BAGEHOT’S DEPRECIATION OF SILVER, A PAMPHLET ON CURRENCY AND INDIA Jordan Biets1 “To economists and economic historians in the twentieth century, Walter Bagehot stands primarily as the author of Lombard Street, 1873, and as an outstanding editor of The Economist” (Sayers 1978, 27). Abstract: Depreciation of Silver is a collection of seventeen articles written by the British economist Walter Bagehot (1826-1877) and published in The Economist between February and December 1876. Written at the helm of this notorious and busy author, they reflect his unexplored interest for the question of silver and the debate for changing the monetary regime of India in 1876. The (re)reading of this Depreciation of Silver, which Bagehot agreed to see as a pamphlet, gives us valuable insights into the monetary thought of its author and his appreciation to the Indian colony. In this article, which reviews the key context of the year 1876 and the dramatic consequences in India of the silver crisis, I propose an interpretation of Bagehot's rhetoric in The Economist. The analysis of his pro-silver and anti-gold arguments for India highlights two salient features: on the one hand Bagehot adopted the posture of an economist of Humian and Ricardian descent during this controversy, faithfully representing the British monetary orthodoxy of the 1870s; on the other hand, it reveals a singular "anti-imperial" view which vilified any intervention and recommended to throw India to her own resources. In detailing these elements, I argue that Bagehot’s anti-gold lobby for India through his editorship of The Economist also embodies an opportunistic defence of the stability of the British economy. Keywords: silver question, India, Walter Bagehot, The Economist, imperialism 1. Introduction Depreciation of Silver is a collection of seventeen articles written by the British economist Walter Bagehot (1826-1877) and published in The Economist between February and December 1876. This collection of about a hundred pages is identically arranged in The Works of Walter Bagehot edited by his old friend R. H. Hutton in 1891 and in The collected works of Walter Bagehot edited in 1978 by N. St John-Stevas. The month before he died, Bagehot wrote a preface to the Depreciation of Silver, where he testifies his approval for this collection and 1 PhD student in economics, Université Lumière Lyon 2 under the supervision of Rebeca Gomez Betancourt (Lyon) and Gopalan Balachandran (Geneva), Research Center Triangle-ISH UMR 5206, [email protected] 1 expresses his wish to complete it. But this work, which will initially circulate as a pamphlet, will remain unfinished because of his sudden death at the age of fifty-one, on March 24, 1877. While working on the writing of these articles in the year 1876, Bagehot is an accomplished author. Born in a banker environment (his mother is the daughter of a provincial bank founder and his father is himself a banker), Bagehot will become one of the authors whose ideas will strongly influence the role of central banks (Rockoff 2004, 43–44). The pillar of this recognition as an economist, then and up to this day, flows from his masterly work Lombard Street; A description of the money market (1873). The book is an immediate success reprinted four times this sole year, with already fourteen editions in 1915 (Sayers 1978, 31). For Laidler, this book helped completing the classical monetary economics with a theory of central banks (Laidler 1988, 101), even reinventing it (Laidler 1991, 38). Rist speaks of "one of the most brilliant and profound [works] that have been written on the subject" (Rist 1938, 458), not to mention the praises of Schwartz (1987) and many others. This book, which will refine the role of lender of last resort for central banks, is also a text on market psychology (Keynes 1915; Calvet 1956; Humphrey 1989). This immense economic notoriety is the mere fact of Lombard Street. However, it has been reinforced and complemented by his equally great role as publisher of The Economist (Sayers 1978, 27). While Rockoff points out that “The Economist was by then an influential journal and politicians from both parties sought his advice” (Rockoff 2004, 44), for Parsons, Bagehot embodies with this newspaper the British financial journalism of the late 19th century (Parsons 1989, 6). For Woodrow Wilson, “It was under Bagehot that the Economist became a sort of financial providence for business men on both sides of the Atlantic” (W. Wilson 1895, 672). The Economist was in fact one of the pillars of financial journalism of that time. Bagehot joined The Economist in 1859, before the hasty death in India of James Wilson, his father-in-law and founder of the newspaper, promulgated him editor in 1861. W. Wilson will have, in 1895, the most accurate formulation to evoke this event: “Wilson’s death seemed to leave the great financial weekly by natural