery require licenses issued by the Bank of Norway; such licenses are not normally granted except for imports and exports by or on behalf of the monetary authorities and industrial users. To customs duties or other charges or fees are payable on imports or exports of gold bullion and gold coins not contained in jewellery. Portugal Residents may hold and acquire gold in any form in Portugal, and there is a free qold market in Lisbon. The purchase or sale of coined or uncoined gold, then carried out between metropolitan Portugal and foreign countries, is subject to special advance authorisation from the Bank of Portugal whenever a resident of metropolitan Portugal takes part in the transaction or has an interest in it. The import, export, or re-export of coined or uncoined gold is also subject to special advance authorisation from the Bank of Portugal. Licensing of imports is relatively liberal but import authorisations for industrial gold are granted only to commercial banks and the Association of Industrial Users of Gold. Domestic sales of gold and of gold coins that are 501

The Monetary History of Gold not legal tender are subject to a transactions tax of 20 per cent. There is a free market for gold in Macao, in which both residents of Macao and nonresidents who are not resident in the Portuguese Monetary Area may freely trade among themselves in bars, leaves, and coins; settlement must take place in patacas or US dollars. In Macao, the Government sets overall limits for imports of gold in any form other than jewellery; authority to carry out such imports is delegated to a concessionary enterprise for a two-year period. Imports and exports of gold, unless made by or on behalf of the Macao monetary authorities, require licenses issued by the Commissioner for Economy. Sweden Gold in any form may be held, purchased, and sold within Sweden. Imports and exports of gold and gold alloys require licenses issued by the Riksbank; the types of gold affected are unmanufactured gold, most types of semimanufactured gold, and gold coins (except coin imported by or on behalf of collectors or collections). Import licenses are normally granted to jewelers, dental laboratories, and users of gold for industrial and scientific purposes, as well as to persons and firms importing for resale to these categories of users. As a general rule, no licenses are issued for the import of gold to be held on private account. Commercial imports and exports of articles containing gold, such as jewellery, may be made freely without a license. The same applies to imports and exports of gold coins of numismatic value and intended for collectors or collections. Switzerland Residents may freely purchase, hold, and sell gold in any form at home or abroad; domestic transactions are not subject to any sales or turnover tax. There is a free gold market in Zurich. Imports and exports of gold in any form by residents and non-residents are unrestricted and free of license. No customs duties or other charges are levied on exports of gold. Imports of gold in certain forms are subject to customs duty (exempt are bars and certain coins) or sales tax (exempt are coins and bars). Import and export licenses are required for commercial imports and exports of certain articles containing gold; these are issued freely.

502

21 September 1973 An Act to amend the Par Value Modification Act

The dollar was devalued against gold a second time in 1973. This devaluation (of approximately 11 per cent) raised the price of gold from $38.00 to $42.22 per ounce. This document contains the statutory devaluation of the dollar and also legalises private gold ownership in the United States. Source: Statutes at Large of the United States of America 1973 (Washington: Government Printing Office, 1974), p. 352.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the first sentence of section 2 of the Par Value Modification Act is amended by striking out the words ‘one thirtyeighth of a fine troy ounce of gold’ and inserting in lieu thereof the following: ‘0.828948 Special Drawing Right or, the equivalent in terms of gold, of fortytwo and two-ninths dollars per fine troy ounce of gold’. SECTION 2. The Par Value Modification Act is amended by adding at the end thereof the following new section: ‘SEC. 5. It is the sense of the Congress that the President shall take all appropriate action to expedite realisation of the international monetary reform noted at the Smithsonian on December 18, 1971.’ SECTION 3. (a) Sections 3 and 4 of the Gold Reserve Act of 1934 (31 U.S.C. 442 and 443) are repealed. (b) No provision of any law in effect on the date of enactment of this Act, and no rule, regulation, or order under authority of any such law, may be construed to prohibit any person from purchasing, holding, selling, or otherwise dealing with gold. (c) The provisions of this section, pertaining to gold, shall take effect when the President finds and reports to the Congress that international monetary reform shall have proceeded to the point where elimination of regulations on private ownership of gold will not adversely affect the United States’ international monetary position. 503

30 April 1976 The Second Amendment to the IMF Articles

After the final collapse of the Bretton Woods System, the IMF articles were rewritten to take into account the new international monetary circumstances. The following excerpt contains Article IV of the revised agreement where gold is written out of the system. According to Section 2(b)(i), member countries were allowed to tie their currency to any external anchor with the sole exception of gold. This article remains in force to this day. Source: House of Commons, House of Commons Parliamentary Papers, 1976–77 (London: House of Commons, 1977), vol. 8, cmnd. 6705.

ARTICLE IV OBLIGATIONS REGARDING EXCHANGE ARRANGEMENTS Section 1. General obligations of members Recognising that the essential purpose of the international monetary system is to provide a framework that facilitates the exchange of goods, services, and capital among countries, and that sustains sound economic growth, and that a principal objective is the continuing development of the orderly underlying conditions that are necessary for financial and economic stability, each member undertakes to collaborate with the Fund and other members to assure orderly exchange arrangements and to promote a stable system of exchange rates. In particular, each member shall: (i.) endeavor to direct its economic and financial policies toward the objective of fostering orderly economic growth with reasonable price stability, with due regard to its circumstances; (ii.) seek to promote stability by fostering orderly underlying economic and financial conditions and a monetary system that does not tend to produce erratic disruptions; (iii.) avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members; and 504

After the Gold Standard, 1931–1999 (iv.) follow exchange policies compatible with the undertakings under this Section. Section 2. General exchange arrangements (a) Each member shall notify the Fund, within thirty days after the date of the second amendment of this Agreement, of the exchange arrangements it intends to apply in fulfillment of its obligations under Section 1 of this Article, and shall notify the Fund promptly of any changes in its exchange arrangements. (b) Under an international monetary system of the kind prevailing on January 1, 1976, exchange arrangements may include (i.) the maintenance by a member of a value for its currency in terms of the special drawing right or another denominator, other than gold, selected by the member, or (ii.) cooperative arrangements by which members maintain the value of their currencies in relation to the value of the currency or currencies of other members, or (iii.) other exchange arrangements of a member’s choice. (c) To accord with the development of the international monetary system, the Fund, by an eighty-five percent majority of the total voting power, may make provision for general exchange arrangements without limiting the right of members to have exchange arrangements of their choice consistent with the purposes of the Fund and the obligations under Section 1 of this Article. Section 3. Surveillance over exchange arrangements (a) The Fund shall oversee the international monetary system in order to ensure its effective operation, and shall oversee the compliance of each member with its obligations under Section 1 of this Article. (b) In order to fulfill its functions under (a) above, the Fund shall exercise firm surveillance over the exchange rate policies of members, and shall adopt specific principles for the guidance of all members with respect to those policies. Each member shall provide the Fund with the information necessary for such surveillance, and, when requested by the Fund, shall consult with it on the member’s exchange rate policies. The principles adopted by the Fund shall be consistent with cooperative arrangements by which members maintain the value of their currencies in relation to the value of the currency or currencies of other members, as well as with other exchange arrangements of a member’s choice consistent with the purposes of the Fund and Section 1 of this Article. These principles shall respect the domestic social and political policies of members, and in applying these principles the Fund shall pay due regard to the circumstances of members. 505

The Monetary History of Gold Section 4. Par values The Fund may determine, by an eighty-five percent majority of the total voting power, that international economic conditions permit the introduction of a widespread system of exchange arrangements based on stable but adjustable par values. The Fund shall make the determination on the basis of the underlying stability of the world economy, and for this purpose shall take into account price movements and rates of expansion in the economies of members. The determination shall be made in light of the evolution of the international monetary system, with particular reference to sources of liquidity, and, in order to ensure the effective operation of a system of par values, to arrangements under which both members in surplus and members in deficit in their balances of payments take prompt, effective, and symmetrical action to achieve adjustment, as well as to arrangements for intervention and the treatment of imbalances. Upon making such determination, the Fund shall notify members that the provisions of Schedule C apply. Section 5. Separate currencies within a member’s territories (a) Action by a member with respect to its currency under this Article shall be deemed to apply to the separate currencies of all territories in respect of which the member has accepted this Agreement under Article XXXI, Section 2(g) unless the member declares that its action relates either to the metropolitan currency alone, or only to one or more specified separate currencies, or to the metropolitan currency and one or more specified separate currencies. (b) Action by the Fund under this Article shall be deemed to relate to all currencies of a member referred to in (a) above unless the Fund declares otherwise.

