Money and Crises
In monetary analysis, once again we do not find the opposition between Ricardo and Say that was at the centre of the debates around value and income distribution. The main point is here to understand the role that money and credit play in capital accumulation and commercial crises.
However, on this main question, some other topics are also debated: how to organize the financial system? Must the issuing of banknotes be free? Should the standard of money be unique or should bimetallism be adopted?When dealing with monetary questions, the French liberals were first concerned with the issue of commercial crises and the role played by money and credit. They were also concerned with the organization of the monetary regime, the freedom of issuance and bimetallism. They did not participate in the debate between the currency and banking schools: nobody proposed to subject the Bank of France to rules as strict as those the Bank of England had to follow. However, they were interested in them: the Journal des economistes published the speech that Robert Peel delivered in Parliament to present his bill, and reviewed Tooke’s book, An Inquiry into the currency principle. Later, the supporters of free banking often used, in support of their view, some arguments the banking school had advanced. Thus Courcelle-Seneuil (1867: 335) argued that “a bank can never issue too many banknotes no matter what are the efforts it makes or the confidence it inspires”. In contrast, the supporters of the monopoly of the Bank of France availed themselves of the currency school but they maintained that it was not appropriate to establish a strict link between the quantity of notes and the metallic reserves: when deemed necessary, the central bank should have the opportunity to issue banknotes needed for circulation. However, we must be careful to not confound the two debates.
Wolowski (1869: 348) pointed out that in The History of Prices, Tooke argued that allowing competition from issuing banks in London would have had disastrous consequences and that, more generally, the principle of freedom of action to the issuing banks could not be extended without restriction.When the Bank of France was established, it was given the monopoly of issue in Paris but banks issued their own notes in the provinces. In 1848, the Bank of France absorbed them. Coquelin (1848) defended the freedom of issuance but without success. In 1860, France annexed Savoy where there was an issuing bank. In 1865, the Bank of France absorbed it. The Liberals, but also the Saint-Simonians, raised again the question of the freedom of issuance.
The French monetary system was organized by the Law of 28 March 1803. It combined two standards - gold and silver - exchanged at the ratio of 15.5 grams of silver for 1 gram of gold. The coins were minted by the state at the request of individuals and were endowed with the power of unlimited acceptability. In 1870, following the discovery of new mines, the market value of silver fell. Thus, with the quantity of metal that could be acquired for 16 francs, one could mint four coins of 5 francs and exchange them for a gold coin of 20 francs. The result was a massive outflow of gold. In 1876, the free coinage of silver was withdrawn. This was the end of bimetallism, if not in law, at least in practice.