THE
MONETARY STANDARD
BY
EDWARD T. PETERS
MONETARY STANDARD
BY
EDWARD T. PETERS
Washington, D. C.
THE ECONOMIC PUBLISHING AGENCY
1895
ij=3S iQll
Anne;)
3 5^. -fA-S
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Copj-riglit 1895, In- Edward T. Pktkr?.
NATIONAL PUB. CO., PRINTERS
PREFACE.
The following pages comprise, with a few slight alterations, a series of
six articles recently published in The Pathfihdbr, the first having ap¬
peared in the number of that journal for June 29th and the last in the
number for August 24th. They were meant to present, as impartially as
possible, a few of the main considerations bearing on the important ques¬
tion of our monetary standard, which now claims so large a share of
public attention.
While the author believes that the adoption of a measure providing for
the free coinage of silver in the United States without the co-operation
of the other leading nations of the commercial world would be a calami¬
tous error of public policy, leading to far greater evils than any for which
it is proposed as a remedy, he yet finds much to agree with in the princi¬
ples contended for by the advocates of free silver and bases his dissent
from their practical conclusion mainly on a different view from theirs as
to certain essential facts.
One important point of difference relates to the extent to which silver
now does duty as money, and, by its presence in the circulation of varioirs
countries, mitigates the tendency of gold monometallism to cause an in¬
crease in the value of the monetary unit. Another relates to the tests by
which the stability of the value of money is to be judged, it being an error
to assume that the extent of the fall in prices is a true indication of the
extent of the rise in the value of money, since this implies that goods, taken
in the aggregate, constitute a fixed standard of value, which they
certainly do not. Both of these points have been more fully discussed by
the author in other writings—the first in an article on " Practicable
Bimetallism " not yet published ; the second in a paper on " Tests of
Stability in the value of .Money," read in August, 1894, before Section
I of the American Association for the Advancement of Science and also
in one on "Uouey as Belated to Debts" read on May 21, 1895, before the
National Statistical Association.
That an appreciating currency is an evil, not merely to be deprecated,
but, if its existence be fairly established, to be attacked with a view to
its removal, is a belief which the writer shares with the advocates of
free coinage for silver; but he realizes the necessity of taking care not to
replace one evil by another of greater magnitude.
Washington, U. ( '., August, 2(1, 1895. E. T. P.
'S. V l-^524
^ V"
671373
THE MONETARY STANDARD-
I.
VALUE OF MONEY AS AFFECTED BY THE SUPPLY. '
CHE OBJECT in view in prepar¬
ing this series of articles is to
bring under notice some of the
chief arguments advanced for and
against each of the leading policies,
with reference to the standard of val¬
ue, that are now prominently advo¬
cated. These policies may be designat¬
ed as:—
1. The policy of gold monometallism.
2. The policy of international bi¬
metallism.
3. The policy of American bi-metal-
lism, or, in other words, bi-metallism
for the United States, without the co¬
operation of other nations.
A correct understanding of these pol¬
icies, of the effects to be expected from
their operation, and of the arguments
bearing upon them, depends in part on
an acquaintance with facts and in part
on a right apprehension of certain eco¬
nomic principles. Among the latter
there are two which may advanta¬
geously be considered at the very out¬
set. One of them is a natural law re¬
lating to the circulation of money
which was expounded by Sir Thomas
Gresham in the 16th century, and in
a somewhat extended form is now com¬
monly known as "Gresham's Law."
This we will, however, pass over for the
present and devote the remainder ot
the present article to a consideration of
the other, which may be stated in the
following words:
A Punda'm«ntal Principle.
A change in the (jinmtUy of money in
use, other things remainirig as they aere,
tends to produce a corresponding cha nge in
the prices of the things which money hays,
increase in the quantity of money tending
to cause a rise, and decrease to canse a fall
in prices.
This law may be stated in another
form. Instead of saying that an in¬
crease in the quantity of money tends
to raise prices, we may say that it
tends to lower the value of money,
and instead of saying that a decrease
in the quantity of money tends to di¬
minish prices, we may say that it tends
to increase the value of money. A far¬
mer has to pay a debt of $100.00, and
must obtain the money by selling
wheat. If the latter is worth $1.00 a
bushel, he will get the needed sum for
100 bushels; if it is worth only 50 cents
a bushel, he must give 200 bushels for
the means of meeting his obligation.
The dearer the wheat as compared with
money, the cheaper the money as com¬
pared with wheat, and vice versa.
If, however, it is only an article here
and there that changes its price, we
very reasonably attribute the change
THE MONETARY STANDARD.
to some circumstance connected with
the consumption or supply of the arti¬
cles so changing. If, for example, there
is a sharp rise in the price of wheat,
our first thought is that there must be
an actual or a prospective scarcity of
that grain in consequence of a deficien¬
cy in the world's wheat crop. If, on
the other hand, there is a decided fall,
we think of an exceptionally abundant
supply as the probable cause. If, again,
there is a gradual and progressive fall,
which, with more or less fiuctuation
due to the diversities of the seasons,
continues through many years, we are
justified in suspecting that the increas¬
ing use of labor-saving machinery in
tillage, harvesting, etc., and the in¬
creasing accessibility of cheap lands
suitable for the cultivation of this
crop are reducing the cost of its pro¬
duction.
But if we look over the entire range
of commodities and find that a fall in
prices has been very general—so much
so that while some articles may have
remained stationary, or even have risen,
there has, on a general average been a
decided fall,—we are justified in rais¬
ing the question whether such fall, or
a considerable part of it, is not due to
an increase in the value of money rath¬
er than to an almost universal decrease
in the values of goods. So, also,, if
there were a general rise in the prices
of goods, we should be justified in ask¬
ing whether a decrease in the value of
money rather than a general increase
in the values of goods, were not the <'or-
rect explanation.
There i5 no Fixed Standard of Value.
It is true that money is commonly
spoken of as a measure of value, and it
is also true that at any given time and
place the relative prices of articles are,
for practical purposes, the measure of
their relative "values" then and there;
but it does not by any means follow
that the value of money is itself invari¬
able.
No one disputes the truth that an
increase in the supply of butter, eggs,
meat, or any other commodity, with¬
out a corresponding increase in the de¬
mand, lowers the value of the article,
or that, on the other hand, a decrease
in the supply, without a corresponding
decrease in the demand, has the op¬
posite effect. The same law applies
to money; but as we are accustomed to
express all values in terms of money,
changes in the value of the latter are
not brought to our attention by any cor¬
responding changes in the words by
which the values are denoted. A cer¬
tain coin or note is called a dollar, and
though its value ten years hence may¬
be greater or less than now, we shall
not be able to indicate that fact by any
change in its name. It will still be
called a dollar just as if its value had
undergone no change, for the simple
reason that we have no other name by
which to call it.
Nor is it practicable to fix upon any
object in existence and say that its
value can be used as a criterion by
which to form an infallible judgment
as to the extent of the changes taking
place in the values of all other things,
because there is no exception to the rule
that all things are liable to change in
their values. The precious metals fluc¬
tuate far less than most things from
day to day, from month to month, and
from year to year, because the exist¬
ing stock of them is so large that the
supply of them is comparatively inde¬
pendent of the output for any one year.