506

31 March 1982 The United States Gold Commission, 1982

In the wake of economic crisis of the 1970s, the United States Congress established a commission to re-evaluate the use of the United States’ gold reserves. The Commission’s view was divided between that of a monetary group, which printed the Majority Report rejecting a return to the gold standard, and that of a minority which believed a return to the gold standard was an essential component of financial stability. The excerpt printed below contains the recommendations of the Gold Commission. Source: Report to the Congress of the Commission on the Role of Gold in the Domestic and International Monetary Systems, vol. 1 (Washington: Government Printing Office, 1982), page 3–25.

Aims of the Gold Commission Part of our mandate is to assess the role of gold in the domestic and international monetary systems. Assessments differ among members of the Commission not only with respect to the costs and benefits in the past when our monetary system was linked to gold but also with respect to the prospective costs and benefits, were such a link restored. Given the size of the Commission that the Congress specified, and the diversity of our views, that result may not be surprising. We decided that the best service we could render the country would be to set forth in an objective way the complex issues involved and give a fair hearing to different points of view. Another part of our mandate is to make recommendations. Though it became apparent to us during our deliberations that we would not be able to achieve a unanimous set of recommendations, on some issues, it was possible to form majorities. Even so, a majority vote in favor of a specific recommendation did not signify that all so voting had the same purposes and/or interpretations in mind. Moreover, if each of us had been reporting singly instead of as one of a body of colleagues, individual members would not necessarily have expressed themselves in precisely the way the recommendations are stated. Differences in wording, emphasis and perceptions would have been evident. In some 507

The Monetary History of Gold instances our recommendations touch on technical matters, such as legal and tax considerations, that need to be studied more exhaustively than it has been possible for us to do. Such technical questions should be given attention in any Congressional hearings in connection with our recommendations. Majority and Minority Recommendations We report our recommendations on the following subjects: 1. The program of Treasury medallion sales 2. Treasury issue of gold bullion coins 3. Treasury issue of gold-backed notes or bonds 4. The gold stock owned by the United States a. The public accounting for the gold stock b. The relationship between gold certificates held as an asset of the Federal Reserve System and the gold held by the Treasury c. The appropriate size of the gold stock d. The price at which to value the gold stock e. Managing the gold stock 5. Domestic monetary policy arrangements 6. International monetary policy arrangements With respect to most of these subjects, we first present majority views and then the minority views, with some discussion of the opposing reasons that were expressed in our deliberations, 1. The program of Treasury medallion sales In July 1980, the Treasury began the sale of half-ounce and one-ounce gold medallions in accordance with the American Arts Gold Medallion Act of November 10, 1978 (PL 95-630). The legislation provided that not less than 1 million ounces of gold be struck into medallions each year for a five-year period and sold to the public at a price covering all costs. A different American artist is commemorated on each of the two sizes of medallions. In 1980, Grant Wood was honored on the one-ounce and Marian Anderson on the one-half ounce medallion. In 1981, Mark Twain was honored on the oneounce and Willa Cather on the one-half ounce medallion. Under the 1980 program covering the period July 15, 1980, through February 28, 1981, less than 300 thousand medallions of each size were sold, amounting to 434 thousand gold ounces. Under the 1981 program from July 15, 198l, through February 1, 1982, about 60 thousand medallions of each size were sold, amounting to 88 thousand gold ounces. 508

After the Gold Standard, 1931–1999 The price of the medallions varies daily with the market price of their gold content, based on the settlement price at the end of the previous day for gold traded on the Commodity Exchange of New York, plus a surcharge in 1980 of $12 and in 1981 of $14 per ounce to cover the cost of production and marketing. The surcharge averaged about three percent of the underlying gold price. The Bureau of the Mint sells the medallions directly to purchasers: through mail orders placed at US post offices. Delivery is made weeks later. The Treasury Department is planning a simpler and wider distribution of the medallions to be introduced this year through a network of dealers. Although details are not yet finally decided, the expectation is that sales to dealers will be made on the basis of the daily New York gold price, plus a 3 per cent markup to cover costs including advertising by the Mint. The dealers would add a comparable fee in selling to the public and develop a secondary market for the medallions. Recommendation. The Gold Commission supports the improvement of the program of medallion sales along the general lines that the Treasury plans. 2. Treasury issue of gold bullion coins In addition to gold medallions we discussed proposals for a Treasury issue of gold bullion coins of specified weights to be offered to the public at a price near market value. Among those who support the proposal, two conceptions of the character of the demand for such coins are evident. Some of us expect the demand for such coins to be an investment demand, similar to the demand for krugerrands, maple leafs, Mexican pesos, and other foreign coins that have found a market in this country. Others expect the demand for such coins to be (or have the potential to be) a demand for their use as money. Their value would change from day to day as the value of the gold content of the coin fluctuated in the free gold market. Some advocates of this proposal see such coins as facilitating development of a dual monetary system, which would impose an additional degree of discipline on discretionary operation of monetary policy. However, those opposing the proposal believe that ample supplies of gold in forms other than Treasury coins are available to satisfy the demand for gold in the private sector. So that the new issues may compete with foreign coins, some proponents advise that the former be designated legal tender and as coin of the realm bearing the great seal of the United States, the motto ‘In God We Trust’. In addition, they advise that changes in the dollar value of these coins should be exempt from capital gains taxation. A Treasury issue of gold bullion coins involves technical matters, on some of which the Commission has adopted recommendations. Congress should 509

The Monetary History of Gold explore the following considerations more thoroughly than was possible in our deliberations. (a) Consideration of a quantity or a price limit on the issue of the coins. This reflects concern that the demand for the coins might exhaust the Treasury gold stock. One approach would be to specify a limit in any legislation to permit coinage. An alternative means of limiting the demand would be to set a seigniorage fee well in excess of costs of minting. Some who believe the demand for coins would be a demand for money oppose a limit. They would view large scale demand as an indication of public dissatisfaction with the management of the (dollar) money supply and as leading to de facto establishment of a gold coin standard. According to this view, establishment of an arbitrary limit would interfere with this expression of public preferences. A few others of both persuasions favor Treasury purchases of gold to replace gold it has coined. Those who believe the demand for coins would be an investment demand assume that it would not be quantitatively significant, and on this ground would neither oppose nor support a legislated limit. (b) Enabling legislation to Mint coins. Section 5 of the Gold Reserve Act (31 U.S.C. sec. 315b) prohibits the minting of United States gold coin. (c) The implications of legal tender status for newly minted coins. Treasury Counsel prepared for us a statement on this matter related to US currency […] Legal tender status essentially requires that, in any contract that does not otherwise specify the means of payment, a debt can be discharge by the rendering of any form of US legal tender. However, whenever a contract specifies a specific means of payment, such as gold, and the debtor breaches that provision and is taken to court by the creditor, the court normally awards damages rather than specific performance of the contract provision. For some who regard the demand for coins to be an investment demand, legal tender status is an adornment for coins, but nevertheless a sine qua non for generating public acceptance of them. For some who regard the demand as a demand (or a potential demand) for money, the implications of legal tender status require further consideration. Absent court enforcement of specific performance of contract provisions to the contrary, a creditor is bound to accept ‘legal tender’ in satisfaction of the amounts due him. Legal tender status for gold coins could compel their acceptance by private creditors or the Treasury in satisfaction of taxes. Formidable problems, involving potential profits and losses to private creditors and debtors, could arise in assigning gold coins legal tender status at market value. 510

