[The Causes of the Monetary Crisis in Europe]

The monetary crisis in Germany, which began about the middle of September last, reached its climax on the 26th of that month, when it gradually subsided; like the monetary panic in England in 1847, which first manifested itself in the last [days] of April and gradually disappeared after the 4th of May, the day of its culmination. Then, the sacrifices made by several leading houses in London, for the sake of a respite during the panic, laid the immediate foundation of the complete ruin in which they were involved a few months later. Similar results will, ere long, be experienced in Germany, since at the bottom of the panic there was no scarcity of currency, but a disproportion between the disposable capital and the vastness of the industrial, commercial and speculative enterprises then in hand. The means by which the panic was temporarily subdued was the enhancement of the rate of discount by the different Government, joint-stock and private banks; some of them raising their rate to 6, some as high as 9 per cent. Consequent upon this enhancement of the rate of discount, the efflux of bullion was checked, the importation of foreign produce paralyzed, foreign capital attracted by the bait of high interest, outstanding debts were called in, the French Crédit Mobilier, which in the month before had paid by bills of accommodation its installments on the German railways contracted for by it, was forced to pay in cash, and France, in general, obliged to discharge in specie the balance then due on account of corn and provisions. The monetary panic in Germany thus rebounded on France, where it at once assumed a more threatening aspect. The Bank of France, following in the track of the German banks, raised its rate of discount to 6 per cent, an advance which on the 30th of September led to an application to the Bank of England for a loan of more than a million of pounds sterling. On the first of October, consequently, the Bank of England raised its rate of discount to 5 per cent, without even waiting for the usual Thursday "parlor"[a], a step without precedent since the monetary panic of 1847. Notwithstanding this rise of interest, bullion continued to flow from the vaults of Threadneedle street[b] at the rate of £40,000 a day, while the Bank of France was obliged to part with about 6,000,000 francs in coin daily, the Mint issuing only 3,000,000, of which only about 120,000 francs was in silver. To counteract the action of the Bank of France on the bullion reserve of the Bank of England, the latter again raised its discount about a week afterward to 6 per cent for bills of 60 days, and 7 per cent for bills of longer date; and the Bank of France, in return for this civility, issued on the 6th of October a new ukase[c], by which it refused to discount any bills of more than 60 days' date, and declared that it would not advance more than 40 per cent on funded property, and 20 per cent on railway shares, and that it would make such advances for one month only. In spite, however, of these measures, the Bank of England was quite as unable to check the efflux of bullion to France, as the Bank of France to lessen the panic at Paris, or the drain of specie to other parts of the continent. The intensity of the panic in France is attested by a fall from 1,680 francs (quotation of Sept. 29) to 1,465 francs (Oct. 6) in the shares of the Crédit Mobilier, a fall of 215 francs within eight days, from which the utmost efforts had been unable to procure a recovery of more than 15 francs up to the 9th of October. It is needless to say that the public funds fell in proportion. There is hardly anything more ludicrous than the French lamentations on the elopement of their capital into Germany, after the magniloquent assurances we had from Mr. Isaac Péreire, the great founder of the Crédit Mobilier, that French capital was gifted with a peculiar cosmopolitan character. In the midst of all this trouble, the great wizard of France, Napoleon III., prepared his panacea. He interdicted the press from talking of the financial crisis; he suggested by gendarmes to the money-dealers the expediency of withdrawing from their windows the offer of premiums on silver; and finally, he inserted in his Moniteur, on the 7th of October, a report addressed to himself, by his own Minister of Finance, asserting that everything was right, and that only the appreciation of things by the people was wrong[d]. Unhappily, two days later, out pops the Governor of the Bank of France with the following feature in his monthly account:

In other words, during one month the cash on hand had diminished by 69,332,545 francs, discounts of bills had increased by 72,441,210 francs; while the premium on the purchase of gold and silver exceeds the figures for September by 632,281 francs. Unhappily, also, it is the fact that hoarding of the precious metals is now going on to an unprecedented degree among the French; and that the rumors of a suspension of cash payments at the Bank are daily gaining ground. The intervention of Napoleon proves to be about as efficient on the money market as his intervention in the inundated districts on the waters of the Loire.[155]

