Money Mischief_ Episodes in Monetary History - Milton Friedman [117]
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* The narrow range of the relative price of gold and silver does not mean that the purchasing power of either gold or silver was constant.
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* A continuous price series was obtained by linking the deflator in Friedman and Schwartz (1982) to the Department of Commerce GNP deflator from 1976 to 1986 and to wholesale prices as reported from 1800 to 1867 in the report of the U.S. Commission on the Role of Gold (1982). The price of silver in New York was pieced together from Warren and Pearson (1933), Historical Statistics, and Jastram (1981).
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* Because of its close economic ties to China, Hong Kong was also on a silver standard, and so also were Ethiopia (then Abyssinia) and Persia (now Iran) (Leavens 1939, p. 369).
To describe China as on a silver standard is a simplification. "Copper ... is used for an even larger proportion of the business done in China [than silver].... These copper coins ... circulate on the basis of their value as metal. They constitute the medium of exchange and of account for the common people" (Kreps 1934, [>]). However, essentially all of the wholesale trade and foreign trade was conducted on the basis of silver.
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* For an excellent discussion of the impact that China's being on the equivalent of a floating exchange rate had on prices in China, see Wignall (1978a, pp. 33–43; 1978b, p. 39). The articles are unsigned in the original source. I have attributed authorship on the basis of a personal letter of April 18, 1990, from John Greenwood, founder and editor of the Asian Monetary Monitor.
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* This article and two others by Greenwood and Wood are unsigned in the original source. I have attributed authorship on the basis of a personal letter of April 18, 1990, from John Greenwood, founder and editor of the Asian Monetary Monitor.
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* The data in this and the preceding two paragraphs are taken from Salter (1934, pp. 15–19). However, see the Appendix to this chapter for different interpretations by Brandt and Sargent (1989), Rawski (1989), and P. H. K. Chang (1988).
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* See the chapter Appendix for alternative interpretations of the events set in motion by the U.S. silver purchase program.
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* Salter had served as a New York Times correspondent covering the London World Economic Conference in 1933, and he continued to write special articles for the Times thereafter. The Times reports him as having given several speeches in New York in late 1934, so it is not inconceivable that he wrote the editorial from which I have quoted.
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* Some idea of how important this effect might have been can be gained from data on the export of silver and the government's budget. From 1932 to 1936, roughly 900 million yuan of silver (valued at the legal Chinese price) was exported and, from 1932 to 1938, nearly 1,400 million (Leavens 1939, p. 303). Indirect evidence suggests that while much of the silver came from privately held stocks, as much as half may have come from monetary reserves held by the government directly or in government-owned banks as reserves against deposits and paper currency. In 1936, the year before the Japanese invasion but when the Nationalist government was already desperately trying to build up its military strength, government borrowing was 276 million yuan, and a substantial fraction of that was for the refinancing of maturing debt (Rawski 1989, p. 15; Brandt and Sargent 1989, p. 43). So even the directly held government silver would have financed several years of such deficits. Moreover, had the silver been available, it would have made for a healthier monetary situation, with prices more stable, at least for a time. Hence, the deficits generated by military expansion would have been less and the capacity to engage in noninflationary borrowing much greater. All in all, it seems not unreasonable to suppose that the onset of inflationary monetary expansion could have been postponed by at least a year and possibly by two years or more.
Of course, some of the silver exported