those with fixed incomes raised a loud cry. From the laboring producers no
complaint was heard. They never complain of increased coinage. In the
United States we knew nothing of this clamor, for we then had no large
creditor class, no great amount of bonds, and very few people interested
more in the value of money than in the rewards of labor. In Europe,
however, all the leading writers on finance and industries took part. In
1852 M. Leon Faucher wrote: "Every one was frightened ten years ago at the
prospect of the depreciation of silver; during the last eighteen months it
is the diminution in the price of gold that has been alarming the public."
In England, the philosopher DeQuincey wrote that California and Australia
might be relied upon to furnish the world $350,000,000 in gold per year
for many years, thus rendering the metal practically worthless for
monetary purposes, and another Englishman, as if resolved to go one
better, declared that gold would soon be fit only for the dust pan. M.
Chevalier took up the task of convincing the nations that gold should be
demonetized as too cheap for a currency, and of course the interested
classes soon organized for action.
Holland had already begun the process in 1847, but had managed it so
awkwardly that her condition is not easily understood or described as it
was in 1857. The estimated amount to be thrown out of use was only half
the real amount, and in the attempt to avoid a small evil they produced a
very great one.
Austria was at that time involved in trouble with her paper money system,
and thought the cheapening of gold offered a fair opportunity to come to a
metallic basis. The reasoning of her statesmen was singularly like that of
General Grant in 1874, when he pointed to the great silver discoveries in
Nevada as a providential aid to the restoration of specie payments, being
at the time in sublime ignorance that he had long before signed an act
demonetizing silver, and thereby depriving this country of the benefit of
such providential aid. But the strength of the creditor classes was
entirely too much for Austria and Prussia, and the German States allied
with them almost unanimously declared for throwing gold out of
circulation. A convention had been held at Dresden in 1838, with the view
to unifying the coinage, but little had been accomplished, and now a
convention was called at Vienna, which was attended by authorized
representatives of Prussia, Austria, and the South German States. It was
there stated that, besides various minor coins, there were three great
competing systems in Germany, namely, those of Austria, Prussia, and
Bavaria. It is needless to go into details of this once famous convention,
but suffice it to say that the following points were agreed upon: (1) The
Prussian thaler was to be the standard for Prussia and the South German
States, and was to be a silver standard exclusively. (2) The Austrian
silver standard was to prevail throughout that empire. (3) The contracting
powers could coin trade coins in gold, but none others, except Austria,
which retained the right of coining ducats, and these gold coins were to
have their value fixed entirely by the relation of the supply to the
demand. "They were not therefore to be considered as mediums of payments
in the same nature as the legal silver currency, and nobody was legally
bound to receive them as such;" in short, none of the gold coins permitted
by the convention were to be legal tender, but all were to be mere trade
coins precisely for the same purpose as the trade dollar once so famous in
the United States. The result, of course, was to make silver the standard
and gold the fluctuating money or token money. The effects of this
convention remained with but little change till 1871.
Of course, gold at once became "dishonest money." It was worth less than
silver, and a regular gold panic set in. Holland had already demonetized
most of her gold coinage, that is, had deprived it of the legal tender
quality, and Portugal now practically prohibited any gold from having
current value, except English sovereigns. Belgium demonetized all its gold
at one sweep, and Russia prohibited the export of silver. Thus, in an
alarmingly short space of time five nations had practically demonetized
gold, and others were threatening to do so, and the world was rapidly
being taught that gold was the discredited metal, while silver was the
stable and sound money.
Some curious and a few amusing results followed. Among a certain class in
England a regular panic broke out, and in Holland and Belgium even the
masses of the people became suspicious of gold and disliked to take it in
payment. In the latter country a few traders hung out signs to attract
customers, to this effect, "L'or est recu sans perte," meaning that gold
money would be taken there without a discount. It is probably not known to
one American in a thousand that the practice of inserting a silver clause
in contracts became at that time so common in Europe that it was actually
transferred to the United States, and in England life insurance companies
were established on a silver basis. Several American corporations
stipulated for payment in silver, especially of rents, and to this day a
New England establishment is receiving a certain number of ounces of fine
silver yearly under leases then drawn up.
It is equally interesting to note in the literature of that period
arguments against gold almost word for word like those now used against
silver. The financial managers threw gold out of use and then urged its
non-use as a reason for its demonetization. "None in circulation,"
"variation shows impossibility of bimetallism"--such were the phrases then
applied to gold, as we now find them applied to silver. An artificial
disturbance was created, and then pleaded as a reason for further
disturbance.
All this while the financiers of England were bombarded with arguments and
prophecies of evil, but her geologists pointed out clearly that Australian
and Californian products were almost entirely from the washing of alluvial
sands and consequently must be very temporary. Her statesmen believed the
geologists rather than the panic-stricken financiers, and so she held for
gold monometallism.