But if we trace them through a con¬
siderable number of years, we find very
great changes in their values. The
late Prof. Jevons, in his "Money and
the Mechanism of Exchange" (first par¬
agraph of chapter XXV) remarks in
regard to gold that "there is abundance
of evidence to prove" that its value
"has undergone extensive changes."
He says: "Between 1789 and 1809, it
fell in the ratio of 100 to 54, or by 46
VALUE OF MONEY AS APFECTO BV THE SUPPLY.
7
per cent ♦ * * . From 1809 to 1849
It rose again in the extraordinary ratio
of 100 to 245, or by 145 per cent, ren¬
dering government annuities and all
fixed payments, extending over this
period, almost two and a half times as
valuable as they were in 1809. Since
1849 the value of gold has again fallen
to the extent of at least 20 per cent."
(This was written in or before 1875.
Since that time gold, measured by the
same standard, has again increased in
value.)
How far does Supply affect Value ?
As to the degree to which the value
of money is lessened by increasing, or
increased by lessening, the supply,
there is room for considerable differ¬
ence of opinion. Some writers lay so
much stress on the extent to which ex¬
changes are effected by means of
checks, bills of exchange, and other
forms of credit as to convey the impres¬
sion that variations in the money sup¬
ply are comparatively unimportant.
Such a view may be found in Prof. F.
W. Taussig's monograph on "The Sil¬
ver Situation in the United States,"
issued as No. 1, Vol. VII, of the publi¬
cations of the American Economic As¬
sociation. But one of the most eminent
of living writers on money—Glen. Fran¬
cis A. Walker—in a paper read before
the Association just named in Septem¬
ber, 1893, points out that while these
various forms of credit diminish the
demand for money, "it still remains
true that the demand for money, what¬
ever that may be, does, taken in con
nection with the supply, determine
prices:" and it must also be true that
whether the demand be great or small,
a change in the supply without a cor¬
responding change in the demand will
cause a change in the general level of
prices.
It may be said that a material change
in the supply of money without some
change in the demand, rarely, if ever,
occurs, since demand tends, in some
measure, to adjust itself to the changed
conditions. There is enough of truth
in this view to warrant the belief that
the change in prices resulting from a
change in the supply of money is not,
as a rule, in full proportion to the
change in that supply. But the history
of all great expansions and contractions
of the currency affords ample evidence
of the effective operation of the law
under consideration. The statistics at
our command are never sufficiently
complete to enable us to ascertain the
exact degree in which prices rise
through a given increase or fall
through a given decrease, in the supply
of m_oney; but that they do rise
through the one and fall through the
other is the general teaching of ex¬
perience.
Goods not a Fixed Standard.
It would be a mistake to infer from
anything thus far written that a
change in the general level of prices
necessarily implies an inversely propor¬
tional change in the value of money.
To do this would be to assume that
goods taken collectively constitute a fix¬
ed standard of value. This they cer¬
tainly do not, even for theoretical pur¬
poses. All that can be claimed is that
changes in the general level of prices
furnish indications which, considered
in connection with other circumstances
may aid us In forming an approximate
estimate of the changes in the value of
money. On ihe whole the preferable
form of statement for the law discussed
in this article is the following: An in¬
crease in the supply of money, other
things being equal, diminishes the val¬
ue of the monetary unit, and a decrease
has the opposite effect.
THE MONETARY STANDARD.
TI.
GRESHAM'S LAW.
CHE familiar statement of the
principle commonly known as
Gresham's law is that bad
money will drive good money out of
circulation. A more accurate state¬
ment is that, of two kinds of money
both of which are a legal tender in all
amounts, the cheaper, if-, issued in suf-
flcieut quantities, will drive the dearer
one out of circulation.
The proviso in regard to its being is¬
sued in suiflcient quantities is neces¬
sary, as may be seen from the fact that
our silver dollars do not drive gold out
of circulation so far as to expel our gold
reserve, though, it must be admitted,
they have come dangerously near to
doing so. They are legal tender in all
amounts, but their quantity is limited
and the law does not permit its in¬
crease. Were their coinage unrestrict¬
ed, we might expect to see the effect
always produced by the operation of
Gresham's law under such circum¬
stances; and in the absence of any
great change in the conditions of sup¬
ply, demand and price, as regards gold
and silver, respectively, this effect
would be the expulsion of gold from
the circulation.
Let us see why it would be so. Sup¬
pose that a man has $50,000 with which
to purchase property or pay debts.
Open the mints to the unrestricted
coinage of silver, and he can buy $50,-
000 worth of silver bullion, getting
enough to make about 100,000 silver
dollars, each one of which would go as
far in paying debts, and at first nearly
as far in buying property, as a dollar of
the money he invested in the silver
bullion would have done. It is true that
operations of so extremely profitable a
character would speedily cease to be
possible. Silver would rise in price, es¬
pecially as measured in our own money,
since the latter as it increased in quan¬
tity under the stimulus of unrestricted
silver coinagewould diminish in value.
Still the margin left for making a
profit by buying or mining silver and
converting it into coin would probably
remain wide enough to keep our mints
very busy for years to come.
Why Odd Would be Withdrawn.
It is quite clear that under such con¬
ditions much additional silver would
get into circulation; but why should
gold go out? The answer is that as sil¬
ver would come in because a large num¬
ber of persons would be interested in
causing it to do so, gold would go out
for a precisely similar reason. We
saw, in the first article, that an in¬
crease in the supply of money without
a corresponding change in the demand
would diminish the value of the mone¬
tary unit, and we have just seen that
such an increase in the supply would
be a prompt result of the admission of
silver to unrestricted coinage, while
there is no reason to anticipate any
similarly rapid increase in the de¬
mand. A fall in the value of the dol¬
lar would, in fact, be certain, and it
would be by no means a slight one.
This would change its relation to com¬
modities in general, and, among other
things, to gold bullion. As money,
gold coin would be of no more value
than silver coin, except in cases where
contracts have been expressly made on
GRESHAW'S LAW.
9
a gold basis. But its metaiiic contents
would have the same value here as in
the rest of the commercial world, less
the trifling cost of transportation to
another market. Now whenever the
metallic contents came to be worth
more than the coin itself, considered
as money, every gold coin reaching the
hands of merchants, bankers, and other
persons who handle money in consid¬
erable sums would, as far as possible,
be detained for a more profitable use
than making payments on an equality
with silver. Why should I use $100 in
gold in making purchases or paying
debts, if by selling it to a jeweler or
money broker I can get $101 in silver,
which will answer the same purpose
and leave me a dollar to spare? And
why should anyone do so who knows
that the metal in the gold coin is worth
more than the coin itself will pass for
in making purchases or paying debts ?
If the difference were still greater, so
much the stronger would be the motive
for thus withdrawing the gold coins from
circulation. As a matter of fact, very
few of them are in circulation now
among the people. Aside from hoards,
they are mainly held by a very limited
class, and that composed of men who
would be fully informed as to every
change in their value.
Where the Gold Would Go.
Where would the gold coin with¬
drawn from monetary uses find its ul¬
timate market? Considerable sums
woiild doubtless be hoarded. Some
might be melted down by jewelers and
others in the United States. But prob¬
ably by far the greater part would be
exported. No small portion of the lat¬
ter might be exchanged for silver
thrown out of monetary use by France,
Germany, Austria-Hungary and other
countries, every one hundred dollars in
gold buying enough silver to coin into
one hundred silver dollars and leave at
least a sufflcient surplus to pay for the
trouble and costs involved in the ex¬
change.