After the Gold Standard, 1931–1999 (d) The implications of capital gains exemption for changes in the dollar value of coins. What are the consequences of advocating such exemption for coins but not for gold bullion holdings or, for that matter, not for productive investments? Would legislation to prohibit local government imposition of sales taxes also be required? (e) Issues by private Mints. S. 1704 and H. R. 3789 specify Government coinage of a 5-gram, a 10-gram, a one-troy-ounce-gross and one-troyounce-net goldpiece. One-half by aggregate weight of all governmentmanufactured coins would be the small denominations. In addition, the bills authorise private Mints to manufacture gold coins of any size with anyone’s picture on its face to circulate as lawful money. The majority of us oppose private minting of official United States coins. We regard the production of ‘official’ coins of a country as a governmental function. The government in effect guarantees the weight and fineness of the ‘official’ coins issued. Private firms are perfectly free to mint gold pieces of any shape and size, so long as they do not purport to be United States coins with a US Government guarantee of weight and fineness. Permission for private firms to mint US coins would open possibilities for fraud and could involve the Treasury in a new and costly regulatory and monitoring function. Problems would be compounded if the Treasury had a convertibility obligation or an obligation to accept the coins in payment of taxes. (f) Convertibility at Treasury of gold bullion coins. Of those favoring issue of coins, about half support assumption by the Treasury of an obligation to stand ready to purchase coin offered to it at the market price on the day of redemption, the conversion producing potential profits (or losses) for the Treasury. The bills mentioned above do not contain an explicit provision for convertibility but provide for use of Federal Reserve liabilities tendered in exchange for gold bullion coins to reduce the national debt. Majority Recommendation. We favor Treasury issue of gold bullion coins of specified weights, and without dollar denomination or legal tender status, to be manufactured from its existing stock of gold and to be sold at a small mark-up over the market value of the gold content, and recommend that the Congress implement this proposal. Furthermore, we recommend that the coins shall be exempt from capital gains taxes and that the coins shall be exempt from sales taxes. Minority Recommendation. We oppose Treasury issue of gold bullion coins. 3. Treasury issue of gold-backed notes or bonds Several witnesses at the hearings we conducted suggested that Treasury issue of gold-backed notes or bonds would be a means of introducing gold into our monetary system. A limited issue, for example, of five-year Treasury notes with 511

The Monetary History of Gold interest and principal payable in grams or ounces of gold, would provide deferred claims to gold. Successive issues in terms of gold would eventually become demand claims on gold. Initially, according to the advocates, the yield spreads between gold and inconvertible dollar obligations of the same maturities might be wide. Success in restoring long-term confidence in monetary discipline would eventually narrow the yield spreads. At that time, full gold convertibility of all dollar obligations might be contemplated. These witnesses emphasised the savings on interest payments by the Treasury, assuming the price of gold remained stable or rose only moderately, and hence a positive effect on Federal budget deficits. In our deliberations, it was noted by opponents of gold-backed Treasury securities that a gold-backed Treasury note or bond, if convertible at maturity at the market price of gold at the date of issue, would in effect be a warehouse certificate for gold. Such an instrument would provide the owner the same chance of gain or loss as owning gold, without his incurring the cost of storage and insurance. No obvious guideline exists for pricing the instrument. A Treasury issue of gold-backed notes or bonds, paying even a low rate of interest, would permit speculation on gold with a sweetener of a coupon. Such issues would be comparable to a bond convertible into the common stock of a corporation that has a low coupon because of the possibility of speculative gain. Purchase of Treasury gold-backed issues would indicate an expectation that the price of gold would rise. The Treasury would then be betting against the market, with no assurance of gain and a major risk of Treasury losses. From a debt management viewpoint, no need exists for gold-backed Treasury issues. Majority Recommendation. We oppose the issue of Treasury gold-backed notes or bonds. 4. The gold stock owned by the United States Government As of March 1982, the Treasury Department reported that it held 264 million troy ounces of gold. The bulk of the gold is stored in mint depositories: Fort Knox, Kentucky, and West Point, New York; US Assay Offices in New York and San Francisco; and the Denver and Philadelphia Mints. In addition, the Federal Reserve Bank of New York is the custodian of a part of the gold stock. a. The public accounting for the gold stock Citizens have written to us expressing concern about alleged unauthorised large withdrawals from gold depositories. They fear that the actual amounts held by the Government are less than are reported officially. Stories in the press also have referred to missing gold. Public and Congressional inquiries relating to the accuracy of the accounting records and security of the gold stock were directed to the Gen512

After the Gold Standard, 1931–1999 eral Accounting Office (GAO) in the early 1970s. In response, the GAO conducted a partial audit of the gold bars stored at Fort Knox in September and October 1974. In its report on the audit, the GAO recommended cyclical audits of the gold in the custody of the Bureau of the Mint. During fiscal 1975, at the direction of the Secretary of the Treasury, the Fiscal Assistant Secretary of the Treasury established the Continuing Committee for the Audit of US-Owned Gold stored at various depositories, with the responsibility to conduct audits at appropriate intervals. The Committee consists of one representative each from the Bureau of the Mint, the Bureau of Government Financial Operations, and the Federal Reserve Bank of New York, with GAO representatives invited to observe the audits. As of September 198l, 79.1 percent of the US-owned gold had been audited and verified. The continuing audit program is planned to provide a complete audit of all US-owned gold by the end of the 10-year cycle in 1984. The Treasury has provided us with a detailed statement of the results of the continuing audit […]. A majority of us is satisfied with the Treasury’s continuing audit, find it thorough, and believe it should allay any public concern with regard to the accuracy of the inventory, the related accounting records, and the internal controls governing the depositories. One of us, however, expressed a preference for a speedier completion of the audit. A minority is not satisfied with an audit that spans ten years and contends that 31 U.S.C. 354 appears to require annual audits of the gold inventory. The minority disputes the Treasury’s view that a 100 percent audit in a single year is not feasible, since on its own estimate of manpower requirements, 26 men could do it. The Treasury has provided us with an opinion that 31 U.S.C. 354 requires not annual audits but annual settlements of account, which are being performed regularly in compliance with this provision. Majority Recommendation. We are satisfied that the Treasury is meeting the requirements of 31 U.S.C. 354 regarding annual settlements of account and that the Treasury’s continuing audit of the Government-owned gold stock provides an adequate basis for full verification of the accuracy of inventory records. Minority Recommendation. The Treasury should assign adequate manpower to complete a 100 percent audit of the gold stock every year. b. The relationship between gold certificates held as an asset of the Federal Reserve System and the gold held by the Treasury Some citizens have expressed the view that for the Treasury to claim ownership of the gold stock and the Federal Reserve System to show gold certificates as assets appears to be double-counting of the same asset. 513

The Monetary History of Gold The gold is the property of the US Government. The certificates do not represent Federal Reserve ownership of the gold. Gold certificates, which are valued at $42.22 per ounce of gold, are issued to the Federal Reserve by the Treasury against its gold holdings. The certificates represent a Federal Reserve claim on the assets of the Treasury, for which the Treasury has received a counterpart deposit in its account with the Federal Reserve As all gold held by the Treasury has been monetised in this fashion, the Federal Reserve Banks’ gold certificate account represents the nation’s entire gold stock. New gold certificate credits may be issued only if additional gold is acquired by the Treasury or the statutory price at which gold certificates may be issued is increased. Similarly, gold certificates must be retired by the Treasury upon the sale of gold, with a corresponding decline in the Treasury’s deposit balance. Recommendation. We believe that the Treasury and Federal Reserve are following appropriate procedures in reporting Federal Reserve claims on the Treasury represented by gold certificates and payable in dollars. c. The appropriate size of the gold stock At year-end 1949, the US gold stock was a little over 700 million fine troy ounces. At year-end 1967, the stock was about 50 per cent smaller – 345 million ounces. As already noted, it is now 264 million ounces. One question we discussed was the appropriate size of the gold stock – a non-interest bearing asset of the Treasury. All of us agree that a zero stock is not the appropriate size and therefore oppose auction sales which are intended to dispose of Treasury holdings over some stated period of years. A minority prefers that the Treasury maintain the present stock as an important strategic and monetary resource. The view is consistent with the belief that an increase in the monetary role of gold is not now timely but the stock should be held as a reserve for possible future use, should a restored role for gold then appear feasible, or against other contingencies. In support of this view, it was suggested to us that should an international monetary conference of free world nations be convened to recommend changes in the international monetary system, it would be useful for the United States to hold a substantial gold stock to influence possible future deliberations and to be in a strong position if gold’s role were reestablished. A variant of that view, held by a majority of us, is that some depletion of the gold stock, for example, for the issue of medallions or coinage, is acceptable but to a limited extent only.

