called, which India renders to England-is in itself a real burden, that is, whether India does not get an equivalent for it in various ways. Of course if India could obtain the blessings of a strong and equable government without paying for it, and if it were sufficiently rich to execute its own railways and other public works without the aid of foreign capital, then it would be still better off than it is now. But it is clearly an advantage to a poor country like India to obtain the capital of a rich country like England on moderate terms, and the good government which makes India a safe field for investment must needs be costly. Whether it is unduly so is another matter, and whether the extension of its trade brought about by the expenditure of that capital does or does not compensate India for the drain caused to pay the interest on that expenditure is also a point on which a great deal might be said. But the interesting speculations opened out to view by these questions cannot be pursued here. The subject now to be dealt with is not the tribute itself, but the heavy and fluctuating addition which has recently accrued upon that tribute, from the fall in the price of silver, and which, unless a remedy can be found, threatens to become a source of permanent embarrassment and confusion to the finances of India.

The question now to be considered, therefore, is whether such a remedy is forthcoming. I venture to think that it is; nor is it one propounded only yesterday, although so far it has not received the attention it appears to deserve. For the past two years and morein fact, ever since the depreciation of silver set in-Colonel J. T. Smith, formerly mint master at Calcutta, and now Chairman of the Madras Railway Company, has been pressing a scheme for this purpose on the Indian Government and the public, replying point by point to the various objections which from time to time have been advanced against it, till the matter has reached a stage at which it is competent for any reasonable person to form a judgment upon it. Unfortunately the discussion has been carried on in detached. pamphlets and disjointed newspaper articles, spread over a great many months, till it is not easy for any one coming fresh to it to lay hold of the case, overlaid as it has become with plea and counterplea. It is in the hope of making the subject clear in a short compass that the following pages have been written. Being until a few days ago personally unknown to Colonel Smith, I may claim to approach the subject without prejudice; but having followed the discussion which has been going on for nearly three years over his proposals, it seems to me that the weight of argument is all on his side, and that they deserve to be more widely known than they appear to be at present.

Colonel Smith's plan for rescuing the Indian finances from their present difficulty may be stated in a few words. He would establish a gold standard for India, but not necessarily accompanied by a gold

currency. And he would effect this object by stopping the indiscriminate coinage of silver rupees at the Indian mints-that is, coinage at the demand of all persons who bring silver to be coined-and requiring that all merchants or others wanting to remit money to India should be placed in funds only-as regards silver-by purchasing the Secretary of State's bills in London. These 'Council bills,' as they are called, the Secretary of State, instead of putting them up as at present to the highest bidder, would sell at a fixed price, to be brought up gradually or at once to two shillings the rupee. When that rate is reached-that is, when the merchant in London desiring to receive rupees from the Indian treasury has to purchase them by paying two shillings in gold per rupee-it would become as profitable to send gold from Australia as to buy Council bills,' and gold should be received to any extent to which it may be offered at the Indian mints and coined into sovereigns, which should also be made a legal tender at the rate of ten rupees, although not demandable by the creditor.

So much of Colonel Smith's plan provides only for the restoration of the Indian exchanges, and of the rupee from its present depreciation as measured in gold; it does not provide for the necessary expansion of the Indian currency to replace wear and to meet the wants of increasing population and trade, except in so far as gold may be sent to the Indian mints. But his plan also provides that it should be open to any one to remit silver to India to any extent by means of Council bills.' That is to say, the Indian Council, over and above the bills which it has to sell as at present to provide for its own wants in England, will sell bills at its own price to any extent desired by the wants of trade, and with the proceeds of such extra bills, so to speak, it would purchase silver in the market and send it out to India to be coined, to meet the bills drawn against it on that country. So that the wants of trade would be met to the precise extent to which they might arise, and the Indian currency would continue to increase by an automatic process, partly in the form of silver coinage from specie sent out by the Government, procured from the proceeds of its sale of bills, and partly by a gold coinage, either imported direct in the form of sovereigns, or in gold bullion sent to be coined at the Indian mints.

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Under this plan, supposing the price of silver to continue at anything like its present rate, or as long as it was less than 61d. an ounce, the rupee would be appreciated; that is, it would be worth more in its coined form than its equivalent weight of silver, and would circulate side by side with the sovereign at the rate of ten rupees to the pound; and while the silver currency might or might not go on increasing, it would be gradually supplemented by a gold one. But although the amount of this latter would at first be necessarily very small compared with the aggregate silver currency already in

circulation, a gold standard would be established from the outset. The extent to which gold would find its way into the circulation is indeed rather one of speculative than practical interest; the important point of the scheme is that henceforward all fluctuations in the Indian exchanges would cease, being limited at most to the trifling cost of shipping bullion from Europe to the East, and that the tremendous loss now accruing to the Indian revenues from the depreciation of the rupee would be for ever put a stop to.

The scheme assumes of course a balance of trade, as it is called, in favour of India; that is, that there would continue to be in the future, as there has been in the past, a necessity to send money-or bullion that can be converted into money-to India to pay for the excess of exports from that country over its imports. This assumption being made, then, the only available form of remittance being gold or Council bills, a competition would ensue for the latter, which would enable the Secretary of State to fix his own price for them, up to the rate at which the shipper from this country would find it as advantageous to remit gold as to buy bills, and this price would be as nearly as possible two shillings the rupee. Granted the continuance of this balance of trade, and these consequences, it is admitted by the most strenuous opponents of the scheme, would certainly follow. The question will then at once arise, what are the objections to be brought against a scheme from which such weighty benefits would be derived?