We see, then, that Gresham's law is
simply a statement of what will hap¬
pen under given conditions as a result
of individual action as determined by
self-interest. One dollar being as good
as another for the purpose of paying
debts and making purchases—that is,
for the purpose of circulation as money
—people who were about to have dol¬
lars coined would use for that purpose
the cheaper material rather than the
dearer one, since that is the way in
which they would get the largest num¬
ber of dollars at a given cost. The cir¬
culation would, in short, be replenished
out of that metal which would produce
dollars most cheaply. On the other
hand, coins that for melting or expor¬
tation were worth more than their face
value would not be used by their hold¬
ers for a purpose for which the cheaper
dollars would answer equally well,
namely that of paying debts or making
purchases. The gold would be with¬
drawn from circulation on the one side,
while silver would be poured in on the
other, and the proposition of Gresh¬
am's law that the cheaper money will
drive the dearer out of circulation
would be proved true.
The Teaching of Experience.
It has, in fact, been proved true un¬
der all the conditions under which it
has hitherto been tried. Between 1792
and 1834 money could be coined in the
United States at the rate of 24% grains
of pure gold or 371% grains of pure sil¬
ver to the dollar. During the latter
half of that period the silver required
to make a dollar was almost continu¬
ously cheaper than the gold required
for the same purpose, and the effect is
seen in a great preponderance of the
silver coinage. Laughlin, in his His¬
tory of Bimetallism in the United
States, p. 31, says: "The divergence of
the market from the mint ratio brought
10
THE MONETARY STANDARD.
Gresham's law Into operation as early
as the period from 1805 to 1810, and be¬
fore 1820 it had virtually driven gold
out of use as a medium of exchange."
After the change of the legal ratio in
1834, the same law soon began to oper¬
ate in the other direction, gold having
become the cheaper material for money.
To such an extent was silver coin
drained away that it became impossi¬
ble to retain enough of it for small
change, and in 1853provision was made
for a subsidiary silver coinage contain¬
ing a smaller quantity of metal.
The same law might be shown to
hold good as between paper and me¬
tallic money, where the former is is¬
sued in excessive quantities by govern¬
ments or permitted to be issued by
banks without adequate guarantees for
its redemption on demand.
At the time of Sir Thomas Gresham,
in the sixteenth century, the law was
seen operating in connection with
worn, clipped and debased coin on one
hand and coin of full weight and fine¬
ness on the other, the latter being
driven out of circulation by the former.
It was to this phase of the operation of
the law that Gresham directed his at¬
tention.
Earlier Diacoveries of "Qresham's l.aw."
McLeod, who was the first to desig¬
nate the principle under consideration
as "Gresham's Law," has lately point¬
ed out, in an article in the Nineteenth
Century, that Nicolas Oresme, a states¬
man of the time of Charies V., of
France, and Copernicius, in a treatise
on money drawn up at the instance of
King Sigismund of Poland, had both
anticipated Gresham in a correct state¬
ment of the law now known by the
name of the last mentioned. It was,
however, known as a matter of experi¬
ence, even to the ancients, for the
Greek poet, Aristophanes, alludes to it
in his comedy of the Frogs, and the
following extract from Frere's transla¬
tion of that poem is prefixed by Laugh-
lin to his History of Bimetailism in
the United States:
Oftentimes have we refiected on a sim¬
ilar abuse
In the choice of men for ofiice and of
coins for common use;
For your old and standard pieces,
valued and approved and tried.
Here among the Grecian nations, and
in all the world beside.
Recognized in every realm for trusty
stamp and pure assay.
Are rejected and abandoned for the
trash of yesterday;
For a vile, adulterate issue, drossy,
counterfeit and base.
Which the traffic of the city passes cur¬
rent in their place.
A Point that Should be Noted.
It is not to be assumed, however, that
the cheaper money by which the
dearer is expelled is always and neces¬
sarily a worse money than the latter.
For one of the most important uses of
money—that of furnishing a standard
for deferred payments—that money is
best which changes least in value be¬
tween the contraction and the pay¬
ment of a debt, an increase in the value
of money being as justly objectionable
from the debtor's point of view as a de¬
crease is from the creditor's.
GOLD MONOMETALLISM.
III.
GOLD MONOMETALLISM.
Y GOLD monometallism is meant
a system in which the stand¬
ard monetary unit is of gold
and in which gold is the only metal re¬
ceived at the mints and coined for any
one who may offer it for the purpose
in the manner prescribed by law.
Another condition usually considered
essential to gold monometallism is that
the gold coins be the only ones that are
a legal tender in all amounts. The
term is sometimes applied to the sys¬
tem now in operation in this country,
under which the silver dollar can by
law be tendered in all amounts in pay¬
ment of debts, but is kept at a parity
with gold.
So long as the means adopted to
maintain this parity are effective, our
system has the most essential requisite
of gold monometallism, in that it
makes gold the monetary standard;
but it permits so large a use of silver
coin, silver certificates, and notes issu¬
ed in exchange for silver bullion, that
it may, perhaps, be correctly regarded
as a modified form of bimetallism.
Main Argument for Monometallism.
The main argument in favor of
monometallism is found in the exis¬
tence of Gresham's law (explained in
the second article) and in the impossi¬
bility—judging by the past experi¬
ence of nations—of escaping the effects
of its operation. Everywhere and at
all times the market ratio between the
value of gold and that of silver has
been more or less variable, just as are
the ratios between the values of other
exchangeable things. Prior to 1874
the variation was, indeed, compara¬
tively small, the lowest annual average
found in a table covering 187 years end¬
ing with 1873 being 14.14 (the average
ratio for 1760) and the highest being
16.25 (the average for 1813). But a very
small difference between the commer¬
cial and legal ratios sufilces to cause
the hoarding, melting or exportation of
the coins whose value, as declared by
law, is less than their market value as
bullion.
The remedy, according to the advo¬
cates of monometallism, is to refrain
from declaring any value by law—that
is, refrain from setting up a system of
coinage in which so many ounces of
silver are assumed to be equal in value
to one ounce of gold—and make the
standard money of one metal only.
The fixing of a legal ratio between the
metals for coinage purposes, it is ar¬
gued, will not prevent the commercial
ratio from varying, nor will it prevent
the coins from obeying the latter ratio
by passing out of circulation when
legally undervalued.
The result is that what is called a
double standard is really an optional
standard, the option resting with the
debtor, who naturally avails himself of
his legal right to pay in the cheaper
money. Under such a system, it is
urged, the creditor cannot positively
know, especially in making contracts
that are to run for a considerable per¬
iod, whether he will receive silver or
gold in payment. Monometallism, it
is contended, obviates this difficulty
and gives a perfectly definite meaning
to contracts. If a contract is made to
pay $1,000 at some future date, it will
THE MONET
mean under gold monometallism that
the creditor will have the right to claim
gold coins containing in the aggregate
one thousand times 25.8 grains of stan¬
dard gold (nine-tenths fine). Under
silver monometallism, it would mean
that he would have the right to claim
one thousand silver dollars, each con¬
taining 412% grains (nine-tenths fine).
