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agreement to that effect shall be established between all the contracting states." This agreement was to hold until January 1, 1886. This treaty abolished bimetallism when it prohibited the coinage of the five-franc silver piece, for this was the only silver that bore the ratio of 15.5 to 1 to gold. The Union itself continued, however, with the old agreement still in force with reference to the coinage of subsidiary silver at .835 fine.

83. INTERNATIONAL BIMETALLIC CONFERENCES1

BY MAURICE L. MUHLEMAN

The Bland-Allison silver law of 1878 contained a provision directing the President of the United States to invite the nations of the world to meet in a conference in Paris for the purpose of persuading the nations of Europe and the commercial world in general that silver continue to be necessary for monetary purposes and that an international bimetallism arrangement should be consummated.

When the conference met in May, 1878, twelve nations were represented. Before its close others were added. But the delegates from Great Britain and Germany, as well as those of some other countries, were without power to bind their respective governments by their action.

The principal object was to arrive at a ratio at which silver might be satisfactorily given as great a freedom in the mints of the civilized world as was given to gold. The conference found no difficulty in declaring that it was necessary to maintain in the world the monetary functions of silver as well as those of gold; but the manner in which this was to be accomplished was a point upon which no agreement could be reached. After full discussion and the preparation of much valuable literature upon the subject of money, the conference adjourned late in August without practical results.

Hoping, rather than believing, that the opinions of the principal objectors to the rehabilitation of silver (Great Britain and Germany) might have undergone a change, or have become amenable to argument, the United States and France jointly invited the nations to a second conference in 1881, also at Paris. This one was as fully attended by delegates as the preceding one. But the delegates were again unable to agree upon any method by which the desired object

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Adapted from Monetary Systems of the World. (1895.) Copyright by the

Author.

of restoring silver could be accomplished. An adjournment took place in July, with the understanding that the conference would reassemble in April, 1882, if called; but conditions were not regarded as favorable to its reassembling, and the project was left to die of compulsory neglect.

In 1892 the United States again invited the nations to send delegates to a conference in Brussels. When it met, in November of that year, twenty nations were represented. The declared object of the conference was to obtain an agreement recommending international bimetallism upon a ratio for silver which could be maintained, but failing in this the delegates from the United States were instructed to endeavor to induce European delegates to agree to an enlargement of the use of silver as money.

A majority of the delegates, as in the previous conferences, substantially agreed upon the desirability of bimetallism under terms of an international agreement, but, just as before, the representatives of the gold monometallic countries of Europe, to which Austria-Hungary was now added, did not manifest much sympathy with the movement, and in fact some of the delegates declared that for their respective countries the single gold standard was the only possible measure. Many propositions were, of course, discussed, but the conference, after thanking the Government of the United States for calling them together, "suspended its labors."

Finally, in 1897 in fulfilment of a pledge in the party platform of 1896, President McKinley appointed a commission of three persons to visit Europe and make one more effort to promote international bimetallism. France as usual appeared sympathetic, but in England, while the government seemed willing to co-operate, the business community objected with such vigor to any tampering with the monetary system that the entire project had to be abandoned.

V

THE STANDARD QUESTION: GOVERNMENT PAPER MONEY

Introduction

Paper money is of so many different kinds and the principles advanced and used in regulating its value have varied so widely that a clean-cut treatment of the subject is difficult. In the first place, however, a fundamental distinction should be made between government and bank paper money. The former is issued by the state itself, for the purpose of meeting current obligations when the treasury is empty, or to provide an inexpensive and convenient medium of exchange in the interest of public welfare; the latter is issued by privately managed institutions which are seeking private profit from the making of loans. The principles of regulation underlying these two forms of paper currency are fundamentally different, and they cannot be satisfactorily treated together. Since the regulation of bank paper is tied up with the whole theory of credit and banking, its treatment is therefore reserved until after our study of the principles of banking; while the present chapter is devoted to government paper money.

Government paper itself varies widely in character-from a mere substitute in circulation for metallic money of equal amount held in reserve, to paper which itself constitutes the common denominator of values and standard of deferred payments, as well as the medium of exchange. The chapter heading above therefore appears somewhat inappropriate; but since the main problems of government paper money are connected with its use as a standard, it has seemed best to treat the general subject in connection with the question of standards.

