It is argued that as every country has adopted gold as a standard China should simply do the same. The advantages of the gold standard are stated to be: stability of prices for commodities at home; exchanges with foreign countries would have very little fluctuation; salaries, rents, taxes and such fixed payments would have the same value all the time; business relations with foreign countries and the settlement of debts would not be attended with the present disadvantages of the rise and fall in exchange.

Let us take the first point, with reference to the price of commodities. It has been the mistake of some modern schools of economists, during the past two decades, to consider a standard of value as determining price. Really, the rise and fall of prices are under the operation of economic influences; in other words prices move in such manner as to insure that the exchange of commodities shall be carried on in accordance with the play of economic forces. If instead of gold, silver were used as a standard of value in Europe, prices would bear the same relation to each other as they do to-day, as stated in gold. This theory of stability of prices, because of gold, has been carried to very ridiculous extremes. Up to 1887 when the production of gold was limited, and the demand several times that of production, there were complaints of fall in prices; that is, year after year the same amount of gold was able to purchase a larger quantity of goods. When gold production increased and in about 1908, the production reached unexpected limits, the complaint was that prices were rising year after year, or the same amount of gold purchased less and less quantities of goods. Later on in 1911/12, when India had begun to absorb a quarter of the gold production of the world there were again complaints of rise in prices and scarcity of gold. The several crises, which came to a head in the present war, have made gold extremely dear, and prices have risen; that is, for the same amount of gold the quantities of goods purchasable are growing less and less. What does this indicate? If gold had brought about fixity in value, as the protagonists of the gold standard have never tired of repeating, why this variation in values? It is, of course, absurd on the face of it, to assert that gold has remained unchanged while commodities have been changing their relations to gold. The fact that gold is the standard of practically every country in the world, does not imply that gold is no longer a commodity like wheat or cotton. Economic forces determine the relation of exchange between any two commodities, and the same forces determine the value of gold in relation to commodities. Thus the correct explanation of the rise and fall in values is that economic forces constantly modify the value of the several commodities including gold. It is beyond the scope of the present volume to go into this question fully. Suffice it to say that the statement that a gold standard brings about stability of prices is untenable.

The second advantage claimed for a gold standard is that salaries, rents, taxes, etc., would have a fixity of value. It is hard to see how this advantage pertains to the gold standard alone. So long as there is a standard of value, whether gold, silver, copper or brass, there would be a fixity of value on such items.

Considered properly this statement has very little significance. What finally determines the value of money is not the number of metallic coins or any other coin of standard money, but what a certain amount would fetch in the market. Judged from that point of view, gold does not give any special advantage over other possible standards.

The third advantage relates to trade relations with, and debts to, foreign countries. It would not be denied that it would simplify matters very much if China, trading almost exclusively with gold standard countries, should adopt gold - from the point of view of accountancy. Here again such proposals do not take proper count of the nature of trade and the benefits or otherwise to China. Adopting a gold standard by any country has been synonymous with depreciation of the intrinsic value of silver. Since the day when Ricardo spoke of gold and silver as the general mediums of circulation, the ratio of gold to silver has dropped from 1 to 15 1/2 to 1 to 41 to-day. At first the relative ratio began to fall on account of the scarcity of gold. Later on, however, by the time that gold was beginning to be produced in abundant quantities, practically all the countries that had adopted the gold standard willingly were great manufacturing and industrial countries. The states near by had to follow the bigger countries, which in their turn found it convenient to force other countries to come into line with them -whether the change was suitable to the countries or not. Although the manufacturing countries which were rich and best suited to have gold as a currency wanted raw produce, their interests were mainly to sell more than they bought. By some means or other, every progressive country has strained its utmost to be a creditor nation. The present position of trade in China is that China remains a debtor nation and has been growing more and more into debt every year, on account of excess of imports over exports. China has been accustomed to view gold or silver coin as wealth in itself, as was the case in India. The adoption of the gold standard would mean nothing else but the appreciation of gold, which she has not got, and the depreciation of silver, which is the national wealth; which would mean complete ruin of her exports for a considerable time.

It may be argued that the same thing was said about Indian exports when the mints were closed to the free coinage of silver and that such prophecies did not come true. Here again, adventitious circumstances helped to ease the tension. It is well known that the currency policy of India was never carefully thought out; as a matter of fact, it worked itself. Sudden demand for Indian exports and the ability of the farmer to supply them led to a large increase of exports over imports. In spite of the home changes and other heavy burdens, there was a balance payable to India by the countries that took her produce; and this balance has for some years been paid to her in gold.

The position in China is quite different; besides the fact that the unfavourable burden is very heavy, considering the country's resources, China has a heavy burden of foreign debts. The position is that it is all paying out, with nothing except additional debts coming in. It may be argued that the adoption of the gold standard and the rise in exchange would enable China to meet her obligations with less money. This is tenable if China paid in gold; but she has no gold to pay out with, and what is worse, by the very act of raising the exchange she depreciates the silver which after all constitutes her national wealth. Raising the exchange will make the trade more lop-sided than it is to-day, bringing about, in the natural course of events, a paralysis of commerce.

The fourth advantage of gold is said to be its freedom from fluctuation in its value and the saving of trouble in connection with exchange. Exchange both in international and local commerce is practically a nuisance; and the sooner these wide fluctuations are done away with the better for all concerned. But it is only a question of degree; even between countries that have adopted the gold standard, as England and the United States, or England and France and Germany, the question of exchange still continues to be of paramount importance. The range is very narrow and when the quotation reaches beyond what is known as the specie point, gold is exported from one country to the other. The fact, therefore, remains that the adoption of gold does not do away with exchange fluctuations; it need, however, not be as violent as it is in China. But it can be managed in China by other means than that of the adoption of the gold standard, as I will show later on. A disadvantage which even those who propose a gold standard for China accept is that the gold coin is far too big for ordinary transactions in the interior of China. In gold standard countries, the gold standard coin is the only legal tender coin, while other coins only act as an auxiliary currency; thus the very impossibility of maintaining gold coins in circulation to a appreciable extent speaks against the adoption of the gold standard for China.

But it may be argued that there are countries which have adopted the gold standard, but which have no extensive circulation of gold coins; in such countries some of the silver coins also share the function of the legal tender along with sold coins. The gold coin, however, is really the standard and it is found in circulation. But, generally, to a greater or lesser extent, they are held as reserves while the silver coins alone freely circulate, such countries being France, Belgium, Switzerland, Italy, Greece and Holland. This is known as the limping standard, which is unsuitable to China, for exactly the same reasons as the gold standard is not suitable.