TABLE XXI

Movements of Prices, Wages and Silver Between India and England¹⁹⁰

Net Imports of Silver into India.		Index No. for Gold Price of Silver.	Years.	Index No. for Silver Prices of Commodities in India.	Index No. for Wages in India.	Index No. for Gold Prices of Commodities in England.	Index No. for Wages in England
Years.	Amount. Rs.
(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
1871–72	6,587,296	99·7	1871	100	—	100	100
1872–73	739,244	99·2	1872	105	—	109	105·8
1873–74	2,530,824	97·4	1873	107	100	111	112
1874–75	4,674,791	95·8	1874	116	101	102	113
1875–76	1,640,445	93·3	1875	103	97	96	111·6
1876–77	7,286,188	86·4	1876	107	98	95	110
1877–78	14,732,194	90·2	1877	138	97	94	109·8
1878–79	4,057,377	86·4	1878	148	99	87	107
1879–80	7,976,063	84·2	1879	135	100	83	105·8
1880–81	3,923,612	85·9	1880	117	99	88	106·5
1881–82	5,381,410	85·0	1881	106	99	85	106·5
1882–83	7,541,427	84·9	1882	105	100	84	106·5
1883–84	6,433,886	83·1	1883	106	102	82	108
1884–85	7,319,581	83·3	1884	114	101	76	109
1885–86	11,627,028	79·9	1885	113	106	72	108
1886–87	7,191,743	74·6	1886	110	105	69	107
1887–88	9,319,421	73·3	1887	111	114	68	108
1888–89	9,327,529	70·4	1888	119	112	70	109·8
1889–90	11,002,078	70·2	1889	125	112	72	113
1890–91	14,211,408	78·4	1890	125	113	72	118
1891–92	9,165,684	74·3	1891	128	118	72	118
1892–93	12,893,499	65·5	1892	141	110	68	117·4
1893–94	13,759,273	58·5	1893	138	119	68	117·4

[pg 111] services in India. To put the same in simpler language, his bounty was the difference between the price of his product and the price of his outlay. Bearing this in mind, we can confidently assert that in the supposed case of depreciation of silver having taken place in India first, such a fall in the Indian exchange would have been accompanied by a penalty instead of a bounty on his trade. In that case the exporter from India would have found that though the Indian exchange, i.e. the gold price of silver, had fallen, yet the ratio which gold prices in England bore to silver prices in India had fallen more, i.e. the price he received for his product was smaller than the outlay he had incurred. It is not quite established whether silver had fallen in Europe before it had fallen in India.¹⁹¹ But even if that were so the possibility of a penalty through the fall of exchange proves that the bounty, if there was any, was not a bounty on the export trade as such, but was an outcome of the disharmony between the general level of prices and the prices of particular goods and services within the country, and would have existed even if the country had no export trade.

Thus the bounty was but an incident of the general depreciation of the currency. Its existence was felt because prices of all goods and services in India did not move in the same uniform manner. It is well known that at any one time prices of certain commodities will be rising, while the general price level is falling. On the other hand, certain goods will decline in price at the same time that the general price level is rising. But such opposite movements are rare. What most often happens is that prices of some goods and services, though they move in the same direction, yet do not move at the same pace as the general price level. It is notorious that when general prices fall wages and other fixed incomes which form the largest item in the total outlay of every employer do not fall in the same proportion; and when general prices rise they do not rise as fast as general prices, but generally lag behind. And this was just what was happening in a silver-standard country like India and a gold-standard [pg 112] country like England during the period of 1873–93 (see Chart IV). Prices had fallen in England, but wages had not fallen to the same extent. Prices had risen in India, but wages had not risen to the same extent. The English manufacturer was penalized, if at all, not by any act on the part of his Indian rival, but by reason of the wages of the former's employees having remained the same, although the price of his products had fallen. The Indian producer got a bounty, if any, not because he had an English rival to feed upon, but because he did not have to pay higher wages, although the price of his product had risen.