The readings under Section A below clearly indicate that the underlying causes of the advocacy of fiat money are the same as those underlying the desire for bimetallism. Its history is practically contemporaneous with that of the controversies discussed in preceding chapters, and at times the adherents of a paper currency have

joined forces with those in favor of a cheaper metallic money in the hope of gaining the common end of a plentiful supply of currency.

There have been numerous instances in this and other countries

of the use of irredeemable paper money. While there have always been many who believe that irredeemable paper is the ideal money at all times, the actual issue of such currency has usually been the result of pressing financial needs on the part of the government; and as a general rule it has been regarded merely as a temporary expedient. In particular the financial exigencies of war have repeatedly led to the use of paper money. In our own history, in addition to the early Colonial and Revolutionary experiences, both the South and the North during the Civil War issued large quantities of paper with which to meet the immediate requirements of government; and in the present European struggle paper money issued through the medium of central banks largely controlled by the governments is apparently playing an important part in meeting the enormous financial requirements of the various nations involved.

The striking feature of the history of paper money is that once an issue is started it becomes well-nigh impossible to check an almost indefinite increase. Let the first step be ever so hesitant, when once it is taken other issues are likely to follow in rapid succession until the entire monetary system is demoralized. It is only in rare instances that issues have been controlled and kept within limits of safety.

The effects of an issue of irredeemable paper currency have practically always been disastrous in the long run, resulting not only in a derangement c financial relations and general disruption of business, but also in unsettling the customary morality which lies at the very basis of modern commercial life. Rather than serving as a real aid in meeting the financial requirements of wars, in the end paper money has always greatly increased the total cost, and in many cases it has proved the undoing of the nation quite as much as have the cannon of the enemy. However, there have always been plausible excuses for such issues, short-time necessities usually proving of more importance than long-time considerations. But the history of such issues should teach a lesson of vital importance in connection with financial preparedness.

One of the most interesting aspects of war in general is its effect in coloring the views of the following generation, often serving to change the fundamental philosophy of national life. The "bloodstained and battle-scarred" greenback currency of the Civil War

profoundly influenced the popular views on money in this country for decades; indeed we have not fully recovered from its spell even today. Moreover, the existence of $346,000,000 or more of this currency in our circulation continuously since the Civil War has given rise to an almost perpetual problem of regulation, and at times has seriously deranged the entire monetary and financial structure. appears to be an obstacle even now to the success of the federal reserve system in giving us an elastic currency.'

Numerous methods have been suggested for the regulation of government paper money, and there has been no end of argument as to the feasibility of its issue under any circumstances. Many students believe that a limited issue of irredeemable paper would be distinctly economical, but most of them hold that the dangers attending its use are still too great to warrant the risk; and therefore urge that Congress should not be encouraged to play with the fire at all.

A. Advantages of Paper Currency

84. TYPES OF GOVERNMENT PAPER MONEY There are three kinds or types of government paper currency: (1) mere representative paper, (2) convertible fiduciary paper, and (3) inconvertible or fiat money. Representative money is backed dollar for dollar by specie, and the paper certificates which circulate are nothing more or less than claim checks to an equivalent in coin; it gives rise to no problems of regulation. Convertible fiduciary paper is exchangeable for specie but is not covered by a coin reserve of 100 per cent. Unlike representative paper, it involves an element of trust or credit and affords a means of expanding the quantity of money beyond what is possible with the use of specie alone. Numerous devices have been developed by means of which redeemability may be insured without a full specie reserve, and there has been a long-continued discussion as to the most effective means for the purpose, resulting in the development of a fairly definite body of principles. Similarly there has been a prolonged controversy over the advantages and practicability of an irredeemable paper currency, or what may be called the "fiat" or paper standard of value. This controversy has disclosed some of the most interesting fallacies in the whole realm of political economy, and the experiences of mankind with irredeemable paper money have been among the most costly lessons that society has ever had to learn.

'See Reading No. 147, Part II.

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