In either case the meaning would be
perfectly definite as regards the mater¬
ial objects to be claimed by the cred¬
itor; whereas under a bimetallic, or
double standard system, the debtor
would have the option of paying either
in gold or silver, according as he might
find it most to his advantage to use the
one or the other when the time of pay¬
ment should arrive.
Under monometallism, say its advo¬
cates, governments are spared from at¬
tempting the impossible task of fixing
values. All they have to do is to fix
upon a monetary unit containing a cer¬
tain definite quantity of metal of a cer¬
tain specified degree of fineness, and
then leave buyers and sellers to fix its
value by bargaining freely among them¬
selves in respect to the number of
units (dollars, pounds sterling, marks,
francs, etc., as the case may be) to be
paid for each object bought and sold.
Under such conditions, all that can
be predicated as to the value of the
monetary unit is that it will not vary
materially from that of the metal it
contains. If through a sudden increase
in the demand for money it should
come to be worth more, there would at
once be a profit in converting bullion
into coin, and the quantity of the latter
would thus be increased until there
was a substantial equality of value be¬
tween coin and an equal quantity of
bullion. An abundant yield of the
money metal may cause its progressive
depreciation, but the relation between
coin and bullion is so close that it can
not depreciate the one without produc¬
ing a corresponding depreciation in the
;y standard.
other. If through a temporary super¬
abundance of coin the latter should be¬
come worth less than so much bullion,
the surplus could at once be melted
down. Coin is, in short, always poten¬
tial bullion, and, as such, can not re¬
main for any length of time of less than
bullion value.
The Bimetallist View.
It is, however, pointed out, on the
other hand, by bimetallists that such an
identity of value between coin and bul¬
lion does not insure stability of value,
and that the definiteness which mono¬
metallism insures as to the exact ma¬
terial and the exact weight and fine¬
ness of the coins in which contracts
are to be settled does not at all insure
definiteness as regards the value to be
paid, since the value of the standard
money metal is itself subject to great
changes. It is urged, moreover, that
the attempt to secure the first kind of
definiteness by the general adoption of
gold monometallism has the effect of
producing a vast increase in the de¬
mand for gold and thus is itself the
direct cause of a great increase in its
value and consequently in the value
of the gold money in which debts are
payable under this system. In this
way, it is charged, a grievous wrong is
done to the whole debtor class, in¬
cluding the taxpayers of all countries,
municipalities, etc., that owe any con¬
siderable amounts of public debt con¬
tracted under another system.
Such arguments as these are entitled
to much more respectful treatment
than they have generally received at
the hands of gold monometalists, but
their consideration cannot be entered
upon at this point.
Silver Used along with Cold.
In the meantime it may be observed
that gold monometallism, as the word
is to be understood, does not preclude
the use of a considerable quantity of
Gold moñ
silver. Gold is not adapted to the
smaller transactions of retail trade
which constitute so large a part of the
business of any people, and for use in
these, silver, as well as some cheaper
metal for minor coins, is very neces¬
sary. Under gold monometallism the
silver coins, like those of bronze or
other cheaper metal, are only "tokens",
though prior to the depreciation of sil¬
ver they were tokens of comparatively
near the full nominal value assigned
to them. "Token coins," says Jevons
in his Money and the Mechanism of
Exchange, (Chapter VIII) "are defined
in value by the fact that they can, by
the force of law, or custom, be ex¬
changed in a certain ratio for stand¬
ard coins. The metal contained in a
token coin has of course a certain val¬
ue; but it may be less than the legal
value in almost any degree."
In order that such coins may serve
their purpose, it is necessary to avoid
making them so nearly of full weight
that by a rise in the value of silver
they might become more valuable than
the standard coins, since in that case
they would disappear from circulation
under the operation of Gresham's law;
but on the other hand it is considered
advisable not to make their metallic
value too far below the value for which
they pass as money, since in that case
there is a temptation to counterfeit
aETAI.t.isk. . , - " J8
them; kW ,CdU,iUe:jTeilff ma^îf
uirib in&taî mígflt diffltfdlí to' de'tèct.
It is an essefitiàl ;¿art ;o!'h''^stem of
token coii;^ tb^t !)e coined
solely on government account, the gov¬
ernments coining them bepoming liable
to the public for the difference between
their nominal and metallic values. Our
own fractional silver coins are sold for
lawful money to any one desiring them
in sums not less than $100 and they are
also redeemed on demand in sums of
$20 or any multiple thereof. They are
a legal tender up to the amount of ten
dollars.
Advantage of Gold over Silver.
The advantage claimed for a single
standard of gold over a single stand¬
ard of silver consists in part in the
comparative ease with which, by the
system of token coinage just referred
to, a concurrent circulation of the dif¬
ferent metals can be secured. But an
advantage that is, perahps, of still
■ greater importance is the superiority
of gold in the matter of compactness,
portability, and general adaptation for
use in the large transactions of great
commercial nations. It is no small ad¬
vantage to save the extra space that
would be required for storage and the
extra time that would be consumed in
counting or weighing, if silver were
substituted for gold in such transac¬
tions.
14
THE MONETARY STANDARD.
IV.
BIMETALLISM.
CHE ETYMOLOGY of the word
Bimetallism indicates a refer¬
ence to two metals, the metals
referred to being gold and silver. Other
metals are applied to monetary uses,
but the functions they perform are com¬
paratively limited and unimportant.
In the present article there will be oc¬
casion to consider bimetallism in three
different senses of the word. We may
say that bimetallism means (1 ) a sys¬
tem under which gold and silver alike
are received at the mints from all who
may present them, and coined for them
into money which is a full legal tender
in the payment of debts, the relative
values of the two metals for coinage
purposes being fixed by iaw; (2 )
the concurrent circulation of the
two metals in the currency of the na¬
tion in which such a system is estab¬
lished, supposing such a result to
be attainable; (3 ) a state of
things under which gold and silver,
whether circulating concurrently in
particular countries or not, are yet on
the whole, about equally available to
supply the world's need of metallic
money.
Concurrent Use Not Attained.
Bimetallism in the first of these
senses has been incidentally referred
to in preceding articles of this series,
and our consideration of the working
of Gresham's law has shown us that
if the coinage ratio adopted by any
nation using the bimetallic system
should differ from the commercial ra¬
tio between the two metals to such an
extent as materially to undervalue
either one of them, the undervalued
metal would tend to disappear from the
circulation of that country, and leave
its metallic currency composed mainly
if not wholly, of the other metal. It
must, I think, be admitted, too, that,
under all the conditions which have
heretofore existed, governments have
found it impossible to fix upon any
coinage ratio with which the commer¬
cial ratio would for any length of time
agree. Some nations have used the
single standard of gold, others the sin¬
gle standard of silver, and, of those at¬
tempting to maintain a bimetallic sys¬
tem, some have adopted one ratio and
some another. There was thus the
possibility that a bimetallic country
would find one metal or the , other
drawn away from it, not only to coun¬
tries using such metal as their sole
standard, but also to other bimetallic
countries in which it was rated above
its commercial value. Precisely in this
way our own country participated in
drawing gold away from Prance be¬
tween 1834 and 1850, our ratio of 16
to 1 being such as to overvalue that
metal while the French ratio erred a
little in the opposite direction. For
the same reason, France participated in
drawing away our silver, since her
undervaluation of gold was an over¬
valuation of silver, while our over¬
valuation of the former was an under¬
valuation of the latter. With bimetal¬
lic nations themselves thus working
at cross purposes, the natural difficul¬
ties in the way of their securing a
concurrent circulation of the two met¬
als were aggravated. Whether this re¬
sult might or might not have been at-
tained under more favorable condi¬
tions, it has, under the conditions here¬
tofore prevailing, been attained, if at
all, only in a very imperfect degree.