Before proceeding to notice some of these, I would just observe that, while it is impossible in the space here available to prove the reasonableness of the assumption that there will always be this balance of trade in favour of India, those who are disposed to hold doubts on the point, if such there be, will find it treated very clearly in some essays of the late Mr. Bagehot on the silver question, which were his latest contributions to economic discussion. Mr. Bagehot has there shown, as I think conclusively, that notwithstanding the so-called tribute the seventeen millions sterling-payable by India to England, and whatever the amount of that tribute might be, this balance of trade will always continue. And indeed this conclusion appears justified on any consideration of the case. A country which does not itself produce the precious metals, and which has an increasing population and increasing trade, must obtain a supply of those metals to satisfy the demands arising for an increase of the currency. Even if the trade and population of a country are stationary, it still must import some amount of the precious metals to repair the waste in its currency. On this account alone there must always be a balance of trade-to use the term according to the old usage-in favour of every country which does not produce the precious metals, and a balance against those only which possess mines of gold or silver. That there should be a stream of the precious metals flowing

away from any country which does not produce them (except as a temporary and passing phase of trade) is as opposed to the laws which govern the course of trade, as the flow of water uphill would be a violation of the law of gravitation.

Taking, then, this balance of trade for granted, it remains to be seen what can be said against a plan which offers such unquestionable advantages. The validity or otherwise of these objections will be a fair criterion of its soundness or unsoundness. The most prominent of them shall therefore now be stated with perfect fairness, I hope, to such arguments as they contain.

There is first the general objection that it is not the proper function of a Government to interfere, or-as some would say-to tamper, with the currency; that its value should be left to be adjusted by the action of commerce, and the safe and sure action of supply and demand. This, it will be observed, is somewhat vague, and we shall generally do well to be on our guard against accepting general aphorisms of this sort, which often beg the whole question at issue; and in the present case, those who employ this argument lose sight of the fact that this is not a case where the Government will be leaving things alone by doing nothing. For it is distinctly through the action of the Government that the present state of things has come about. It is because the Government has come itself into the market, selling its bills on India for enormous amounts, by auction to the highest bidders, that the Indian exchanges have become sogreatly depressed. For can any one doubt that, if the obligations which have now to be discharged by the Indian Government in England could by some magical process be wiped out, the exchanges would not at once recover, and that the practically illimitable power of India, with its increasing trade and increasing population, to absorb specie-lessened as that action is at present by the demand on India to remit this tribute of seventeen millions a yearwould not have sufficed to swallow up such minor disturbances in the silver market as that caused by the conversion of the German coinage, which is generally considered to be the main cause of the present depression? The truth is, that the financial attitude of the Indian Government at the present day, when it bas become the medium for the transmission of this tribute from India to England, is a phenomenon quite unique of its kind, for which no precedent is to be found in the past; and to say that the Government, having interfered with the natural operation of trade in this way, by entering on bill-broking transactions on this enormous scale, should hold its hand at the very point when the effect of its action has culminated, is as reasonable as it would be to argue that if the Government were to set down an army on a thinly inhabited coast, thereby bringing up the cost of provisions to famine rates, it should, while itself possessing the only means of transport, abstain from taking any measures to

alleviate the scarcity, but should leave this to the natural action of the laws of supply and demand. Those laws cannot act in either case while their natural operation is impeded by artificial restrictions.

So much for the general objection. Now as regards some of the more specific ones. The first public reference to Colonel Smith's scheme is to be found in a debate of the House of Commons in August 1876, when Lord George Hamilton, in introducing the Indian Budget, and treating of the depreciation of silver, which was just then attracting great attention, referred to Colonel Smith's scheme, and asked whence all the gold was to come that would be needed to carry it out. When putting this question, as if it disposed completely of the proposal, it can only be supposed that Lord George Hamilton could not have made himself acquainted with the nature of it, but must have supposed that it resembled the measure now being carried out by the German Government of demonetising silver and substituting a gold currency. As has been already explained, there is no question here of substituting gold for silver. So far as these metals are concerned, the scheme assumes that the existing stock of silver currency would remain in circulation, although in process of time it would be supplemented by a gold currency, small in amount at first, but gradually increasing, which would find its way into the country by the automatic process of trade requirements. The objection, therefore, of the late Under-Secretary of State is one not addressed to Colonel Smith's proposal, but to something quite different.

Mr. Fawcett also made a speech on the same occasion, in which, without expressing a definite opinion whether any or what measures should be taken, he warned the Indian Government against the danger of being led away by the propounders of currency nostrums. Now if that expression was intended to point to the particular proposal in question, it begs the whole question at issue. It is easy to discredit any proposed reform by giving it a bad name. The same sort of criticism might be applied to any scheme that is merely new, however reasonable and sound in principle. The first proposal to make pieces of paper circulate at the same value with large quantities of the precious metals, or for a token coinage, or any of the other expedients which have at different times been successfully introduced among civilised nations, might with equal propriety be so prejudged. We apply the term nostrum' to something for which a virtue is claimed, although its mode of action cannot be explained. We may call Holloway's ointment a nostrum, or Cockle's pills, but one may reasonably protest against the use of such a question-begging epithet applied to a scheme the modus operandi of which is clearly explained, and which is capable of being defended or impugned on grounds open to investigation, and admitting of rational argument.