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After the Gold Standard, 1931–1999 Majority Recommendation. We recommend that, while no precise level for the gold stock is necessarily ‘right’, the Treasury retain the right to conduct sales of gold at its discretion, provided adequate levels are maintained for contingencies. Minority Recommendation 1. We are opposed to auction sales of the gold stock held by the Treasury and recommend that under circumstances such as those that presently exist the stock be maintained at its present d. The price at which to value the gold stock By statute, the Treasury currently values the gold stock it holds at $42.22 per ounce. Since the free market in gold was established in 1968, the price has fluctuated between $35 and $850 per ounce. It is currently priced at under $400 per ounce. One argument for revaluing the gold stock at a price closer to the market price is that it would enable the Treasury to raise revenues by sale of part of its gold. The revenue could be used to retire debt, thus saving interest payments on outstanding Treasury securities, or to finance the current Federal budget deficit. All these objectives are attainable simply by selling gold at the market price, and so there is no cogency to this argument for revaluing the gold stock. The same comment applies to the suggestion that an advantage of an international agreement to value gold at the market is that it might be a step forward gold becoming an accepted international medium for payment of balance of payments disequilibria, and that it could also be used for intervention purposes in foreign exchange markets to influence the exchange rate of the dollar. Another argument is that it is unrealistic to value the gold stock at an outdated fixed price. Doing so distorts the true significance and cost of the US gold asset position. We regard the choice of a price at which to revalue gold reserve assets as independent of a decision on the price at which to restore a gold standard. One proposal was made during our deliberations for a gradual increase in the statutory price of gold to a price closer to the market price. The proposal was incidental to a plan to require gold certificate reserves be kept behind Federal Reserve notes […] No other proposal with respect to the determination of a price at which to revalue gold reserve assets was brought to our attention. Majority Recommendation. The Commission recommends that the Treasury and the Federal Reserve conduct studies of issues that would be involved in a move towards valuing gold realistically, at something more closely approximating market prices. This change should be subject to the legislative constraint that the proceeds of this new valuation not be monetised by the Treasury or in any way used to enhance the government’s spending power. The studies should develop a 515

The Monetary History of Gold formula and timetable for valuing US gold stocks in a manner realistically related to gold market value. Minority Recommendation. We are opposed to revaluing the United States gold stock at a higher price. e. Managing the gold stock One general proposition that we examined is the desirability of finding constructive uses of the gold stock rather than keeping it immobile, as is currently the case. Specific suggestions we considered included: (1.) The United States should offer swaps, leases and make other commercial arrangements with respect to its gold stock in order to generate a modest revenue flow. (2.) If revalued, gold should be used for intervention purposes in foreign exchange markets and for settlement of the balance of payments (see subject 4d. above). (3.) The Federal Reserve System should engage in open market operations using gold as well as the government securities. In our discussion of the general proposition, it was noted that some of the suggestions would tend to increase the demand for gold and thus raise its price. Yet there are grounds for the belief that should the United States fix a price at which to restore the traditional gold standard, the price would have to be lover than the current market price […] If the price in the market did not fall once the intention to fix it became known, that would indicate the market’s skepticism that the price could be maintained. The sum of the suggested uses would inhibit, rather than promote, a return to the gold standard at a fixed price. Moreover, if any of the suggested uses of gold yielded a profit, use of the profit to retire public debt or to spend it for budgetary purposes might encourage fiscal imprudence. Majority Recommendation. We do not favor unconventional uses of the gold stock, since the objectives sought by adding gold to the policy instruments of the monetary and fiscal authorities are attainable without such use and the side effects of so using gold may be undesirable. We do favor continued study of the role of gold in the monetary system and recommend that Congress hold hearings on the subject. Minority Recommendation. The Commission recommends that the Federal Reserve and the Treasury conduct studies to consider different ways in which gold can be used as a helpful policy instrument. It seems implausible to keep our vast stocks of gold completely idle, if worthwhile uses can be developed which do not entail depleting those stocks. 516

After the Gold Standard, 1931–1999 5. Domestic monetary policy arrangements Currently, transactions in gold are not used in the implementation of monetary policy by the Federal Reserve System. Gold certificates are carried as an asset of the Federal Reserve and therefore comprise one element in the sources of the monetary base. However, the Federal Reserve does not use its holdings of these certificates as a device for changing the base. We considered a number of alternatives that would serve to reintroduce gold into our domestic monetary policy arrangements. The objective would be to improve monetary control through the discipline of gold for the purpose of reducing inflation. Linking changes in the growth rate of money or of some component of money, such as Federal Reserve notes, or of bank reserves, to the change in the gold stock is one approach which was considered for imposing the discipline of gold. One way to reintroduce gold would be to require the Federal Reserve System to maintain a minimum ratio between the US Government’s gold stock and the Federal Reserve monetary base (i.e., Federal Reserve notes plus bank reserves) or some monetary aggregate. A variant would fix upper and lower limits to the ratio, so that the System would be required to take expansionary actions when the ratio was at its upper limit, or contractionary actions when the ratio was at its lower limit. The gold cover requirement might be valued at the official price of $42.22, or adjusted gradually, or allowed to fluctuate with market prices. Along traditional gold-standard lines, the United States could define the dollar as a specified weight of gold (that is, fix the price of gold), set gold cover requirements for the Federal Reserve System, and allow the value of the gold stock to be determined by gold flows. If the value of the gold stock rose, the Federal Reserve would be required to undertake actions to expand the money stock. If the value of the gold stock declined, it would be required to take contractionary actions. Since the decade of the 1970s, not only in the United States but also in other industrialised nations, monetary authorities have experimented with self-imposed rules of conduct of monetary policy, sometimes expressed as target rates of growth of money. Long-term monetary discipline, not linked to gold, has been the objective. A variant of this approach would impose such discipline by legislative prescription, that is, a monetary rule. Although some opposition was expressed to consideration of domestic monetary arrangements not linked to gold as overstepping the Gold Commission’s mandate, in fact we discussed all the foregoing alternatives. In addition, we considered continuation of our present domestic monetary arrangements, under which the Federal Reserve exercises full discretion with respect to monetary actions and chooses the target rates at which it plans to increase 517

The Monetary History of Gold different monetary aggregates, reporting to several Congressional committees both its plans and their results. The majority of us believes that a return to the gold standard is not desirable. Even if that were not our view, for most of us there are two major problems in contemplating the feasibility of a return to a domestic gold standard. One is the absence of a sound guide on how to determine the fixed dollar price of gold at which resumption of a gold cover requirement could be introduced. The other one is the absence of a sound guide on the extent of feasible convertibility of domestic dollar obligations. Majority Recommendation. The Commission recommends that Congress and the Federal Reserve study the merits of establishing a rule specifying that the growth of the nation’s money supply be maintained at a steady rate which insures long-run price stability. In addition, the Commission concludes that, under present circumstances, restoring a gold standard does not appear to be a fruitful method for dealing with the continuing problem of inflation. The Congress and the Federal Reserve should study ways to improve the conduct of monetary policy, including such alternatives as adopting a monetary rule. Minority Recommendation. We favor the restoration of a gold standard with a fixed price of gold. It is the means to achieve discipline in the US money base which will then increase or decrease with gold purchases and sales by the monetary authorities. The Commission was evenly split on the following proposal: ‘Whereas the majority of those who supported the creation of the Gold Commission did so with the hope of finding a method for better insuring consistent and persistent price stability and; Whereas the inflationary process is ultimately related to excessive growth in money and; Whereas it is clear that inflation cannot persist over the long run in the absence of excessive monetary growth then; The Commission recommends that the Congress by legislation establish a rule specifying that the growth of the nation’s money supply be maintained at a steady rate which insures long-run price stability.’ 6. International monetary policy arrangements We discussed a number of aspects of international monetary arrangements during our deliberations. Under present conditions, the exchange rate of the dollar is determined in foreign exchange markets by the demand for and supply of dollars and also by the demand for the supply of other currencies. The foreign exchange value of the dollar floats, changing from day to day as market influences (or government interventions) determine. We noted above in connection with subject 518

After the Gold Standard, 1931–1999 4d. that the majority of us oppose using monetary gold revalued at current market prices to intervene in foreign exchange markets. Adopting a gold standard with a fixed price of gold in terms of dollars would fix exchange rates between the dollar and the currencies of those of its trading partners who also fixed the price of gold in terms of their currencies. Those who support a system of fixed parities argue that it facilitates international trade and finance and, along with convertibility of the US dollar to gold, would promote the goal of internal price stability. Under present conditions, deficits or surpluses in our balance of payments are settled in dollars automatically. Even though dollars are not convertible into gold at a fixed price, they are convertible into US goods and services including gold at market prices. Other countries and their residents continue to use dollars as an intervention currency in foreign exchange markets, in payments and receipts for international transactions, and as a reserve asset. We do not use our gold in payments and receipts for international transactions and neither do our trading partners. Most of us believe that even if other countries with substantial gold stocks and the major gold-producing countries were to agree with us on a restoration of an international gold standard, the United States – and the system as a whole – would confront an as yet unsolved problem of the vast quantity of dollars world-wide with potential claims to gold convertibility. We are not in fact aware of international interest in restoring a gold standard. Indeed, a number of foreign officials have expressed negative views towards a gold standard. One other question we discussed was the desirability of taking steps to seek a restitution of the gold that the United States and other member countries subscribed to the International Monetary Fund (IMF). The United States would be entitled to buy up to 23. 6 million ounces of gold from the IMF at SDR 35, or approximately $40 per ounce at time of writing, if by an 85 per cent vote of the IMF Executive Board a decision were taken to sell gold for currency to members of the IMF in proportion to their IMF quotas as of August 1975. The argument for such a restitution of IMF gold to its members is that currently gold has no central role in the international monetary system and no longer serves as the common denominator of a par value system or as the unit of value of the SDR; its official price has been abolished; members of the IMF have no obligation to use gold in transactions with the IMF; and the IMF is prohibited from accepting gold unless approved by an 85 per cent vote of its members. The 1976–80 program of IMF gold sales also attests to the intention to establish a diminished role for gold in IMF resources. The argument against seeking such gold restitution by the IMF is essentially the same one that underlies the belief that the United States should retain 519