The conclusion, therefore, is that the falling exchange could not have disturbed established trade relations or displaced the commodities that entered into international trade. The utmost that could be attributed to it is its incidence in economic incentive. But in so far as it supplied a motive force or took away the incentive, it did so by bringing about changes in the social distribution of wealth. In the case of England, where prices were falling, it was the employer who suffered; in the case of India, where prices were rising, it was the wage-earner who suffered. In both cases there was an injustice done to a part of the community and an easy case for the reform of currency was made out. The need for a currency reform was recognized in England; but in India many people seemed averse to it. To some the stability of the silver standard had made a powerful appeal, for they failed to find any evidence of Indian prices having risen above the level of 1873. To others the bounty of the falling exchange was too great a boon to be easily given away by stabilizing the exchange. The falsity of both the views is patent. Prices in India did rise, and that, too, considerably. Bounty perhaps there was, but it was a penalty on the wage-earner. Thus viewed, the need for the reform of Indian currency was far more urgent than could have been said of the English currency. From a purely psychological point of view there is probably much to choose between rising prices and falling prices. But from the point of view of their incidence on the distribution of wealth, very little can be said in favour of a standard which changes in its [pg 113] value and which becomes the via media of transferring wealth from the relatively poor to the relatively rich. Scrope said: “Without stability of value money is a fraud.” Surely, having regard to the magnitude of the interests affected, depreciated money must be regarded as a greater fraud. That being so, the prosperity of Indian trade and industry, far from being evidence of a sound currency, was sustained by reason of the fact that the currency was a diseased currency. The fall of exchange, in so far as it was a gain, registered a loss to a large section of the Indian people with fixed incomes who suffered from the instability of the silver standard equally with the Government and its European officers.

So much for the fall of silver. But the financial difficulties and social injustices it caused did not sum up the evil effects produced by it. Far more disturbing than the fall were the fluctuations which accompanied the fall (see Chart V).

The fluctuations greatly aggravated the embarrassment of the Government of India caused by the fall in the exchange value of the rupee. In the opinion of the Hon. Mr. Baring (afterwards Lord Cromer),¹⁹²

“It is not the fact that the value of the rupee is, comparatively speaking, low that causes inconvenience. It would be possible, although it might be exceedingly troublesome, to adjust the Indian fiscal system to a rupee of any value. What causes inconvenience alike to Government and to trade is that the value of the rupee is unstable. It is impossible to state accurately in Indian currency what the annual liabilities of the Government of India are. These liabilities have to be calculated afresh every year according to the variations which take place in the relative value of gold and silver, and a calculation which will hold good for even one year is exceedingly difficult to make.”

Owing to such fluctuations, no rate could be assumed in the Budget which was likely to turn out to be the true market rate. As matters stood, the rate realized on an average during a particular year differed so widely from the Budget rate that the finances of the Government became, to [pg 114] employ the phraseology of a finance minister, a “veritable gamble.” How greatly the annual Budget must have been deranged by the sudden and unprovided-for changes in the rupee cost of the sterling payments the table on opposite page may help to give some idea.

If Government finance was subjected to such uncertainties as a result of exchange fluctuations, private trade also became more or less a matter of speculation. Fluctuations in exchange are, of course, a common incident of international trade. But if they are not to produce discontinuity in trade and industry there must be definite limits to such fluctuations. If the limits are ascertainable, trade would be reasonably certain in its calculation, and speculation in exchange would be limited within the known limits of deviations from an established par. Where, on the other hand, the limits are unknown all calculations of trade are frustrated and speculation in exchange takes the place of legitimate trading. Now, it is obvious that fluctuations in the exchange between two countries will be limited in extent if the two countries have the same standard of value. Where there is no such common standard of value the limits, though they exist, are too indefinite to be of much practical use. The rupture of the fixed par of exchange, having destroyed a common standard of value between gold and silver countries, removed the limits on the exchange fluctuations between such countries. As a result of such variations in the value of the standard measure, trade advanced by “rushes and pauses,” and speculation became feverishly active.¹⁹³