The present crisis in Europe is complicated by the fact that a drain of bullion—the common harbinger of commercial disasters—is interwoven with a depreciation of gold, as compared with silver. Independently of every other commercial and industrial agency, this depreciation could not but induce those countries, where there exists a double standard of value, and where both gold and silver must be received in payment according to proportions prescribed by law, but declared to be false by economical facts, to export their silver to those markets where gold is the standard of value, and where the official price of silver does not swerve from its market price. This being the relative position of England and France, silver must naturally flow from France to England, and gold from England to France, till the silver currency of the latter is replaced by a gold currency. On the one hand, it is clear that such a substitution for the usual medium of exchange must be attended by temporary difficulties, but that these difficulties can be met, either by making gold the standard, and putting silver out of circulation, as has been done, or by demonetizing gold and making silver the only standard, as was done in Holland in 1851, and more recently in Belgium. On the other hand, it is evident that if there were no other agency at work except a depreciation of gold compared with silver, the general drain of silver from all Europe and America would have counteracted and paralyzed itself, because the suddenly setting free and taking out of circulation of such a mass of silver without any particular reservoir to supply it, must have lowered its price in comparison with gold, the market price of any commodity being determined temporarily by the proportion between supply and demand, and only in an average ' of years by the cost of production. The demonetization of gold in the Dutch and Belgian banks could exercise but a very slight influence on the value of silver, as it had been the principal means of exchange in those countries, and therefore the change was of a legal rather than an economical character. It may be admitted, however, that these changes have opened a small market for the supply of silver, and thus in a slight degree alleviated the embarrassment.

Within the last four or five months the specie in the Austrian National Bank has, it is true, increased from $20,000,000 to $43,000,000, the whole of which, Austria not having yet returned to cash payments, is hoarded in the Bank vaults. The principal part of this increase of $23,000,000 has been drawn from Paris and Germany for railways bought by the Crédit Mobilier. This is certainly one of the causes which explain the recent drain of silver, but it would be erroneous to look upon this circumstance as in any large degree accounting for the late phenomena in the money market. It must not be forgotten that from 1848 to 1855, one hundred and five millions of gold have been thrown into the money markets of the world by the production of California and Australia[156], exclusive of the yield of Russia and the other old established sources of supply. Of these one hundred and five millions the more sanguine free-traders suppose that fifty-two millions have been required for the modern increase of commerce, whether as currency, as bank reserves, as bullion for the settling of balances and the correction of exchanges between different ; countries, or as articles of luxury. Of the other fifty-three millions they suppose, and we think them rather below the mark, that they have merely replaced a similar amount of silver formerly in use in America and France—ten millions in America, and forty-three millions in France. The manner in which this displacement has worked itself out, may be seen from the Official Customs Returns of the movement of gold and silver in France during the year 1855[g]:

Nobody, then, can pretend that the setting free of so large an amount of silver (fifty-three millions sterling) is accounted for either by the displacement in the currency of France and America, or by the hoarding of the Bank of Austria, or both together. It has been justly asserted that silver, not being threatened, like gold, with a diminution in value, the Italian and Levant traders were giving it a marked preference over other coin; that the Arabs have received and hoarded large quantities of it; and lastly, that the French corn-dealers, in payment for their purchases in the Black Sea and the Sea of Azof, preferred to abstract silver from France, where it maintains its antiquated relation to gold, instead of gold, which has changed its relation to silver in the south of Russia. Taking all these causes of the drain of silver together, we cannot estimate the amount abstracted by them at more than fifteen or sixteen millions sterling. The abstraction of silver by the Oriental war[h] is most absurdly alleged by the economical writers in the English Press as another special reason of this drain, though they have included it in the general estimate of the fifty-two millions of gold absorbed by the increased requirements of modern commerce. They cannot, of course, put on the shoulders of silver what they have already put on the shoulders of gold. There is, then, besides all these special influences, some greater agency at work by which the drain of silver is accounted for, and this is the trade to China and India, which, curiously enough, also formed the leading feature in the great crisis of 1847. We shall return to this subject, as it is important to study the economical forerunners of the impending crisis in Europe.

This much our readers will understand, that whatever may be the temporary cause of the monetary panic, and the drain of bullion which appears as its immediate occasion, all the elements of commercial and industrial revulsion were ripe in Europe, and aggravated in _France by the failure of the silk crop, by the shortcomings of the vintage, by the enormous imports of grain necessitated by the partial failure of the harvest of 1855 and the inundations of 1856, and lastly by the scarcity of dwelling houses produced in Paris by the economical contrivances of Mr. Bonaparte. For us, the mere perusal of the financial manifesto of M. Magne, which we published on Saturday[i], seems sufficient to justify the suspicion that in spite of the second Congress of Paris[157] now assembling, and in spite of the Naples question[158], the third Napoleon would have good reason to congratulate himself if the year 1857 came upon France with no worse auspices than, a decade earlier, attended the year 1847.

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