It is still a contested point whether the rise in general prices which occurred between 1850 and 1860 was due to the gold discoveries, but it is unquestionably true that such a rise did take place. Prices are however the result of such a complex set of causes that it is not yet possible to assign with certainty a cause for the rise.

Professor Jevons worked out a table of what are called "index numbers," representing the average weekly price of about fifty of the staple articles of commerce. He took the year 1849 as equalling 100; by 1855 the index number had risen to 125; in 1860 it was 124, and in 1865, 121. Several well-known economists have worked out index numbers on separate lines and with very similar results, and there is no room for doubt that the rise in prices did take place. I think we can reasonably infer that this rise was due to the gold discoveries.

As to the second result anticipated, a disturbance in the ratio between the two metals, the table on p. 38 will show that this did occur, but that it was so small as to be apparently insignificant. It was not insignificant because it was sufficient to bring the market ratio below the French Mint ratio of 15 1/2 to 1, and it is to the history of the French currency that we must look for an explanation of the smallness of the change. This explanation was first given by Michael Chevalier, the well-known French authority on money.

Writing in the Revue des Deux Mondes in 1857, Chevalier pointed out that France had absorbed a large proportion of the new gold. Directly the market ratio fell below 15 1/2 to 1, gold became overrated in France, and began to displace silver. From 1822 to 1851, France imported every year, without exception, more silver than she exported, the excess of imports often being very large indeed. Between 1852 and 1864 the position was exactly reversed, and her exports of silver invariably exceeded her imports of that metal. Immense quantities of silver were exported from France in the years succeeding the gold discoveries, and its place was taken by the new Californian and Australian gold.

Thus, the French silver was set free for use in other countries, and the surplus gold was absorbed, and this naturally prevented any wide divergence of the ratio from its existing figure.

Gold was being produced at a more rapid rate than silver. France absorbed the gold, and set free her stock of silver. "In this way," says Chevalier, "France serves temporarily as a parachute to retard the fall of gold relatively to the other precious metals."

This is called the "compensatory action of the double standard." France had absorbed the metal of which the supply had increased, and had set free the metal which tended to increase in value compared to the other. The rate of production of gold was threatening to become much greater than formerly; France set up a demand for gold, and, so to speak, compensated for the increase in its supply.

This compensatory action is, however, only possible under certain circumstances, and for a limited period. France was able to absorb the surplus gold because it happened that the bulk of her currency at the time consisted of silver. Directly France became "saturated" with gold the action ceased, and if the increased production of gold had continued, there would in all probability have been a more decided fall in the ratio.

But it did not continue. The bulk of the newly discovered gold was on the surface, the mines were soon exhausted of this easily obtained metal, and the output declined.

Summarising the results of the influence of the French bimetallic system upon the increased gold production, we arrive at the following conclusions:

(1) It helped to steady the market ratio between the two metals.

(2) To a lesser extent it helped to steady general prices, for the immense quantities of silver exported by France were not re-coined in Europe, but were probably partly exported to the East and partly used in other directions. Thus, the total metallic currency in Europe was reduced, and the rise in prices checked.

(3) Its action was only temporary, and ceased when silver was driven from the ordinary channels of circulation in France.

(4) Although this action was beneficial to Europe generally, it was very expensive to France. She not only had to bear the inconvenience resulting from a change in the metal forming the practical standard of value, but she had to bear the cost of re-coining almost the whole of her currency. Between 1850 and 1857, France coined gold to the value of over £109,000,000 sterling.

We can hardly wonder then that England saw no valid reason for abandoning her gold standard in favour of the French system. France, indeed, rallied round her some of the other European States, Belgium, Italy, and Switzerland, who, on December 23rd, 1865, signed the monetary treaty called the Latin Union, afterwards joined by Greece. This treaty, according to the views expressed by the French Minister at Washington, "had a sole object, that of putting an end to the disappearance of fractional silver." France and her pupils, when the change in the ratio began to result in the disappearance of their silver, found the want of small change very inconvenient. Accordingly, they resolved to coin their smaller silver coins as tokens, maintaining the full weight and fineness of the five-franc piece. The terms of the Latin Union were:

(1) That gold coins and five-franc pieces of the fineness of nine-tenths were to be coined to an unlimited extent, to be of the same weight and equally legal tender in any of the countries which became signatories to the treaty.

(2) The smaller silver coins were to be of proportional weight, but only '835 fine, thus reducing them to the rank of tokens and preventing them leaving the country; such coins to be limited by the population of each country, and to be legal tender to the amount of fifty francs, only in the country which coined them.

The avowed object of this treaty was to protect the smaller silver coins, but hardly had it been signed when events occurred which once more raised the market ratio above 15^ to one, and once more threatened to flood the bimetallic countries with silver.

These events were twofold: First, silver was discovered in apparently inexhaustible quantities in Nevada, and some of the other Western States of America. Secondly, a violent reaction in favour of gold as a single standard set in all over Europe. At an International Conference held in Paris in 1867, all the delegates, with the single exception of Holland, voted in favour of gold monometallism. Germany, in 1871, followed this up by starting to re-model her coinage, the bulk of which was at the time silver, and the model she adopted was the English system. Thus, we see that an immense increase in the supply of silver occurred almost simultaneously with a startling decrease in the demand for it for coinage purposes. The Latin Union were faced with an inevitable deluge of silver at the expense of the existing gold coinage.

They found the prospect too uninviting. The people had become accustomed to gold, and, like the English people in the preceding century, they were unwilling to abandon it for the more cumbersome silver currency.

Accordingly, in 1874, a meeting of the Union was held, at which it was resolved to close the mints to the free coinage of standard five-franc pieces, and strictly limit the amount of these to be issued. In theory they still adhered to the double standard; in practice they had adopted a system hardly to be distinguished from the composite legal tender system. Silver was still legal tender to an unlimited amount, but the amount of silver in circulation was kept within strict bounds. It was a "limping" or "halting" system of bimetallism. The real French bimetallic system had proved a failure.