The Monetary History of Gold significant gold holdings. If gold is an important strategic and monetary resource for the United States, it should also be so regarded by the international community, and retained by the IMF for possible use in various contingencies. Majority Recommendation 1. We favor no change in the flexible exchange rate system. In addition, we favor no change in the usage of gold in the operation of the present exchange rate arrangements. Minority Recommendation 1. We support fixed exchange rates for the US dollar to be introduced at the earliest possible date. Majority Recommendation 2. We oppose action by the United States to seek a restitution of IMF gold to member countries. Minority Recommendation 2. We support taking steps to seek a restitution of IMF gold to member countries. One of us believes the recommendation should be considered, with the proceeds to be distributed by the IMF partly to less developed countries. Another one of us would use the additions to US gold stocks for coinage by the US. Treasury. Conclusion In presenting our report, we are conscious of the complexity of an attempt to define what the role of gold should be in the domestic and international monetary systems. The majority of us at this time favor essentially no change in the present role of gold. Yet we are not prepared to rule out that an enlarged role for gold may emerge at some future date. If reasonable price stability and confidence in our currency are not restored in the years ahead, we believe that those who advocate an immediate return to gold will grow in numbers and political influence. If there is success in restoring price stability and confidence in our currency, tighter linkage of our monetary system to gold may well become supererogatory. The minority of us who regard gold as the only real money the world has ever known have placed our views on record: The only way price stability can be restored here (indeed, in the world) is by making the dollar (and other national currencies) convertible into gold. Linking money to gold domestically and internationally will solve the problem of inflation, high interest rates, and budget deficits. We have made no attempt to conceal the divisions among us. In that respect, our views probably represent the range of opinions held by the country at large. We hope, nevertheless, that our report will make a contribution to public understanding of the important issues involved. In that event, the time we have devoted to preparatory study before our meetings and to the deliberations themselves will have been well spent. 520

26 September 1999 The Washington Agreement on Gold

In the autumn of 1999, the major gold-holding central banks agreed to limit their gold sales over the period of 1999–2004. In addition, the signatories listed below (who control approximately 50 per cent of the official gold sector), the governments of the United States (25 per cent share of the official gold sector) and Japan (3 per cent) indicated that they would follow the guidelines of the Agreement. Prior to the Washington Agreement, Switzerland had announced it would sell 1,300 tonnes of gold, while the United Kingdom planned to sell 365 tonnes. Austria, the Netherlands, and Belgium had sales plans of undeclared amounts. Source: European Central Bank, ‘Joint Statement on Gold’ (Frankfurt a. M.: European Central Bank, Press Division, 26 September 1999).

Oesterreichische Nationalbank Banque Nationale de Belgique Suomen Pankki Banca d’Italia Banque centrale du Luxembourg De Nederlandsche Bank Banque de France Deutsche Bundesbank Central Bank of Ireland Banco do Portugal Banco de España Sveriges Riksbank Schweizerische Nationalbank Bank of England European Central Bank PRESS COMMUNIQUE – 26 SEPTEMBER 1999 Statement on Gold In the interest of clarifying their intentions with respect to their gold holdings, the above institutions make the following statement: 521

The Monetary History of Gold 1. Gold will remain an important element of global monetary reserves. 2. The above institutions will not enter the market as sellers, with the exception of already decided sales. 3. The gold sales already decided will be achieved through a concerted programme of sales over the next five years. Annual sales will not exceed approximately 400 tonnes and total sales over this period will not exceed 2,000 tonnes. 4. The signatories to this agreement have agreed not to expand their gold leasings and their use of gold futures and options over this period. 5. This agreement will be reviewed after five years.

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Appendix 8 March 2004 Second Central Bank Gold Agreement: Joint Statement on Gold

As the Washington Agreement on Gold approached its expiration date, the major central banks of Western Europe agreed to renew the agreement for a further five years with an expansion of sales to a level of 2,500 tonnes over the agreement’s five year time-frame. Unlike the previous agreement, the new agreement was not a ratification of previously announced gold sales; rather, it was a declaration of a maximum figure of central bank gold sales. As countries had not announced gold sales programmes prior to the agreement, there was no public announcement of quotas. Germany had announced an interest in selling approximately 600 tonnes over the 2004–9 period and the Swiss National Bank expected to have approximately 130 tonnes left over from its quota under the previous agreement. Source: European Central Bank, ‘Joint Statement on Gold’ (Frankfurt a. M.: European Central Bank, Press Division, 8 March 2004).

8 March 2004 European Central Bank Banca d’Italia Banco de España Banco de Portugal Bank of Greece Banque Centrale du Luxembourg Banque de France Banque Nationale de Belgique Central Bank & Financial Services Authority of Ireland De Nederlandsche Bank Deutsche Bundesbank 523

The Monetary History of Gold Oesterreichische Nationalbank Suomen Pankki Schweizerische Nationalbank Sveriges Riksbank In the interest of clarifying their intentions with respect to their gold holdings, the undersigned institutions make the following statement: 1. 2.

3.

4.

Gold will remain an important element of global monetary reserves. The gold sales already decided and to be decided by the undersigned institutions will be achieved through a concerted programme of sales over a period of five years, starting on 27 September 2004, just after the end of the previous agreement. Annual sales will not exceed 500 tons and total sales over this period will not exceed 2,500 tons. Over this period, the signatories to this agreement have agreed that the total amount of their gold leasings and the total amount of their use of gold futures and options will not exceed the amounts prevailing at the date of the signature of the previous agreement. This agreement will be reviewed after five years. ***

524

Index

Report on the suspension of the gold standard 1932 and its effect on European countries, 345–6 representation on the expediency of resuming cash payments 1819, 150–4 suspension of cash payments 1797, 127– 30 terms for buying bar gold 1930, 320 banking German Bank Law 1924, 302–4 impact on the Swiss National Bank of abandonment of the gold standard, 404 origins and the relationship with goldsmiths, 29–33 success of the Clearing House in Britain, 254 Swiss National Bank Law 1921, 299–301 United States Presidential order to reopen banks but maintain prohibition on gold exports and foreign exchange transactions, 354–5 United States Presidential recommendation to control the resumption of banking 1933, 351–2 Belgium effect of Great Britain’s suspension of the gold standard 1931, 346 estimates of gold holdings at the time of the German occupation, 417–18 gold regulations in force prior to collapse of Bretton Woods system, 497 bimetallic standard, 158, 174–5 England, 175 international attitudes to, 214–20, 235– 52

Atkins, John, 119 Austria gold regulations in force prior to collapse of Bretton Woods system, 499–500 Bank for International Settlements press release on restoration of the gold standard, 392 resolutions relating to the gold standard, 347–8 bank notes confidence in Bank of England, 254 convertibility into gold, 5–6 effect of issue on price of gold, 5 United Kingdom Currency and Bank Notes Act 1914, 274–6 United Kingdom Currency and Bank Notes (Amendment) Act 1914, 277 Bank of England Act 1833, 163 Bank Charter Act 1844, 167, 279 call for repeal of law suspending cash payments 1810, 135–7 Charter 1694, 53–5 confidence in her bank notes, 254 confidential telegram concerning the decision to go off the gold standard, 336 convertibility of notes into ‘legal coin’, 163 creation, 3–4 exchange rate of notes for gold 1844, 167 proposed resolutions on the expediency of resuming cash payments 1819, 148–9 report on the expediency of resuming cash payments 1819, 147