One Useful Purpose Served
So far, then, as it was intended to
produce this particular result, bimetal¬
lism, as a legal system, has in a great
measure failed of its object; and this
is equivalent to saying that it has
failed of the main object which the
particular nations adopting it had in
view. But it doeá not follow that it
has answered no useful purpose in the
world's monetary economy. Bimetal-
ists claim that its existence in France,
between 1803 and 1873, with a coinage
ratio of ISYz to 1, contributed power¬
fully to keep the commercial ratio be¬
tween the metals in the neighborhood
of that figure, and I see no reason to
doubt that the claim is well founded.
Prior to the discoveries of gold in
California and Australia, that metal
had a higher value than was assigned
to it in the French coinage law; that is,
a gram of gold was commercially worth
more than 15% grams of silver. So
long as this state of facts remained,
the monetary circulation of France
consisted chiefiy of silver, it being to
the advantage of the Bh-ench people
to pay in silver rather than in gold;
but after the discoveries referred to,
the abundant new supplies of gold
thrown into the markets of the world
by the mines of California and Aus¬
tralia, cheapened that metal; and with¬
in a few years a gram of gold, instead
of being worth more than 15% grams
of silver, became worth less. It was now
to the advantage of Frenchmen to
make their payments in gold rather
than in silver, and it was chiefiy gold
that now found its way to the French
mints. As gold came into circulation
through the process of coinage, silver
went out, chiefiy by exportation to
other countries; and it took no great
number of years to establish a marked ^
lism.
preponderance of gold In the French
circulation, in place of the preponder¬
ance of silver which had previously
obtained. If we suppose a concurrent
circulation of the two metals in some¬
thing like equal proportions to have
been a matter of very much importance
to France, it must be admitted that,
from a French point of view, bimetall¬
ism was not a success. But if Germany
could then get along comfortably with
a single standard of silver, and Great
Britain with a single standard of golfi,
it may be supposed that France suf¬
fered no intolerable inconvenience
when her circulation under the bi¬
metallic law consisted mainly of the
former metal, or when it came after
the new gold discoveries to consist
mainly of the latter.
New Supply riet by New Demand.
On the other hand, it cannot be
reasonably doubted that the transfer
of the French monetary demand
from silver to gold during the years
when the produce of the Californian
and Australian mines was being most
abundently poured into the world's
markets had a powerful effect in
counteracting the tendency of the in¬
creased supply of gold to depress its
value relatively to that of silver. The
absorption of gold in France, and in
other countries having the same coin¬
age ratio did much to equalize increase
of demand with the increase of sup¬
ply; while, on the other hand, the lib¬
eration of a large part of the stock of
silver previously in use as money in
the same countries increased the sup¬
ply of that metal available for the
countries having the single silver
standard. Thus, it is clear that under
the operation of economic laws, uni¬
versally recognized as true, the tend¬
ency to a fall in the value of gold, and
a rise in the relative value of silver,
as the result of the new gold discover¬
ies, must have been powerfully coun-
teractçd. It follows from this that, in
16
THE MONETARY STANDARD.
the absence of the steadying effects
due to this new demand for gold in the
bimetallic countries, the rise of prices
in countries having the gold standard,
and the disturbance in the relations
between debtors and creditors neces¬
sarily attending a change in the value
of the monetary unit, would have been
very much greater than they were.
And if silver-using countries would
have escaped participation in these
effects,^ they might have suffered to
some extent from a too scanty supply
of silyer, and a consequent decline in
their prices, while those of the gold-
using countries were rising.
On the whole, it is pretty clear that
if bimetallism as a legal system has
failed to secure for the nations adopt¬
ing it, the sort of bimetallism indi¬
cated by the second of the definitions
used at the begining of this article,
it aided very materially in keeping the
sort indicated by the third in good
working order, for the benefit of the
world at large, through at least one
period of severe strain.
A Change was Inevitable.
It must he admitted, however, that
this third sort of bimetallism could
hardly have been expected to continue
undisturbed during an age of such
commercial activity and rapid inter¬
national intercourse as characterize
the latter half of this century. Its
maintenance depended upon the re¬
tention of the single standard of sil¬
ver by a sufiacient number of nations
to serve as a balance to the nations
using the single standard of gold, so
that on the whole there might be an
adequate monetary demand for both
metals to keep their relative values
about as they had been. To say noth¬
ing of difficulties arising from changes
in the proportions in which the pre¬
cious metals were produced, it was not
to be expected that nations aspiring to
an active commercial career, like Ger¬
many after the constitution of the
empire, should be content to retain
indefinitely the silver standard, how¬
ever convenient for the gold-using
countries such a course might have
been. It was, therefore, practically a
question between the movement to¬
wards gold monometallism, which has
actually taken place and the counter-
movement in favor of international
bimetallism, which is advocated as its
alternative.
INTERNATIONAL BIMETALLISM.
17
V.
INTERNATIONAL BIMETALLISM.
E SAW in the last article that
the establishment of bimetal¬
lism as a legal system in a
particular country is far from assuring
to that country an actual concurrent
circulation of the two metals. But bi-
metalists contend that if bimeta-His™
were made general as a legal system,
through an agreement qf the leading
commercial nations of the world upon
a common ratio between the value of
gold and that of silver, such ratio being
fixed with a reasonable degree of ap¬
proximation to the normal commercial
ratio at the time, no material differ¬
ence between the legal and commercial
ratios could arise. Their argument is
based upon two propositions, namely:
1. The demand for gold and silver for
monetary purposes forms so large a
part of the total demand for these met¬
als, that it is a highly important fac¬
tor in determining their values.
2. Under the operation of the bimet¬
allic system the monetary demand is
always for the cheaper metal; that is,
for the metal which at the relative val¬
ue fixed by law will produce money at
the smallest cost.
It is obvious that if the second of
these propositions is true, a compara¬
tively small variation between the le¬
gal and commercial ratios would suflîce
to transfer the entire monetary demand
of the nations having the common ratio
agreed upon to the metal whose com¬
mercial ratio was below the legal one;
but if the first proposition is true the
concentration of so large a part of the
total demand upon one metal would
continue but a very short time before
it would bring the value of that metal
up to the point corresponding with the
legal ratio. If it continued long enough
to raise its value still higher, the other
metal would then be the cheaper mater¬
ial for money, and the monetary de¬
mand would be at once transferred to
that. Thus the relative values of the
two metals would tend, either to re¬
main in equilibrium at the common ra¬
tio fixed upon by the nations, or to
oscillate about that ratio within very
aarrow limits. Bimetallism attempted
by the leading nations of the commer¬
cial world, united as above indicated
in an agreement on a common ratio,
is what is meant by international bi¬
metallism.
How Oovernments Can Affect Values.