But it is to France that the world is indebted for maintaining the parity
through those years of alarm and panic. M. Chevalier urged upon French
statesmen the importance of returning to the system which had been in
force previous to 1785, when silver was the standard and gold was rated to
it by a law or proclamation. The proposition was actually brought forward
in Council and urged upon the Emperor that silver should be made the
standard and gold re-rated in proportion to it every six months. The net
result was, by France taking in gold and letting out silver, that in 1865
that country had a larger stock of gold than any other in Europe. Suffice
it to repeat that several nations, including seventy million people,
actually demonetized gold, deprived it of its legal tender, and treated it
as a ratable commodity; while France, single-handed and alone upon the
continent of Europe, was able to absorb the enormous surplus of gold and
maintain the parity by the simple process of keeping her mints open to
both at the ancient ratio.
Thus ended the scheme to drive gold out of circulation and base the
business of the world upon one metal, and that the dearer metal, silver.
But suppose the scheme had succeeded; suppose France had been less firm;
what a wonderful flood of wisdom on the virtues of silver we should have
had from the monometallists! How arrogantly they would have denounced
us--who should, I trust, in that case have been laboring to restore gold
to free coinage--how arrogantly they would have denounced us as the
advocates of cheap money, dishonest tricksters, repudiators! How they
would have rung the changes on "dishonest money," "fifty-cent gold
dollars!" What long, long columns of figures should we have had to prove
the stability of silver, the fluctuating nature of gold! What
denunciations, what sneers, what gibes, what slurs would have filled the
New York city papers in regard to those Western fellows who want to
degrade the standard! How glib would have been the tongues of their
orators in denouncing all who advocated the remonetization of gold as
cranks, socialists, populists, anarchists, ne'er-do-wells, and
Adullamites, kickers, visionaries, and frauds! Is there any practical
doubt that we should have witnessed all this? None whatever; in fact,
something of the same sort was heard in Europe at the time of the
demonetization of gold. It all goes to show that self-interest blinds the
intellects of the best of men so that they readily believe that which is
to their interest is honest, but that the farmer who seeks to raise the
price of what he has to sell thereby throws himself down as dishonest. Of
course, the successful demonetization of gold would have brought about an
enormous appreciation of the value of silver, since it would have thrown
the whole burden of maintaining the business of the world upon one metal,
and equally, of course, we should have had the same attacks upon the
owners of gold mines that we now have upon the owners of silver mines. As
the withdrawal of silver from its place as primary money and its reduction
to the level of token money has thrown the burden of sustaining prices
upon gold, so unquestionably would the reverse process have occurred had
gold been reduced to token money in place of silver. All this we know
would have taken place from what actually did take place, and this makes
important the history of the demonetization of gold.
RELATIVE PRODUCTION OF GOLD AND SILVER.
Among the many plausible pleas of the monometallists, the most plausible,
perhaps, is the plea that the great divergence between the metals since
1873 has been due entirely to the increased production of silver. A very
brief examination, I think, will show its falsity, and that it is equally
false in fact and fallacious in logic; for, first, there has been no great
"depreciation" in silver, that metal having almost the same power to
command commodities, excepting gold, that it had in 1873; and, second, the
claim that the increased production of ten or twenty years would alone
greatly cheapen silver is flatly contradicted by all previous experience.
Of many statements of the fallacy, I take a recent one from the New York
_Times_ as the most terse and catchy for popular reading, and likewise
most ludicrously absurd:
"=Why Silver is Cheap.=
"In 1873 the total product of silver in the world was 61,100,000
ounces, and the silver in a dollar was worth $1.04 in gold.
"Last year the world's product of silver was 165,000,000 ounces,
and the silver in a dollar was worth only 50.7 cents.
"In 1894 the potato crop of the United States was, in round
numbers, 170,000,000 bushels, and the average price 53c.
"In 1895 the estimated potato crop was 400,000,000 bushels, and
the average price was 26c.
"The fall in both cases was due to the same cause."
Observe the assumptions: 1. That the output of one year determined the
value of silver as the crop of potatoes does their price for that year!
The schoolboy who does not know better deserves the rattan. If the theory
were correct, gold in 1856 should have been worth but a fourth what it was
in 1848, whereas the largest estimate of its decline in value puts it at
25 per cent.