525

The Monetary History of Gold Latin Monetary Union attitude to, 218– 19, 239–45 letter from Alfred de Rothschild to the chairman of the Gold and Silver Commission, 253–5 opposition to, 253–5 United States, 158–9, 193 United States urging for international agreement establishing fixed ratio between gold and silver, 235–52 United States’ proposal for common ratio between gold and silver, 214–20 Board of Trade Report on high price of guineas and flight of silver from England, 81–3 Bretton Woods system, 325–6, 485 collapse, 326–7, 481 Bridge, R.A.O. letter on the reopening of the London Gold Market, 450–1 Bryan, William Jennings ‘Cross of Gold’ speech, 159, 261–7 Bulgaria effect of Great Britain’s suspension of the gold standard 1931, 346 bullion Act lifting restrictions on exportation of coin, gold and bullion 1663, 17 House of Commons resolution 1660 prohibiting exportation, 7 merchants’ arguments against restrictions on exportation, 41 response to report of bullion export by the East India Company, 27–8 see also gold; specie Bullionist Controversy, 131

City of London as financial centre, 160 Clarke, H.S., 442 Cleveland, President Grover, 261 coins Act for encouraging coinage 1666, 18– 20 Act for encouraging coinage 1672, 26 Act lifting restrictions on exportation of coin, gold and bullion 1663, 17 British, 191 counterfeit, 13 France, 176 Great Recoinage 1696 in England, 4, 62– 3, 66–71 House of Commons resolution 1660 prohibiting exportation, 7 liability to abuse, 84–5 method of manufacture of milled coinage, 12–16 Royal Commission on International Coinage Report 1866, 174–8 United Kingdom Coinage Act 1870, 183–92 United Kingdom Coinage Act 1884, 221–4 United Kingdom Coinage Act 1889, 258–60 United States Coinage Act 1792, 121–6 United States Coinage Act 1834, 164–5 United States Coinage Act 1873, 193– 204 United States Foreign Coins Act 1834, 166 weight and fineness, 79–80 see also gold coin; guineas; silver coin; sovereign Conduitt, John, 108 counterfeiting coin, 13 Craggs, James correspondence concerning the state of French gold coin, 104–7 Cunliffe Committee Interim Report on currency and foreign exchanges 1918, 278–89

Cantillon, Richard, 114 Central Bank, Chile arrangement with banks in London and New York, 312–13 cheque system, 279 Chile Central Bank arrangement with banks in London and New York, 312–13 Churchill, Winston Budget Speech 1925, 305–9

526

Index currency Cunliffe Committee Interim Report 1918, 278–89 Czechoslovakia flight of gold to Switzerland, 413

currency devaluations following devaluation of the pound in 1931, 411–12 estimates of amount of gold Germany may have seized from occupied countries during the Second World War, 416 gold regulations in force prior to collapse of Bretton Woods system, 497–502 gold reserves owned by countries occupied by Germany during the Second World War, 415 Joint Statement on Gold 2004, 523–4 exchange rates fixed or flexible, 463–4 Smithsonian Agreement, 485–95

Denmark effect of Great Britain’s suspension of the gold standard 1931, 345 gold regulations in force prior to collapse of Bretton Woods system, 500 devaluation European and United States currencies following devaluation of the pound in 1931, 411–12 French franc, 407 Italian lira, 405–6 sterling and effect on the London Gold Market, 461–4 United States dollar, 386–91 Yugoslav dinar, 408 dollar as international reserve currency, 325–6 convertibility to gold suspended in 1971, 326 devaluation against gold 1972, 496 devaluation against gold 1973, 503 devaluation to $35.00 per ounce of gold 1934, 386–8 gold value, 121, 268 Smithsonian Agreement re-evaluation of the dollar against gold, 487–96 White House statement on devaluation of the dollar, 389–91 dust gold, 119–20

farmers impact of deflation in United States, 159, 261 Ferdinand, Archduke Francis, 160 fetish-gold, 119 Fforde, J.S., 456 Finland effect of Great Britain’s suspension of the gold standard 1931, 346 gold regulations in force prior to collapse of Bretton Woods system, 501 First World War, 160 Cunliffe Committee Interim Report on currency and foreign exchanges 1918, 278–89 Treaty of Versailles, 290–6 United Kingdom Currency and Bank Notes Act 1914, 274–6 United Kingdom Currency and Bank Notes (Amendment) Act 1914, 277 Fisher, Mr, 442 foreign exchange Cunliffe Committee Interim Report 1918, 278–89 Presidential order concerning controls, 361–2, 368–73 United States Presidential order to reopen banks but maintain prohibition on gold exports and foreign exchange transactions, 354–5

East India Company response to report of bullion export, 27–8 Emergency Farm Mortgage Act 1933, 365–7 England Great Recoinage 1696, 4, 62–3, 66–71 see also Great Britain; United Kingdom Europe Bank of England Report on the suspension of the gold standard 1932 and its effect, 345–6

527

The Monetary History of Gold United States Presidential proclamation extending prohibition of transactions 1933, 353 United States Presidential proclamation prohibiting transactions 1933, 349–50 Fowler, Joe, 465, 469, 475 France Charles de Gaulle’s call for the return of the gold exchange standard, 452–5 coins, 176 complaint from London goldsmiths of exportation of silver from England, 34–5 convertibility between the franc and gold restored in 1926, 314–16 correspondence concerning the state of gold coin, 104–7 demonetising of silver, 159–60 devaluation of the franc 1936, 407 edicts on value of gold and silver coinage, 87 effect of Great Britain’s suspension of the gold standard 1931, 346 estimates of gold holdings at the time of the German occupation, 417–18 gold regulations in force prior to collapse of Bretton Woods system, 498 gold standard abandonment 1936, 407 high value of pistoles in England, 86 membership of the Latin Monetary Union, 225–34 Monetary Law 1928, 314–16 response to complaint from London goldsmiths of exportation of silver from England, 36–7 tripartite agreement with the United States and the United Kingdom on international monetary cooperation, 324, 399–403

Germany Bank Law 1924, 302–4 demonetising of silver, 159–60 estimates of amount of gold that may have been seized from occupied countries during the Second World War, 416 estimates of French, Belgian and Polish gold holdings at the time of the occupation, 417–18 gold regulations in force prior to collapse of Bretton Woods system, 498 gold reserves owned by occupied countries during the Second World War, 415 gold standard, 159 movements of gold from Switzerland, 413 Treaty of Versailles, 290–6 Giffen, Mr scarcity of gold, 252 gold Act for encouraging coinage 1666, 18– 20 Act for encouraging coinage 1672, 26 Act lifting restrictions on exportation of coin, gold and bullion 1663, 17 Act to prohibit people from paying more than the official price 1811 and 1812, 138–42 announcement of reopening of the London Gold Market, 448–9 arguments for nationalisation of reserves in United States, 374–7 arguments in favour of export from England 1660, 8–9 Bank of England’s suspension of cash payments 1797, 127–30 Bill against exportation 1690, 38–40 call for repeal of law suspending cash payments by Bank of England 1810, 135–7 devaluation of the dollar 1972, 496 devaluation of the dollar 1973, 503 Emile Katz case on private ownership and the Exchange Control Act of 1947, 444–5

Gaulle, Charles de call for the return of the gold exchange standard, 452–5 General Agreement on Tariffs and Trade (GATT), 325 General Strike (1926), 324

528

Index end of Gold Pool announced, 477–8 estimates of amount Germany may have seized from occupied countries during the Second World War, 416 estimates of French, Belgian and Polish gold holdings at the time of the German occupation, 417–18 European Joint Statement on Gold 2004, 523–4 fineness of gold coins in relation to trial plate, 92 German Bank Law 1924, 302–4 Guinea, 119–20 letter on the reopening of the London Gold Market, 450–1 Machinery and Technical Transport Limited report on movements of gold to and from Switzerland, 413 principle of convertibility, 5–6 proposed resolutions on the expediency of the Bank of England resuming cash payments 1819, 148–9 protest against importation 1695, 58–61 reactions to United States statements on embargo on export of gold, 359–60 regulations in force in European countries prior to collapse of Bretton Woods system, 497–502 relationship with silver, 114–18 relationship with value of silver in England compared to Europe, 108–13 report on the expediency of the Bank of England resuming cash payments 1819, 147 representation on the expediency of the Bank of England resuming cash payments 1819, 150–4 reserves owned by countries occupied by Germany during the Second World War, 415 Samuel Pepys on safeguarding his gold during the Second Anglo–Dutch War 1665–7, 21–5 Smithsonian Agreement re-evaluation of the dollar against gold, 487–96 sources of information on production, imports and exports, 207–13