It is often said that governments can¬
not fix the values of gold, silver, or
other commodities, by legal enactment.
This is very true; but it is also true
that the action of governments may
greatly affect the values of commodi¬
ties. Suppose, for example, that a num¬
ber of nations should become involved
in a great war, in which cavalry was
to play an important part, and there
should all at once arise an urgent fie-
mand for tens of thousands of horsse,
of a certain age and build for use in
the cavalry service.* The effect would
obviously be to cause a sharp rise in
the values of such animals, since the
increase of supply could not at once
accommodate itself to the great expan¬
sion of the demand. Similarly, the
monetary legislation of governments
affects the demand for the precious
metals, and in this way affects their
*Since this article appeared in The Pathfinder the writer has read Coin's Financial School
and finds substantially the same iilustratiou in that book. It would he easy to change it by
substituting for cavalry horses any other objects which governments are liai le to need in large
quantities and at short notice ; but this would be no improvement unless the object chosen
were composed of a material as limited in its natural supply as are the precious metals, and,
therefore, as liable as they to increased cost of proauction as a consequence of increased demand.
international bimetallism.
IS
relative values. It is not directly in
virtue of a governmental fiat fixing
the ratio between gold and silver at,
say 24 to 1, that there would be any ten¬
dency of the commercial ratio to ad¬
just itself to the same figure; yet such
a tendency might be expected to mani¬
fest itself were that ratio adopted by
international agreement It would do
so simply because such an agreement,
carrying with it the universal option
of using whichever metal might prove
the cheaper material for money at the
given ratio, would have the effect of
concentrating public demand upon that
metal; and thus, through the well
known relation between demand and
value, producing increase, or, at least,
counteracting a tendency to decrease,
of the latter. At 20 to 1 the demand
for silver would be much larger than
at 24 to 1, and the demand for gold
proportionately smaller; but it is like¬
ly that at the lower ratio a considerable
amount of gold would circulate concur¬
rently with sUver, and that even at
a ratio of 30 to 1 a considerable amount
of silver would circulate concurrently
with gold. In other words, it is not
likely that either ratio wonld be so
remote from a normal one as to cause
either metal entirely to vanish from
monetary use; nor, indeed, can it be
safely assumed that gold would entirely
vanish with a lower ratio than 20 or
silver with a higher one than 30. It
' is only safe to say that the lower the
ratio the larger would be the propor¬
tion of sUver in circulation, and the
higher the ratio the larger would be
the proportion of gold.
Supremacy oí Natural Law.
We thus see that the supremacy
of natural law would remain, in spite
of the action of governments in fixing
upon a common coinage ratio; but this
supremacy would assert itself in the
manner just described, that is, by an
Increase in the relative quantity of
silver in proportion to the lowness of
the ratio, or an increase in the rela¬
tive quantity of gold in proportion to
its elevation. It might of course be
fixed so low that gold, or so high that
silver, would cease to be used as money;
or a ratio which when first adopted
was reasonably close to a normal one,
might come in course of time, through
some great change In sources of supply
and conditions of production, to be so
far removed from it as to produce the
result in question. Of these two possi¬
bilities, the first scarcely needs to be
considered, and the second would hard¬
ly be a source of very serious appre¬
hension; but it might easily happen
that, through such a change as that in¬
dicated above, the relative amounts of
the two metals in circulation might be
greatly altered, one of them becoming
unduly scarce and the other acquir¬
ing an inconvenient preponderance.
The reason why Gresham's law would
not produce the same results as under
the conditions heretofore existing Is to
be found in the fact that under a sys¬
tem of general international bimetal¬
lism, a metal undervalued in one coun¬
try could not, as hitherto, be exported
to others in which it was valued high¬
er since it is a condition of Internation¬
al bimetallisim that all countries, or at
least aU the more important ones,
would value it alike.
In determining what ratio to adopt,
the effect of the ratio adopted upon the
proportions In which the two metals
would circulate would, of course, be a
very important point to consider; and
nations having a large and active com¬
merce would be interested in not mak¬
ing the ratio so low as to give the
more cumbersome metal a preponder¬
ance. But another point of at least
equal importance, and one that might
present greater obstacles to agreement
than the first one named, would have
relation to the effect produced upon the
THE MONETARY STANDARD.
19
existing unit of value in each country.
The adjustment of questions of recoin-
age, in passing from present ratios to
any new one, would also present ser¬
ious practical difficulties.
Effect on Production of Metals.
About the practicability of procuring
a general agreement among commer¬
cial nations, there may be great
doubt, but about the effects of such an
agreement, could it be assured, there
need, I think, be comparatively little.
One metal or the other might be under¬
valued in fixing the ratio, and the effect
of its undervaluation would be to dis¬
courage its use as money to a greater
or less extent, depending on the degree
of such undervaluation; and the dis¬
couragement of its use as money would,
of course, result in a proportionate
discouragement to its production.
Mines which, under other circumstan¬
ces, might be successfuily worked,
would be abandoned, while mines of
the overvalued metal, which under
other circumstances could not have
been worked, would become profitable.
The proportions of gold and silver
produced and used would thus be ma¬
terially affected; but the deviation of
the coinage ratio from a normal one
would probably have to be very wide
indeed before either metal would cease
entirely to be produced for monetary
use.
Important Practical Questions.
International bimetallism is then
theoretically quite possible; the main
difficulty in its way being that of
bringing about the necessary agree¬
ment between a sufficient number of
nations, and ensuring such a continu¬
ance of the agreement as to give per¬
manence to the system. Whether it
is also desirable is quite a different
question, the answer to which depends
largely upon the further question
whether it would give greater stability
to the unit of value than it now pos¬
sesses. Bimetalists complain, as we
saw in the third article of this series,
that the movement of the commercial
world towards gold monometallism has
greatly enhanced and is still enhan¬
cing the value of this unit, and has
thus done and is still doing grievous
injury to debtors in all the countries
to which it has extended. It appears
to be their 'belief that bimetallism,
internationally established, would
remedy this evil, and would not in¬
volve any danger of giving rise to an
equally great one of an opposite char¬
acter. Many American bimetalists go
so far as to contend that this would be
the case if bimetallism at the ratio of
16 to 1 were adopted by the United
States alone, without reference to the
action of other countries. Monometal-
ists, on the other hand, generally
maintain that if the value of monetary
units has been increased at all by the
spread of gold monometallism, the in¬
crease has been but slight; and I think
it may be said that most of them be¬
lieve, on the other hand, that bimetal¬
lism, even if internationally adopted,
would give us monetary units more
objectionable on the score of their de-
Creasing value than are our present
ones in countries where the gold stand¬
ard prevails on the score of their in¬
creasing value. These opposite views
nvolve difficult questions of economic
heory, as well as questions of fact.
They deserve the most serious con¬
sideration from both points of view,
that of theory and that of fact; but
their discussion does not come within
the scope assigned to the present
series of articles.*
s'pamphlet''''^^ questions have been examined in other papers prepared by the author of
20
UNCONDITIONAL BIMETALLISM.
VI.
UNCONDITIONAL BIMETALLISM.
CLIB phrase "unconditional bi¬
metallism" used in the caption
of this article denotes what
in the first article of this series
was referred to as "American bi¬
metallism," or bimetallism for the
United States, independent of the
co-operation of other countries.
