[The Monetary Crisis in Europe.
—From the History of Money Circulation]

We have seen from the last report of the Bank of France[a] that its bullion reserve had reached the low point of about thirty millions of dollars, having diminished twenty-five per cent within the previous month alone[b]. If this drain were to go on, the Bank would be run dry by the end of the year, and cash payments would cease. To prevent this extreme danger, two measures have been employed. On the one hand, the melting of silver for export is to be hindered by the Police, and on the other, the Bank of France has determined to double, at an enormous sacrifice, its bullion reserve by contracting for a supply of six millions sterling with the Messrs. Rothschild. That is to say, that in order to make up its deficiency of gold, the Bank augments still further the disproportion between the prices at which it buys gold on the one hand, and sells it on the other. On account of this contract £50,000 in gold were taken out of the Bank of England on the 11th, and £40,000 on the 13th of October, and the Asia, which arrived here yesterday, brings advices of a still further draught of above half a million. Consequently, a general apprehension prevailed at London that the Bank of England would again put on the screw by raising its rate of discount in order to protect its own stock from emigrating to France. Preparatory to this the Bank has now refused to make advances on all descriptions of Government securities except Exchequer bills.

Now, all the gold the Bank of France may succeed in drawing into its coffers will escape from them quite as fast as it flows in—partly in payment of foreign debts, for settling the balance of trade—partly by being abstracted into the interior of France, to supply the place of silver disappearing from circulation, the hoarding of which naturally keeps pace with the increasing violence of the crisis; and lastly, for the supply of the enormous industrial enterprises started in the last three or four years. For instance, the great railway companies, which reckoned, for the continuation of their works and the payment of their dividends and bonuses, on the emission of new loans, which have now become impossible, are making the most desperate attempts to fill the vacuum in their exchequers. Thus the Western Railway of France is in need of sixty millions of francs; the Eastern wants twenty-four; the Northern thirty; the Mediterranean twenty; the Orleans forty, and so on. It is estimated that the total sum wanted by all the different railway companies amounts to three hundred millions. Bonaparte, who had flattered himself that he had put down politics by setting up gambling, is now eager to withdraw attention from the money -market by all sorts of political questions: Neapolitan questions, Danubian questions, Bessarabian questions, new Congress of Paris questions[159], but all in vain. Not only France, but all Europe, is fully convinced that the fate of what is called the Bonaparte dynasty, as well as the present state of European society, is suspended on the issue of the commercial crisis of which Paris seems now to be witnessing the beginning.

As we have already stated[c], the first occasion for the outbreak of the crisis was afforded by the sudden enhancement of the price of silver as compared with gold. This enhancement—notwithstanding the immense production of gold in California and Australia[160]—can only be accounted for by the still increasing drain of silver from the Western World to Asia, and especially to India and China. Since the beginning of the seventeenth century, Asia, and especially China and India, have never ceased to exercise an important influence on the bullion markets of Europe and America. Silver serving as the only medium of exchange in those Eastern countries, the treasure with which Spanish America inundated Europe, was partially drained through the channel of the Oriental trade, and the import of silver from America into Europe was checked by its export from Europe to Asia. Simultaneously, indeed, there took place an export of gold from Asia to Europe; but, setting aside the supplies furnished by the Ural Mountains from 1840 to 1850, it was on too small a scale to produce sensible results.

The circulation of silver between Asia and the West had, of course, its alternate periods of ebb and flow, depending on the fluctuations of the balance of trade. On the whole, however, three broadly-marked epochs may be distinguished in the history of this world-wide movement—the first epoch beginning with the seventeenth century, and ending about 1830; the second extending from 1831 to 1848; and the last from 1849 to the present time. In the first epoch, the silver exportation to Asia was generally increasing; in the second epoch the stream was abating, till at last an opposite current set in, and, for the first time, Asia poured back into Europe part of the treasures it had absorbed for almost two centuries and a half; in the third epoch, still in its ascending phase, the screw is again turned, and the absorption of silver by Asia is proceeding on a scale hitherto without precedent.

In earlier times, after the discovery of the silver of America[d], and even after the foundation of the Portuguese dominion in India, the export of silver from Europe to Asia was hardly perceptible. Larger masses of that metal were wanted when, in the beginning of the seventeenth century, the Dutch, and in its later period the British, extended their trade with Eastern Asia, but especially since the rapid growth of the consumption of tea in England during the eighteenth century—the English remittances for Chinese tea consisting almost exclusively of silver. In the latter part of the eighteenth century the efflux of silver from Europe to Eastern Asia had already assumed such ample proportions as to absorb an important part of the silver imported from America. There had also already begun a direct export from America to Asia, although, on the whole, limited to the amount shipped by the Mexican Acapulco fleets to the Philippine Islands. This absorption of silver by Asia became, in the first thirty years of the nineteenth century, the more sensible in Europe, as, on account of the revolutions that had broken out in the Spanish colonies[161], the American supply decreased from upward of forty millions of dollars in 1800, to less than twenty millions in 1829. On the other hand, the silver shipped to Asia from the United States quadrupled from 1796 to 1825, while, after the year 1809, not only Mexico but also Brazil, Chili and Peru began, although on a smaller scale, to export silver directly to the east of Asia. The excess of silver imported from Europe into India and China over the gold thence exported amounted to more than thirty millions sterling from 1811 till 1822.