2. That the increased silver production of twenty-two years would reduce
its value in the exact mathematical proportions of the increase. This
theory ignores the two most important facts determining the value of
money: that the silver or gold mined in any one year is added to the
existing stock, to which it is but a minute increase; and that wealth,
population, and production are also increasing rapidly, relative to which
the increase of silver is but a trifle indeed. The yield of the Monte Real
a thousand years ago may have cost five times as much labor per ounce, and
that of Laurium ten or even twenty times as much; but all of both which is
not lost goes with the last ounce mined into the general stock, which is
now about $4,000,000,000 in coin alone. The greatest annual production has
in but a very few cases added so much as 3 per cent. to the stock on hand,
and about half of it is consumed in the arts. If the increase of the
annual production of silver by 2-3/4 to 1 in twenty-two years reduced its
value one-half, will the _Times_ tell us what should have been the
reduction in the value of gold when this product increased by fivefold in
eight years? It should further be noted that the discovery of a "Big
Bonanza" is an event so rare that it has not happened, on an average, more
than once in three centuries since the dawn of history, and that since
1873 the growth in the world's production and trade has been, relative to
former times, even greater than the increase in the production of silver.
Consider the following facts, which I have condensed from Mulhall: In 1800
the total yearly international commerce of the world was estimated at
$1,510,000,000. Forty years later it had only increased 90 per cent.,
amounting in 1840 to $2,865,000,000, and in that year there were in all
the world but 4,315 miles of railroad and no electric telegraph. The total
horse-power of all the steamships of the world was but 330,000, and the
carrying power of all the shipping but 10,482,000 tons. To-day the
international commerce of the world is almost $20,000,000,000, and
increasing at the rate of $1,000,000,000 per year; there are in the world
over 400,000 miles of railway and a very much greater mileage of magnetic
telegraph, including 14 intercontinental cables; the ocean tonnage of
Great Britain alone is very much greater than was that of the whole world
in 1840; and tremendous as this increase of international trade has been,
it is the merest trifle compared with the increase of the internal trade
in several of the greater nations.
What then has caused the "great depreciation"? Nothing has caused it.
There has been but a trifling depreciation indeed. It is as clearly proved
as anything unseen can be that if the nations had left silver and gold as
they were in 1870, both would have gained materially in value, that is, in
the power to command commodities, because of the vastly greater relative
increase of the latter; but by demonetization all the increase has been
concentrated in gold, leaving silver almost exactly as it was. At present,
however, I devote myself to the question whether there has been such an
increase in the production as would normally cheapen it. On this point we
have evidence to convince any unbiased mind, for the relative production
of silver and gold has in former ages varied very much more than in the
last twenty-three years, and the variation has extended over much longer
periods, without causing more than the most trifling divergences in value.
And the explanation is simple: the two metals received equal recognition
at the mint and in legal tender laws; the greatly increased use of the
cheaper maintained its value in coinage, while disuse of the dearer tended
equally to check its appreciation. In this sense government can "create
value" by creating a use.
From 1660 to 1700, for instance, the production of silver averaged in
value much more than twice that of gold, and in quantity some thirty-three
times as much; yet all those years, the highest mint ratio was 15.20 to 1
and the lowest 14.81--a variation in money value of but .39 or 2.6 per
cent. From 1701 to 1760 inclusive, the proportion of gold produced
gradually rose from a little over a third to 40 per cent. in values, yet
the money ratio remained remarkably constant, the highest being 15.52 of
silver to 1 of gold and the lowest 14.14. In other words, for sixty years
there were produced on an average about 28 ounces of silver to 1 of gold,
yet the widest variation of their money values in all those years was less
than 9 per cent. In the face of such facts as these, we are asked to
believe that while an average of over 30 ounces to 1 created an average
variation of less than 6 per cent., and a greatest variation of less than
9 per cent., a production of some 20 ounces to 1 since 1882 has created a
variation of 100 per cent. And that the variation began nine years before
the value production of silver exceeded that of gold! It is an affront to
our common sense.
[Illustration: The above diagram shows the relative annual production of
gold and silver from 1493 to 1870, and also average ratio of values of the
two metals.]
I should say, at this point, that my figures are taken from the latest,
and in my opinion the most scholarly work in favor of monometallism, "The
History of Currency," by Prof. W. A. Shaw, Fellow of the Royal Historical
and Royal Statistical Societies. As the ratio between silver and gold
varied considerably in the different marts of Europe, I follow his plan
(which is Soetbeer's) of taking it as it stood at any particular time in
the city which might then be called the greatest commercial centre,
whether Venice, Hamburg, Antwerp, or London. His history comprises the
entire period from 1252 to 1894. It is only fair that I should also give
his explanation of the stability of the metals, which is extremely
interesting.