In the fourth article it was shown
that the word bimetallism may be used
in at least three different senses. The
first definition given was that which
refers to bimetallism as a legal sys¬
tem—that is, "a system under which
gold and silver alike are received at
the mints from all Who may present
them, and coined for them into money
which is a full legal tender in the pay¬
ment of debts, the relative values of
the two metals for coinage purposes
being fixed by law."
This is the sense in which the word
is used by those who advocate bimet¬
allism for the .United States without
reference to the action that may be
taken by other countries; and it may
be added that they are generally
agreed in insisting that the ratio to he
fixed by law shall be the one heretofoi-e
in use, which is approximately .16 to 1.
"Free coinage of silver at 16 to 1" is
a brief statement of the policy which
they seek to have adopted by the
Government—"free coinage" meaning
simply unrestricted coinage, such as
exists in the case of gold.
Anything like a full statement of
the arguments for and against this
policy would occupy much more space
• than can here be given to them, but a
few of the leading ones may be briefly
noticted.
"Tlie Money of the Constitution"
It is a favorite saying of uncondit¬
ional bimetalists that gold and silver
are the money of the constitution. It
would be an error, however, to suppose
that there is any constitutional provis¬
ion requiring the use of a bimetallic
system in the United States. The con¬
stitution forbids any State to make
anything hut gold and silver coin a
legal tender in the payment of debts;
but this pohibition does not apply to
Congress, and it has been decided by
the Supreme Court that that body act¬
ed within its constitutional powers in
providing for he issue of legal tender
notes by the national Government.
The constitution (Art. I, Section 8) em¬
powers Congress "to coin money and
regulate the value thereof and of for¬
eign coin," and the money provided
under this authority must be accepted
as "the money of the constitution,"
whether the monetary system estab¬
lished by law be bimetallic or mono¬
metallic. The discretion of Congress
in respect to this point appears to be
entirely unhampered by any constitu¬
tional restriction.
Injustice to the Debtor Class.
The most serious and formidable ar¬
gument against the change of system
inaugurated by the coinage act of Feb.
12, 1873, is that which has to do with
its effects on the relation between
debtor and creditor. Down to the
date named the debtor had always pos-
tHE MONETARY STANDARD.-
21
sessed the legal option of paying any
claim against him in dollars of silver
or dollars of gold, according to his own
pleasure or interest. Monometalists
point out that for about thirty-five
years before the date in question, gold
was the metal which had actually heen
in use. During all that time the 25.8
grains of standard gold required to
make a gold dollar could he obtained
at smaller cost than the 412Vè-grains of
standard silver required to make a
silver one; and under these circum¬
stances gold coin, as being the cheaper
money, was the money • used. Silver
was worth more as bullion than as
coin, and in order to keep enough of it
in the form of coin to serve as sniali
change, it had»-as we have seen in a
former article—been found necessary
to authorize the coinage of pieces con¬
taining a smaller amount of metal, so
that there might be no temptation to
melt or export them. This was done
in 1853, the light-weight pieces author¬
ized being the fractional coins from
the half-dollar downwards, which be¬
ing of less than their nominal value,
were made a legal tender to the amount
of five dollars only. The silver dollar
of full weight remained a legal coin.
Any one had the right to have silver
bullion made into silver dollars, but
as it was no one's interest to do so,
there were practically none coined.
This was the case down to the suspen¬
sion of specie payments in 1862, and
the commercial ratio between silver
and gold was such during the eleven
succeeding years, that it must have
continued to be the case down to the
passage of the coinage act of Feb. 12,
1873, even had specie payments contin¬
ued uninterruptedly to that time.
The average ratio of siiver to goid for
the year 1872 is set down at 15.63, ac¬
cording to which the metal in a silver
dollar was that year worth about 2.3
per cent more than the coin was worth
as money. This was probably about
its value on Feb. 12, 1873, the date of
the passage of the act which stopped
the coinage of the silver dollar. It
is urged in defense of that provision of
the act that there could have been no
motive inimical to the debtor in mere¬
ly depriving him of an option which
under the circumstances existing at
the time he. could have no interest in
using—that of paying in dollars worth
over two per cent more than those
provided for in the new law, an option
which moreover he had not exercised
for thirty-five years.
Value of tlie Debtor's Option.
But while such considerations go to
show that legislators may have
voted for the act in question without
any suspicion that they were doing an
injury to the debtor, or that such injury
was in any way likely to result from
their action, they by no means prove
that in so doing they acted with an
intelligent understanding of the situ¬
ation. Important considerations might,
no doubt, have been adduced in favor
of the course they took, even if the
case had been understood in all its
bearings; but there were also very im¬
portant considerations on the other
side, which there is reason to believe
that most of them overlooked. Whether
there were any among them who saw
further than the rest into the future
and deliberately planned to benefit the
creditor at the debtor's expense is a
personal question that need not be dis¬
cussed here, but vehemence of asser¬
tion upon this point can not fairlv be
accepted as proof.
A glance at the statistics of produc¬
tion of gold and silver from 1850 to 1873
shows that after the production of gold
from the new mines of California and
Australia had passed its maximum
there was a steady gain in the proper-
32
UNCONDITIONAL BIMETALLISM.
tion of silver produced. The propor¬
tions of the two metals by weight are
shown below by periods from 1851 to
1875, inclusive:
Percentage of total
product.
Gold. Silver.
liSl-SS 18.4 81.6
1856 60 18.2 81.8
1861-65 14.4 85.6
1866-70 12.7 87.:i
1871-75 8.1 01.0
The commercial ratio of silver. to
.gold had also been slowly rising, hav¬
ing increased from an average of 15.37
in 1863 and 1864 to an average of 15.63
in 1872. The increase in the propor¬
tion of silver produced which is appar¬
ent within the period covered by the
above table continued until 1890, and it
is possible that this cause alone might
have sufficed to cheapen that metal to
such an extent as to make it to the in¬
terest of American debtors to use it in
preference to gold on the resumption of
specie payments, if the option of so do¬
ing had not been taken away from
them by the act of Feb. 12, 1873. If
Germany had in .the mean time de¬
monetized silver and the Latin Union
discontinued its coinage, as actuaily
happened under existing conditions,
there can be no question that the metal
would have been so cheapened as to
bring it into use here, and when spe¬
cie payments were resumed they would
have been resumed on a silver basis.
Would Have Conduced to Equity.
Now so far as this would have affected
the relations between debtor and cred¬
itor, it is pretty clear that it would
have been conducive to equity. Debts
had for many years been contracted on
the basis of a depreciated paper cur¬
rency, and the silver in which they
would have been paid would have had,
on the whole, a considerably higher
value than the paper in use when they
were incurred; so that even on a silver
basis the creditor would have -profited
to some extent at the debtor's expense;
but his profits would have been far less
than they have been with, specie pay¬
ments resumed on a gold basis. When
we reflect that not only private debts,
but the heavy war debts contracted on
a paper basis by the United States and
by State and municipal governments,
would have bee,n affected and that if
they could have been settled in siiver,
the vaiue paid would have been far less
in excess of the vaiue received than it
has been under actual circumstances,
we can at least understand the feeling
that leads many of the advocates of
"free silver" to denounce the coinage
act of 1873 as a crime. On strictly le¬
gal grounds the creditor, if paid in sil¬
ver, would have had no more cause of
complaint than he would on the score
of equity; because a knowledge of the
law is always presumed, and when the
debts created prior to Feb. 12, 1873,
were contracted, the debtor, whether
an individual, a corporation or a gov¬
ernment, possessed the legal option of
paying in gold or in silver, at his own
pleasure. The fact that this right was
at the time a part of the law of the
land made it legally a part of every
contract between debtor and creditor.