Swiss declaration on the purchase and sale 1936, 409–10 Treaty of Versailles, 290–6 United Kingdom Exchange Control Act 1947, 439–41, 444–5 United Kingdom Gold and Silver (Export Control) Act 1920, 297–8 United States Gold Commission 1982, 507–20 United States Gold Pool under pressure, 469–76 United States Gold Reserve Act 1934, 378–85 United States Presidential order concerning controls on gold exports and transactions of foreign exchange, 361– 2, 368–73 United States Presidential order prohibiting hoarding, 356–8 United States Presidential proclamation extending prohibition of export 1933, 353 United States Presidential proclamation prohibiting export 1933, 349–50 United States removal of the gold cover 1968, 465–8, 477 United States requests closure of the London Gold Market due to draining of reserves, 475–6, 479–80 value too high, 88–90 Washington Agreement 1999, 521–2 written out of the IMF system, 504–6 see also bullion Gold and Silver Commission appendices from final report 1888, 256–7 letter to the chairman from Alfred de Rothschild, 253–5 Gold Coast gold trade, 119–20 gold coin correspondence concerning the state of gold coin in France, 104–7 cost of manufacturing and maintaining, 179–2 edicts on value of French gold and silver coin, 87

529

The Monetary History of Gold high value of French and Spanish pistoles in England, 86 loss of weight by wear and tear, 258–60 regulations for maintaining value, 144–6 Royal Mint standards of weights and measures, 173 Sir Isaac Newton’s observations on their state, 101–3 sovereign as standard unit of currency, 143 testing accuracy of weight and fineness, 170–2 United States Coinage Act 1792, 121–6 United States Coinage Act 1834, 164–5 United States Presidential order prohibiting hoarding, 356–8 United States recognition of certain foreign coin, 166 United States silver to gold ratio, 121, 164–5 value of foreign coin, 88–90 see also guineas gold price announcement on the eve of Second World War, 414 Board of Trade Report 1698 on high price, 81–3 memoranda following devaluation of sterling 1949, 442–3 relationship to silver, 93–6, 99–100 report of 1810 on the high price, 131–7 gold standard abandonment, 324 abandonment by France 1936, 407 Bank for International Settlements press release on restoration of, 392 Bank of England Report on the suspension of the gold standard 1932 and its effect on European countries, 345–6 Bank of England telegram concerning the decision to break links with gold, 336 effect of re-introduction 1925, 324 England 1717, 4 evolution, 4–6, 157–61, 174–5

Franklin D. Roosevelt on economic policy and relationship with the gold standard, 363–4 French President Charles de Gaulle’s call for the return of, 452–5 Germany, 159 Gold Commission debate on whether to return to, 507–20 Gold Standard (Amendment) Act 1931, 344 Great Britain forced off 1931, 324, 336 Norway, 216 resolutions of the Bank for International Settlements, 347–8 restoration after the First World War urged, 284, 288 speech by Philip Snowden to the House of Commons on ‘temporary’ suspension of sterling’s convertibility with gold, 337–43 suspension 1931, 337–46 suspension at the time of the First World War, 160 Sweden, 216 Switzerland’s abandonment 1936, 404 United Kingdom, 215–16, 246, 310–11, 329–35 United States, 159, 193, 268–73 United States debate over wisdom of demonetising silver in favour of gold, 159, 261–7 Winston Churchill’s Budget Speech 1925 on return to, 305–9 goldsmiths complaint of exportation of silver from England to France, 34–5 relationship with the origins of private banking, 27–8 response to complaint from London goldsmiths of exportation of silver from England to France, 36–7 Gordon, A.P.L. reaction to United States statements on embargo on export of gold, 359–60 Goschen, Mr scarcity of gold, 252

530

Index Great Britain forced off the gold standard, 324, 336 see also United Kingdom Great Depression, 324 Greece effect of Great Britain’s suspension of the gold standard 1931, 346 membership of the Latin Monetary Union, 225–34 Guinea gold trade, 119–20 guineas Act for importing and coining guineas 1696, 77–8 Act for removing encouragement for coining guineas 1696, 73–5 Board of Trade Report 1698 on high price, 81–3 complaint of high price encouraging importation of gold from abroad 1695, 58–61 fluctuating value, 175 paper by John Locke, 64–5 Royal Proclamation 1717 on value of 21 shillings, 97–8 value of 22 shillings 1696, 76 value of 28 shillings 1696, 72

Italy devaluation of the lira 1936, 405–6 effect of Great Britain’s suspension of the gold standard 1931, 346 gold regulations in force prior to collapse of Bretton Woods system, 499 membership of the Latin Monetary Union, 225–34 Jevons, Professor, 180 Johnson, President Lyndon B., 469–74 Katz, Emile case on private ownership of gold and the Exchange Control Act of 1947, 444–5 Keynes, John Maynard, 329 Latin Monetary Union attitude to bimetallic standard, 218–19, 239–45 membership and agreement, 225–34 Law, John, 91, 104–5 Locke, John on guineas, 64–5 London as financial centre, 160 London Bullion Market, 446–7 London Gold Market, 446–7 announcement of reopening by H.M. Treasury, 448–9 correspondence concerning re-opening, 450–1 effects of the devaluation of the pound, 461–4 operation in the event of devaluation of sterling, 456–60 United States requests closure due to draining of gold reserves, 475–6, 479– 80 lump gold, 119 Luttrell, Narcissus merchants’ arguments against restrictions on exportation of bullion, 41 Luxembourg gold regulations in force prior to collapse of Bretton Woods system, 497

Haynes, Hopton, 84 Heller, Walter, 469 Holland effect of Great Britain’s suspension of the gold standard 1931, 346 see also Netherlands Hume, David, 157 Iceland gold regulations in force prior to collapse of Bretton Woods system, 501 International Monetary Conference Report 1878, 214–20 International Monetary Fund (IMF), 325, 326 Articles of Agreement 1944, 419–38 gold written out of the system, 504–6 second amendment to Articles, 504

531

The Monetary History of Gold Machinery and Technical Transport Limited report on movements of gold to and from Switzerland, 413 McKinley, William, 261 Macmillan Committee Report on Finance and Industry 1931, 329–35 Martin, Bill, 471, 475 Moran, Joseph J. letter on the reopening of the London Gold Market, 450–1

North, Dudley on effects of circulating lightweight silver money as full weight money, 42–52 Norway effect of Great Britain’s suspension of the gold standard 1931, 345 gold regulations in force prior to collapse of Bretton Woods system, 501 gold standard, 216 paper money Act to prop up the value 1811 and 1812, 138–42 United Kingdom Currency and Bank Notes Act 1914, 274–6 United Kingdom Currency and Bank Notes (Amendment) Act 1914, 277 United States’ ‘greenbacks’, 159, 205 Pepys, Samuel method of manufacture of milled coinage, 12–16 safeguarding his gold during the Second Anglo–Dutch War 1665–7, 21–5 Poland estimates of gold holdings at the time of the German occupation, 417–18 Portugal gold regulations in force prior to collapse of Bretton Woods system, 501–2 Pulteney, William correspondence concerning the state of French gold coin, 104–7

N.M. Rothschild & Sons, 414, 446–7 Napoleonic wars Bank of England’s suspension of cash payments 1797, 127–30 Netherlands gold regulations in force prior to collapse of Bretton Woods system, 499 see also Holland Newton, Sir Isaac, 4–5 observations on the state of gold and silver coins, 101–3 on French edicts on value of gold and silver coin, 87 on the high value of French and Spanish pistoles in England, 86 on weight and fineness of certain coins, 79–80 report on fineness of gold coins in relation to trial plate, 92 report on the price and relationship of gold to silver, 93–6 report on value of foreign gold and silver coins, 88–90 response to report on the price and relationship of gold to silver, 99–100 Nixon, Richard, 326 address outlining a new economic policy 1971, 481–4 Smithsonian Agreement announced, 485–6 North Atlantic Treaty Organisation (NATO), 325

Ricardo, David, 131 rock gold, 119 Roosevelt, Franklin, D., 324 on economic policy and relationship with gold standard, 363–4 on silver policy, 393–5 order concerning controls on gold exports and transactions of foreign exchange, 361–2, 368–73 order prohibiting the hoarding of gold, 356–8