He begins his second chapter with the statement that the discovery of
America was "the monetary salvation and resurrection of the Old World";
that it was a time of unexampled increase in the precious metals and
equally unexampled rise of prices, but there was also "feverish
instability and want of equilibrium in the monetary systems of Europe." He
shows how the first great import was of gold, which began to affect prices
in 1520; how this was followed by a very much greater increase in silver,
and how, while prices were rising so rapidly as to stimulate trade and
incidentally do damage by causing great fluctuations, yet there must have
been some great regulator preventing the evil which we should _a priori_
have expected. He finds it in the fact that Antwerp had taken the place of
Venice and Florence, and conducted a great trade with the far East. His
language is: "The centre of European exchanges--Antwerp in the sixteenth
century as London to-day--has always performed one supremest function,
that of regulating the flow of metals from the New World by means of
exporting the overplus to the East. The drain of silver to the East,
discernible from the very birth of European commerce, has been the
salvation of Europe, and in providing for it Antwerp acted as the
safety-valve of the sixteenth century system as London has done since. The
importance of the change of the centre of gravity and exchange from Venice
to Antwerp, therefore, lies in this fact. Under the old system of overland
and limited trade, Venice could only provide for such puny exchange and
flow as the mediæval system of Europe demanded; she would have been unable
to cope with such a flood of inflowing metal as the sixteenth century
witnessed, and Europe would have been overwhelmed."
Professor Shaw argues that without the Eastern safety-valve Europe would
have been ruined by an excess of the precious metals, that India furnished
the needed reservoir--did she not take gold as well as silver?--and that
Venice was so far limited to an overland trade that she could not have
performed the function Antwerp did. Later he sets forth the current
monometallist position that the nations are now as one in trade and the
interchange of the precious metals, and therefore even the partial
equilibrium of the sixteenth and seventeenth centuries could not be
maintained. Let us, then, bring the figures down to the present, and it
will be found, I think, that the farther down we come the weaker does the
monometallist contention appear.
The improved, more extended, and more intimate intercourse of the nations
brought about by the introduction of steam, electricity, and other
agencies tends to minimize the fluctuations of the two metals, and
indicates that the divergences of the metals in mediæval times was due
rather to the want of speedy, easy, and certain intercourse and
communication of the nations than to an innate commercial tendency of the
two metals to diverge. Had the same intimate and speedy commercial
relation existed between the nations of the world in those times as now
exists, the equalizing tendencies of trade would evidently have prevented
not only the ratio of divergence to which the metals attained at different
periods, but would have prevented a difference of ratio existing between
the different nations at the same period of time.
From 1761 to 1800, inclusive, the relative production of gold decreased
steadily, until it was but 23.4 per cent. of the total value, to 76.6 per
cent. of silver. In other words, there were for many of the later years
over 50 ounces of silver produced to 1 of gold, and yet the ratio stood
long at 15.68 to 1. This is almost exactly the ratio fixed by Hamilton and
Jefferson, fixed because of its long-continued maintenance in European
markets. During these forty years the production of silver in proportion
to gold was never for even one year as low as the highest proportion of
any year since 1873, and yet the money value only varied from 14.42 to
15.72, or a fraction over 8 per cent. In the face of such figures as
these, the change in relative production since 1873 seems too trifling to
be taken into account, especially since in that year and some time after
the value production of gold at 16 to 1 was much the greater, nor was it
till 1883 that the world's silver product exceeded that of gold.
In 1800-10 the annual production of gold was $12,069,000 and of silver
almost exactly $39,000,000, or some 50 ounces to 1; yet the highest ratio
was 16.08, and the lowest 15.26. This relative production changed very
slowly, and in 1831-40 of the total in values produced 34.5 per cent. was
gold and 65.5 per cent. silver.
That is, there were, for ten years, about thirty times as many ounces of
silver mined as of gold, and during these years the change in the ratio
was so minute that it can only be calculated in small fractions of 1 per
cent. In 1841-50, for the first time since the middle of the sixteenth
century, we find the production of gold the greater, that metal being 52.1
per cent. of the total product, and silver but 47.9 per cent. During the
decade the lowest value ratio of silver to gold was 15.70, and the highest
15.93, a variation of only 1.4 per cent. Then California and Australia
poured out their wonderful golden flood, and all the world was changed. In
1851-55 the gold yield was 77.6 per cent. of the total, and the silver
yield 22.4, and for the next five years the change was but .2 of 1 per
cent. In other words, during those ten years the average annual yield of
silver was less than 5 ounces to 1 of gold; so if the "overproduction
theory" laid down by the _Times_ were correct, gold should have
lost--well, at least 70 per cent. of its value in silver. The actual
variation was from a ratio of 15.98 to one of 15.46, or a relative
depreciation of gold of considerably less than 3 per cent. Now, it is
alleged by many who have made a study of prices during that period, that
in actual value gold depreciated 25 per cent.; so it is plain that it
carried down silver with it, and the only logical explanation is that the
mints were equally open to both.