Note 493 — Chapter XXII

I have been unable to satisfy myself that anyone has made a sufficiently thorough study of the course of the gold premium on the Rupee, the agio of the Rupee over its bullion content, or the course of prices in India, during the period from 1893 to 1898, to justify confident statements as to the comparative strength of different elements in the explanation of that history. Kemmerer states (Money and Credit Instruments, p. 38) that he can find no evidence at all to support Laughlin's view of the matter. (See Laughlin, Principles of Money, pp. 524 et seq.) J. M. Keynes, however, in his Indian Currency and Finance, p. 5, says: "The Committee of 1892 did not commit themselves; but the system which their recommendations established was generally supposed [Italics mine.] to be transitional and a first step toward the introduction of gold [italics mine.]." In the arrangements of 1893, moreover, a ratio between English gold and the Rupee was established, of 16d. to the Rupee, even though provisions for holding the Rupee to this ratio were left till the establishment of the "gold exchange standard," several years later. Keynes, on p. 3, discusses the arguments of the silver party against the introduction of gold, which is further evidence that the action of the Committee was understood as looking toward a gold standard. There is some evidence at least for Laughlin's view. That his view offers a complete explanation, I think unlikely.

Kemmerer's admirable Modern Currency Reforms (Macmillan, 1916), is at hand while the proof sheets are being revised. It is interesting to note that he finds the statistical evidence regarding Indian prices, trade, etc., far too scanty to justify positive conclusions as to the causes governing the course of the rupee. He prefers, rather, to rest the case for the quantity theory on a priori reasoning and statistics for the United States. Loc. cit., pp. 70-71. In the chapter on "Dodo-Bones," I have suggested that India might come nearer than other countries to actualizing the assumptions of the quantity theory. On Kemmerer's showing, however, it appears to be a liability, rather than an asset!