532

Index order to reopen banks but maintain prohibition on gold exports and foreign exchange transactions, 354–5 proclamation extending prohibition of gold and silver exports and foreign exchange transactions 1933, 353 proclamation prohibiting gold and silver exports and foreign exchange transactions 1933, 349–50 recommendation to control the resumption of banking 1933, 351–2 recommendations to Congress for legislation to improve the financial and monetary system, 374–7 Rostow, Walt, 469–74 Rothschild, Alfred de letter to the chairman of the Gold and Silver Commission, 253–5 Rothschilds, 414, 446–7 Royal Commission on International Coinage Report 1866, 174–8 Royal Mint Coinage Act 1870, 183–92 standards of weights and measures of gold coin, 173

Board of Trade Report 1698 on flight from England, 81–3 complaint from London goldsmiths of exportation of silver from England to France, 34–5 demonetising, 159 Franklin D. Roosevelt on silver policy, 393–5 price and relationship to gold, 93–6, 99– 100 relationship with gold, 114–18 relationship with value of gold in England compared to Europe, 108–13 response to complaint from London goldsmiths of exportation of silver from England to France, 36–7 sources of information on production, imports and exports, 207–13 superiority over gold and copper for money, 91 United Kingdom Gold and Silver (Export Control) Act 1920, 297–8 United States debate over wisdom of demonetising silver in favour of gold, 159, 261–7 United States Presidential proclamation extending prohibition of export 1933, 353 United States Presidential proclamation prohibiting export 1933, 349–50 United States silver to gold ratio, 121, 164–5 silver coin Act for providing new coinage 1849, 168–9 Act to discourage melting and hoarding 1662, 10–11 clipping and filing, 4, 34, 42–52, 66–71, 85 edicts on value of French gold and silver coin, 87 effects of circulating lightweight silver money as full weight money, 42–52 Great Recoinage, 62–3, 66–71 London agreement, 375, 376–7, 394 new coinage, 143–4

Second World War, 324 announcement of price of gold on the eve of, 414 estimates of amount of gold Germany may have seized from occupied countries, 416 estimates of French, Belgian and Polish gold holdings at the time of the German occupation, 417–18 gold reserves owned by countries occupied by Germany, 415 seigniorage eliminating, 18–20 silver Act for encouraging coinage 1666, 18– 20 Act for encouraging coinage 1672, 26 arguments in favour of export from England 1660, 8–9 Bill against exportation 1690, 38–40

533

The Monetary History of Gold proposals to stem clipping and exportation, 56–7 regulations for maintaining value, 144–6 Sir Isaac Newton’s observations on their state, 101–3 testing accuracy of weight, 170–1 United States Coinage Act 1792, 121–6 United States policy, 375, 376–7, 393–5 United States presidential proclamation to facilitate coinage, 396–8 value of foreign coin, 88–90 silver standard, 175 Smithsonian Agreement, 485–95 Snowden, Philip speech to the House of Commons on ‘temporary’ suspension of sterling’s convertibility with gold, 337–43 sovereign standard unit of currency, 143 see also guineas Spain high value of pistoles in England, 86 specie Bank of England’s suspension of cash payments 1797, 127–30 call for repeal of law suspending cash payments by Bank of England 1810, 135–7 proposed resolutions on the expediency of the Bank of England resuming cash payments 1819, 148–9 report on the expediency of the Bank of England resuming cash payments 1819, 147 representation on the expediency of the Bank of England resuming cash payments 1819, 150–4 United States Specie Resumption Act 1875, 205–6 Sweden effect of Great Britain’s suspension of the gold standard 1931, 345 gold regulations in force prior to collapse of Bretton Woods system, 502 gold standard, 216

Switzerland declaration on the purchase and sale of gold 1936, 409–10 effect of Great Britain’s suspension of the gold standard 1931, 346 gold regulations in force prior to collapse of Bretton Woods system, 502 gold standard abandonment 1936, 404 Machinery and Technical Transport Limited report on movements of gold, 413 membership of the Latin Monetary Union, 225–34 National Bank Law 1921, 299–301 National Bank Law (Amendment) 1929, 317–19 Thornton, Henry, 131 trade Act lifting restrictions on exportation of coin, gold and bullion 1663, 17 House of Commons resolution 1660 prohibiting exportation of bullion and coin, 7 Treaty of Versailles, 290–6 Triffin Dilemma, 326 unemployment effect of re-introduction of the gold standard 1925, 324 United Kingdom Act for encouraging coinage 1666, 18– 20 Act for encouraging coinage 1672, 26 Act for importing and coining guineas 1696, 77–8 Act for providing new coinage 1849, 168–9 Act for removing encouragement for coining guineas 1696, 73–5 Act for the Encouragement of Trade 1663, 17 Act to discourage melting and hoarding of silver coin 1662, 10–11 announcement of reopening of the London Gold Market, 448–9

534

Index Bank of England telegram concerning the decision to break links with gold, 336 Board of Trade Report on high price of guineas and flight of silver, 81–3 Coinage Act 1870, 183–92 Coinage Act 1884, 221–4 Coinage Act 1889, 258–60 Currency and Bank Notes Act 1914, 274–6 Currency and Bank Notes (Amendment) Act 1914, 277 European and United States currency devaluations following devaluation of the pound in 1931, 411–12 Exchange Control Act 1947, 439–41, 444–5 Gold and Silver (Export Control) Act 1920, 297–8 gold standard, 215–16, 246, 310–11, 329–35 Gold Standard Act 1925, 310–11 Gold Standard (Amendment) Act 1931, 344 Macmillan Committee Report on Finance and Industry 1931, 329–35 memoranda on gold prices following devaluation of sterling 1949, 442–3 speech by Philip Snowden to the House of Commons on ‘temporary’ suspension of sterling’s convertibility with gold, 337–43 tripartite agreement with the United States and France on international monetary cooperation, 324, 399–403 Winston Churchill’s Budget Speech 1925 on return to the gold standard, 305–9 United States arguments for nationalisation of gold reserves, 374–7 bimetallic standard, 158–9, 193 Coinage Act 1792, 121–6 Coinage Act 1834, 164–5 Coinage Act 1873, 193–204 debate over wisdom of demonetising silver in favour of gold, 159, 261–7

demonetising of silver, 159, 193 devaluation of the dollar to $35.00 per ounce of gold 1934, 386–8 dollar as international reserve currency, 325–6 Emergency Farm Mortgage Act 1933, 365–7 Foreign Coins Act 1834, 166 Franklin D. Roosevelt on economic policy and relationship with the gold standard, 363–4 Franklin D. Roosevelt’s recommendations to Congress for legislation to improve the financial and monetary system, 374–7 Gold Commission 1982, 507–20 Gold Pool under pressure, 469–76 Gold Reserve Act 1934, 378–85 gold standard, 159, 193, 268–73 Gold Standard Act 1900, 268–73 ‘greenbacks’, 159, 205 impact of deflation on farmers, 159, 261 nationalisation of gold reserves 1934, 378–85 Presidential order concerning controls on gold exports and transactions of foreign exchange, 361–2, 368–73 Presidential order prohibiting the hoarding of gold, 356–8 Presidential order to reopen banks but maintain prohibition on gold exports and foreign exchange transactions, 354–5 Presidential proclamation extending prohibition of gold and silver exports and foreign exchange transactions 1933, 353 Presidential proclamation prohibiting gold and silver exports and foreign exchange transactions 1933, 349–50 Presidential proclamation to facilitate coinage of silver, 396–8 Presidential recommendation to control the resumption of banking 1933, 351– 2 reactions from abroad to statements on embargo on export of gold, 359–60

535

The Monetary History of Gold removal of the gold cover 1968, 465–8, 477 request to close the London Gold Market due to draining of gold reserves, 475–6, 479–80 Richard Nixon’s address outlining a new economic policy 1971, 481–4 silver policy, 375, 376–7, 393–5 silver to gold ratio, 121, 164–5 Smithsonian Agreement, 485–95 Specie Resumption Act 1875, 205–6 suspension of the dollar’s convertibility to gold in 1971, 326 tripartite agreement with France and the United Kingdom on international monetary cooperation, 324, 399–403

urging for international bimetallic agreement establishing fixed ratio between gold and silver, 235–52 White House statement on devaluation of the dollar, 389–91 universal suffrage, 323 Versailles Treaty, 290–6 Washington Agreement on Gold 1999, 521–2 welfare state, 325 working classes, 323 World Gold Council, xvii Yugoslavia devaluation of the dinar, 408

536