A great change took place during the epoch which begins with the year 1831. The East India Company had been forced not only to resign its monopoly of the trade between Europe and its Oriental empire, but also, with the exception of its Indo-Chinese monopolies, had been completely broken up as a commercial concern[162]. The East Indian trade being thus abandoned to private enterprise, the export of British manufactures to India began by far to surpass the import of Indian raw produce into Great Britain. The balance of trade thus turned more and more decidedly in favor of Europe, and consequently the export of silver to Asia rapidly fell off. Every check that British trade encountered in the other markets of the world began now to be compensated by its new expansion in Asia. If the commercial convulsion of 1825 had already led to an increase of British exports to India, a far mightier impulse was given to them by the Anglo-American crisis of 1836, while in 1847 the British crisis even derived its characteristic features from over-trading to India and other parts of Asia.

The exports to Asia, which in 1697 had hardly reached one fifty-second part of the total of British exports, amounted in 1822 to about one-fourteenth; in 1830 to about one-ninth, and in 1842 to more than one-fifth. As long as only India and the Western portion of Asia were affected by this economical change, the efflux of silver from Europe to Asia slackened, but did not cease, and still less give place to a reflux from Asia to Europe. Such a decisive turn was not imparted to the metallic circulation until English philanthropy had imposed a regular opium trade upon China, blown down by the cannon's mouth the Chinese wall, and forcibly thrown open the Celestial Empire to intercourse with the profane world. Thus drained of its silver on its Indian frontier, China was inundated on its Pacific coast by the manufactures of England and America. Hence it happened that in 1842, for the first time in the annals of modern commerce, great shipments of silver were actually effected from Asia to Europe.

This total revulsion in the circulation between Asia and the West proved, however, of short duration. A powerful and progressive reaction set in with 1849. As China had turned the tide in the first and second epoch, so China again turned it in the third. The Chinese rebellion[163] not only checked the opium trade with India, but also put a stop to the purchase of foreign manufactures, the Chinese insisting upon payment in silver, and betaking themselves to that popular contrivance of Oriental economists in times of political and social convulsion—hoarding. The excess of Chinese exports over imports has been greatly augmented by the late failure of the European silk crops. According to the reports of Mr. Robertson[e], the British Consul at Shanghae, the export of tea from China within the last ten years has increased some sixty-three per cent, and that of silk two hundred and eighteen per cent, while the import of manufactures has decreased sixty-six per cent. He estimates the average annual balance of silver imported from all parts of the world at £5,580,000 more than it was ten years ago. The following are the precise figures of the movement of Chinese exports and imports during the period dating from 1849 to 1856, each year concluding with the 30th of June[f]:

This drain of silver from Europe to Asia on account of China is increased by the special drain to India, produced of late years by the balance of trade having turned against Europe, as will be seen from the following table:

Now, up to the year 1825 gold was a legal tender in India, when a measure was passed for an exclusively silver standard. As some years later, gold commanded a premium over silver in the commercial markets, the East India Company declared its readiness to receive it in payments to the Government. After the discoveries of gold in Australia, however, the Company, as apprehensive of a depreciation of gold as the Dutch Government, and not at all pleased with the prospect of receiving in gold and paying in silver, suddenly returned to the exclusive silver standard of 1825. Thus the necessity of paying the balance due to India in silver was rendered paramount, and an enormous demand for that metal was created in that country. The price of silver, compared with gold, increasing henceforth more rapidly in India than in Europe, British merchants found it profitable to export silver to India as a speculation, taking in return Indian raw produce, and thus giving another stimulus to Indian exports. Altogether, silver to the amount of twenty-one millions sterling was exported from Southampton alone, from 1848 to 1855, beside a very large amount from the Mediterranean ports; and it is calculated that in the present year ten millions have been taken from Southampton to the East.

To judge from these changes in the Indian trade and the character of the Chinese revolution, it cannot be expected that the drain of silver to Asia will come to a speedy conclusion. It is, then, no rash opinion that this Chinese revolution is destined to exercise a far greater influence upon Europe than all the Russian wars, Italian manifestoes[164] and secret societies of that Continent.

Notes