That progress of trade depends on stability is a truism which seldom comes home until it is denied in fact. It is difficult to appreciate its importance to healthy enterprise when government is stable, credit secure, and conditions are uniform. And yet so great is the handicap of instability that everywhere business men have been led by a variety of devices to produce stability in domains enveloped by uncertainty. Everywhere there have grown up business barometers forewarning business men of impending changes and so enabling them to forearm against them by timely [pg 115]

TABLE XXII

Fluctuations of Exchange and Fluctuations in the Rupee Cost of Gold Payments¹⁹⁴

Financial Year.	Estimated Rate of Exchange on which the Budget of the Year was framed.		Rate of Exchange actually realized on the Average during the Year.		Changes in the Rupee Cost of Sterling Payments consequent upon Changes between the Estimated and the Realized rates of Exchange.
	s.	d.	s.	d.	Rs.	Rs.
1874–75	1	10·375	1	10·156	15,91,764	—
1875–76	1	9·875	1	9·626	19,57,917	—
1876–77	1	8·5	1	8·508	—	76,736
1877–78	1	9·23	1	8·791	38,43,050	—
1878–79	1	8·4	1	7·794	56,87,129	—
1879–80	1	7	1	7·961	—	84,40,737
1880–81	1	8	1	7·956	4,24,722	—
1881–82	1	8	1	7·895	10,17,482	—
1882–83	1	8	1	7·525	37,46,890	—
1883–84	1	7·5	1	7·536	—	3,62,902
1884–85	1	7·5	1	7·308	18,97,307	—
1885–86	1	7	1	6·254	56,82,638	—
1886–87	1	6	1	5·441	65,17,721	—
1887–88	1	5·5	1	4·898	71,90,097	—
1888–89	1	4·9	1	4·379	77,98,400	—
1889–90	1	4·38	1	4·566	—	27,31,892
1890–91	1	4·552	1	6·09	—	2,35,51,744
1891–92	1	5·25	1	4·733	80,09,366	—

[pg 116] changes in their operations. The whole of insurance business is aimed at giving stability to economic life. The necessity which compelled all regularly established Governments to maintain standard measures by which the true proportion between things as to their quantities might be ascertained and dealings in them regulated with certainty was motivated by the same purpose, and the meticulous precision with which every civilized country defines its standard measures, and the large machinery it maintains to preserve them from deviation, are only evidences of the great importance that an economic society must continue to attach to the matter of providing precision of expression and assurance of fulfilment with regard to the contracts entered into by its members in their individual or corporate capacities. Important as are the standard measures of a community, its measure of value is by far the most important of them all.¹⁹⁵ The measures of weight, extension, or volume enter only into particular transactions. If the pound, the bushel, or the yard were altered the evils would be comparatively restricted in scope. But the measure of value is all-pervading.

“There is no contract,” Peel declared,”¹⁹⁶ public or private, no engagement national or individual, which is unaffected by it. The enterprises of commerce, the profits of trade, the arrangements made in all domestic relations of society, the wages of labour, pecuniary transactions of the highest amount and of the lowest, the payment of national debt, the provision for national expenditure, the command which the coin of the smallest denomination has over the necessaries of life, are all affected”

by changes in the measure of value. This is because every contract, though ultimately a contract in goods, is primarily a contract in value. It is, therefore, not enough to maintain constancy in the measures of weight, capacity, or volume. A contract as one of goods may remain exact to the measure [pg 117] stipulated, but may nevertheless be vitiated as a contract in values by reason of changes in the measure of values. The necessity of preserving stability in its measure of value falls on the shoulders of every Government of an orderly society. But its importance grows beyond dispute as society advances from status to contract. The conservation of the contractual basis of society then becomes tantamount to the conservation of an invariable measure of value.

The work of reconstituting a common measure of value in some form or other which those misguided legislators of the seventies helped to destroy, it was found, could not be long delayed with impunity. The consequences that followed in the wake of that legislation, as recounted before, were too severe to allow the situation to remain unrectified. That efforts for reconstruction should have been launched before much mischief was done only shows that a world linked by ties of trade will insist, if it can, that its currency systems must be laid on a common gauge. [pg 118]