From other points of view, there
would have been serious disadvantages
in being on a silver basis, but these
might in due time have been obviated,
as similar ones were in the legisla¬
tion of 1834-37, by so reducing the
weight of the gold dollar that it could
again have come into circulation.
Under the circumstances there would
have been no violation of equity in such
a course.
The Practical Question.
But the practical question now is not
what course might have been best in
1873, but what course is best under all
the circumstances of the present time.
UNCONDITIONAL BIMETALLISM.
The debts we have now to do with are
in the main debts that have.been con¬
tracted on our present gold basis, and
to. pass from a gold to a sihner basis,
with silver at its present comniercial
value \iould be to scale down these
debts, or the bulk of them, by about
one-half of their amount. If a wrong
was done to debtors in 'passing the
act of 1873, a still more.flagrant wrong
would now be done to creditors by en¬
acting a law for the unrestricted coin¬
age of the silver dollar, at the ratio of
16 to I. Nor is there any certainty
that a large part of the persons who
would suffer as creditors now would
not be the same persons, or descend¬
ants of the same persons, who suffered
as debtors after the passage of the act
of 1873. There is no such thing as a
permanent class of either debtors or
creditors. Most persons belong some¬
times to one class and sometimes to the
other. Moreover it is a great mistake
to assume that debtors as a class are
always poor and creditors relatively
rich; for the rich are able to give se¬
curity or can even borrow without it
on the basis of their known credit, and
it is notorious that they often do bor¬
row and use profitably in their bus¬
iness the money of people who are far
less wealthy than themselves—not nec¬
essarily by direct negotiation with the
latter, but by obtaining^ from banks,
insurance companies and other finan¬
cial institutions money which the lat¬
ter have deposited or invested in them.
Granting, then, that the act of 1873 did
a wrong to the debtor, that wrong can
not now be repaired by another act
that would do a wrong to the creditor.
The case is one in which we cannot
too carefully remember that two
wrongs do not make a right.
Other Considerations.
It is urged as a reason for independ¬
ent action by the United States, as
well as for international bimetallism,
that an appreciation in the value of
gold is continually going on as a re¬
sult of the world-wide movement to¬
wards gold monometallism., and that we
consequently have to do not only with
the wrong done to debtors by our coin¬
age act of 1873, but with one that is still
in progress. Waiving the question
\yhether such an appreciation is really
going on, and, if so, the question of its
amount, in regard to both of which-
coiiflicting opinions are held, it may,
I think, be said with a strong assur¬
ance of being within the bounds of
truth, that there is no appreciation
of gold coin at all to be cornpared with
the depreciation which would take
place in the money of the United States
if the free coinage of silver were adopt¬
ed in this country without the co-op¬
eration of the other leading commercial
nations of the world.
Some American advocates of free
coinage for silver refuse to make fany '
allowance for the effect of the silver
now in circulation in keeping the de¬
mand for gold within bounds and so
moderating any tendency to an appre¬
ciation in its value. For example, W.
H. Harvey, the author of Coin's Finan¬
cial School, maintains that the quan¬
tity of primary money, or money of
ultimate redemption, alone determines
prices, or the value of the monetary
unit as compared with goods; and he,
therefore, holds that any silver in cir¬
culation in countries where the stand¬
ard is of gold has no effect in pre¬
venting prices from falling or gold
from rising in value. Space will only
permit the bare statement that on this
point Mr. Harvey is at variance with
the most eminent economic writers,
and the reader may be interested in
consulting on this subject the works
on money of one of the ablest and most
earnest of international bimetallists,
namely. Gen. Francis A. Walker, who
differs in toto from Mr. Harvey on the
point in question.
24
TTNÇONDITIONAl, BIMETALLISM.
The great inconveniences we should
suffer as a nation from having a cur-
rencey based on silver while the coun¬
tries with which the bulk of our trade
is carried on are using the gold,stand¬
ard is a point of decided importance;
but this with a number of other con¬
siderations that are worthy of atten¬
tion, must be omitted from the present
, discussion.
Hov ■ Silver Basil Would Be Reached.
A word may.; however, be said as to
the manner in which a silver basis
would be reached. Some writers assume
that on the enactment of a law provid¬
ing for the free coinage of silver the
value ot the dollar would al once sink
to that of the bullion contaihed
in the silver coin of. that denomi¬
nation ; that as the gold in the
gold dollar is worth much more
than this value, gold would at
once cease to be used as money; and
that this sudden withdrawal of gold
from monetary use would involve a tre¬
mendous contraction of the currency
with a consequent fall of prices far be¬
low their present level. This, how¬
ever, amounts to saying that a drop of
about fifty per cent in the value of the
dollar would immediately produce the
paradoxical effect of making its pur¬
chasing power greater than it had been
before the drop took place; for a fall
in prices is only another name for an
increase in the purchasing power of
money. ^
The truth is there would be no such
sudden drop in the value of the silver
dollar. A panic among foreign hol,ders
of American securities might cause the
latter to be thrown upon our markets in
large quantities, and for a time this
might cause gold to be exported faster
than silver could be coined to take its
place, thus producing some contraction
of the currency and a temporary fall of
prices. But in any event no such con¬
traction could occur as is implied in the
notion that the g^ld spoken of in offi¬
cial reports as "in circulation," amount¬
ing to nearly half a billion dollars,
would at once disappear. Much of it
has, in fact, disappeared already, some,
no doubt, by being melted for use in the
arts and some by hoarding, the latter
being of no more present service as a
medium of exchange than if it, too, had
gone into the melting pot. The cur¬
rency cannot lose what it does not now
contain.
The .largest' sum in sight is that held
by banks as a part of their lawful
money reserve. Tn serving as such a re¬
serve. this is now performing a mone¬
tary function; and it would probably
continue, though in gradually decreas¬
ing amounts, to perform the same
function for some time after the adop¬
tion of free silver coinage. As the sup¬
ply of money increased through the ^
issue of new silver coin, the dollar
would soon become a little less valua¬
ble than the metal in a one-dollar gold
coin. Gold would then begin to pass
out of circulation, by exportation or
otherwise; but if it passed out faster
than the new silver coin came in. con¬
traction would ensue; and this could
not proceed far without raising the
value of the dollar and thus arresting
the outflow of gold until an accumu¬
lation of new silver again produced de¬
preciation.
As long as there was gold to pass out
of circulation as the new silver came in.
the increase in the total sunoly of
money would be confined within very
narrow limits, and the depreciation in
the value of the dollar would accord¬
ingly be very slight; but when this
point was passed, and each silver dollar
coined was a clear addition to the
amount of money in circulation, the
process of depreciation would be rapid;
and as soon as the dollar fell to an
equality of value with the bullion in the
silver dollar piece, our currency would
have reached a silver basis.
332.423
P4S1ni