succession to Bagehot, and certainly natural selection never made a better choice” (W. Wilson 1895, 672). From that date till his death in 1877, the voice of the newspaper – Bagehot generally wrote two articles per week from 1859 to 1877 (Nicholson 1914, 543) – will be closely linked to that of Bagehot (Fourcade 2009, 132) each one reinforcing the notoriety of the other (Calvet 1956, 156). The seventeen articles of the Depreciation of Silver discuss therefore, for Bagehot, an essential theme of the year 1876. However, the attention paid so far to this collection has proved to be unsatisfactory. Keynes deals mainly with the theoretical level of these articles which he describes as "second-rate" (Keynes 1915, 372). Sayers insists on the complacent tone of Bagehot and merely describes his analysis as Ricardian (Sayers 1978, 39). Coyajee, who describes the Bagehot of this controversy as "a champion of the old orthodox school of theorists, which emphasised the virtues of an automatic currency” (Coyajee 1926, 53) sidesteps the analysis by the transcription of some long passages. Only Bagchi (1997, 34–37) exposes more systematically the content of these articles, but his very good transcription does not include a proper analysis. In short, no article offers the synthesis of these different readings, in their 2 context, nor does offer a dedicated analysis of the ideas that Bagehot expresses in this collection. On the one hand, it seems that the relative lack of theoretical interest of these articles tends to sidestep the reading of the Depreciation of Silver. On the other hand, the writing of seventeen articles on a same theme by an author as busy as Bagehot questions such a personal involvement. Their number and regularity foster the question of the intentions of their author. Was it for Bagehot a platform to raise the theoretical level of the monetary debate of the day? Did he wish more simply to popularise it for his readers? Or did he use his privileged position to try to influence public opinion? Once the importance of the global context of the 1870s – and more specifically that of India in 1876 – being correctly resituated, the analysis of the Depreciation of Silver highlights the following idea: Bagehot did not write about the Indian situation because he was fond of or interested by her situation but for her importance in stabilising British economy. This is why these articles written by a Englishman who addresses the Indian situation only indirectly, stands as a piece of the Indian monetary historiography. In spite of their small theoretical interest, they are maybe a keystone element in a decisive moment of Indian monetary history of the 19th century. The dedicated and contextualised analysis of the Depreciation of Silver produced in this article restores the importance of this story, in addition to supplementing our knowledge of Bagehot by exploring his vision of currency issues associated to India. 2. The 1870s and the silver question The debate of the 1870s is truly the one of the question of the role of silver as a monetary standard, which was then approach as “what measures, if any, should be taken to arrest the depreciation of silver that had begun in 1873” (Reti 1998, 61). An Indian official comments in 1919, “The year 1874 was […] the real beginning of the most significant fact of the currency history of the century, the great change in the monetary status of silver” (Shirras 1919, 115). Indeed, while Buchan mentions the period as a “long dead controversy over the role of silver” (Buchan 1960, 211), Sayers considers that “ ‘the silver question’ became one of the major subjects of monetary controversy, and it remained so until 1940, to an extent not easy for students in the fourth quarter of the twentieth century to understand” (Sayers 1978, 39). While in 1870, only Great Britain and Portugal were in gold standard (respectively since 1821 and 1854, and probably a linked situation because of the privileged trade relations between the two nations) in 1880 all the major European trading nations – plus the United states (US) – partly or completely abandoned the use of silver for the benefit of gold. As a consequence, in just ten years, the monetary role of silver radically shortened. The reasons for this vast migration towards gold is still being debated today, especially to understand if this domino movement was chosen or endured2. Still, the precarious but stable equilibrium of the values of silver and gold relatively to each other, which had only deviated from the legal parity of French mints 2 Authors such as Obsfield and Taylor argue that it is the merits of better integration between large financial centres that motivated this movement (2003), while others like Flandreau and Zumer think that it is the fear of being put on the sidelines of the harmonisation of gold-indexed interest rates that forced this movement (2009).