The fact that the metals have separated considerably since 1873, and
that silver bullion now sells at less than par value of $1.29 per ounce,
is taken to signify that silver has fallen--not that gold has risen.
This proceeds from the assumption that whenever a change takes place in
the relation between gold and any other article the change must
necessarily be in the other article. This assumption, in turn, is based
on the absurd idea that calling gold a "standard" will insure it against
change.
Among political economists it is a well-recognized principle that
neither gold or silver is exempt from the universal application of the
law of supply and demand. That law governs gold and silver, not only as
commodities, but as money, and governs as well all other kinds of money
that may be used. And while the advocate of the single gold standard is
at all times ready to concede the truth of this assertion as to silver,
he is confident that it does not and can not apply to gold; that the
economic law which makes supply and demand a regulator of value is
suspended as to gold.
That a metallic money, whether of gold or silver, is very far from being
stable is admitted by innumerable authorities, of whom I will cite only
a few.
Dr. Adam Smith, in his "Wealth of Nations," book 1, chapter 5, says:
Gold and silver, like every other commodity, vary in their value.
The discovery of the abundant mines of America reduced in the
sixteenth century the value of gold and silver in Europe to about
a third of what it had been before. This revolution in their
value, though perhaps the greatest, is by no means the only one
of which history gives some account.
And again:
Increase the scarcity of gold to a certain degree and the
smallest bit of it may be more precious than a diamond.
John Locke, "Considerations, etc., in relation to money" (published in
1691), says:
The greater scarcity of money enhances its price and increases
the scramble; there being nothing that does supply the want of
it; the lessening of its quantity, therefore, always increases
its price and makes an equal portion of it exchange for a greater
of any other thing.
Prof. Francis A. Walker, "Money," etc., page 210, says:
Gold and silver do, over long periods, undergo great changes of
value and become in a high degree deceptive as a measure of the
obligation of the debtor of the claim of the creditor. Thus
Professor Jevons estimates that the value of gold fell between
1789 and 1809, 46 per cent., that from 1809 to 1849 it rose 145
per cent., while in twenty years after 1849 it fell again at
least 20 per cent.
Jevons, "Money and Exchange," chapter 6, says:
In respect to steadiness of value the metals are probably less
satisfactory, regarded as a standard of value, than many other
commodities, such as corn.
And again, in chapter 24 of the same work, he says:
We are too much accustomed to look upon the value of gold as
a fixed datum line in commerce; but in reality it is a very
variable thing.
Sir Archibald Alison (England, in 1815 and 1845), says:
The coining of gold and silver, which is universal in all
civilised nations, and affixing to them one definite and
permanent value by authority of law, has no effect whatever in
preventing the fluctuations in the real value of the current coin
of the realm.
Professor Laughlin, of Harvard, in his work on Political Economy (page
72), says:
It is quite evident that the name dollar does not always have the
same value, although people often think it does. We get into the
habit of using names without thinking what they really mean. The
23.22 grains in a gold dollar may be exchanged sometimes for
more, sometimes for less, of other commodities. When it is
exchanged for less, its value has fallen relatively to all other
commodities, and, even if the name dollar remains the same, its
value has fallen. One must then offer more dollars than before
for the same commodities. That is, when money falls in value,
prices rise; when money rises in value, prices fall.
Now, we shall say a few words in regard to another function, a
means of paying long contracts, or debts which run over a long
term of years.
Suppose that I loaned you in 1880, $1,000 for twenty years. In
that year the $1,000 bought a certain quantity of corn, wheat,
sugar, salt, wood, hats, and shoes. In 1900, when you are to pay
me back the $1,000 in money, if prices have changed, you may give
me back the same amount of money, but you will not return to me
the same purchasing power over other things. If for some reason
prices have fallen between 1880 and 1900, it will take less money
to buy the same quantity as before of corn, wheat, etc. If so,
the $1,000 you return me in 1900 will be of more value than the
$1,000 I gave you, and it would be unjust to oblige you to give
me more than you borrowed. If, on the other hand, prices have
risen, then the $1,000 in money would buy me less than before, so
that I should lose. * * * Hence, the value of money (gold or
silver) does not remain the same for any length of time; and the
precious metals, while they are very satisfactory for exchanges
which do not take very long to complete, can not serve as a
proper measure of value during a long term or years.
Ricardo, the greatest authority on the gold standard, the financial
writer, more highly regarded throughout the world than any other that
has ever appeared in Great Britain, whose logical utterances have never
failed to attract the attention of mankind, stated the true condition of
things in 1810, and advocated the true policy for Great Britain.
In his "Proposals for an Economical and Secure Currency," Ricardo makes
the following statement, which I commend to the careful attention of the
advocates of the single gold standard:
While a standard is used, we are subject to only such a variation
in the value of money as the standard itself is subject to; but
against such variation there is no possible remedy, and late
events have proved that, during periods of war, when gold and
silver are used for the payment of large armies distant from
home, those variations are much more considerable than has been
generally allowed. This admission only proves that gold and
silver are not so good a standard as they have been hitherto
supposed--that they are themselves subject to greater variations
than it is desirable a standard should be subject to. They are,
however, the best with which we acquainted.
If any other commodity less variable could be found, it might
very properly be adopted as the future standard of our money,
provided it had all the other qualities which fitted it for that
purpose; but while these metals are the standard the currency
should conform in value to them, and whenever it does not, and
the market price of bullion is above the mint price, the currency
is depreciated. This proposition is unanswered and is
unanswerable. Much inconvenience arises from using two metals as
a standard of our money; and it has long been a disputed point
whether gold or silver should by law be made the principal or
sole standard of money. In favor of gold it may be said, that its
greater value under a small bulk eminently qualifies for a
standard in an opulent country.
And I may here remark that it requires an opulent country to maintain
the single gold standard, and the country does maintain it at very great
expense. I do not wonder that he thought an opulent country, a creditor
country, the only one that ought to adopt it, for no other country can
afford to adopt it. But, like many people who in attempting to improve
their condition in society attempt luxuries and extravagances which they
can not maintain and which force them back into the ranks from which
they came, so nations in attempting to establish the gold standard may
find themselves reduced from opulence to poverty.
Ricardo continues:
But this very quality subjects to greater variations of value
during periods of war or extensive commercial discredit, when it
is often collected and hoarded, and may be urged as an argument
against its use. The only objection to the use of silver as the
standard is its bulk, which renders it unfit for the large
payments required in a wealthy country; but this objection is
entirely removed by the substituting of paper money as the
general circulation medium of the country. Silver, too, is much
more steady in its value in consequence of its demand and supply
being more regular; and, as all foreign countries regulate the
value of their money by the value of silver, there can be no
doubt that on the whole silver is preferable to gold as a
standard, and should be permanently adopted for that purpose.
Innumerable additional citations from authors of repute could be adduced
to fortify this position.
It will thus be seen that the fluctuations in the value or purchasing
power of both gold and silver have always been admitted by scientific
writers. They were so well understood three centuries ago that in Queen
Elizabeth's reign (1576) the British Parliament directed that the rents
reserved in the long leases of certain college lands should be payable,
not in money, but in wheat. And at various times during the past seventy
years propositions have been formulated to substitute for gold and
silver as a standard of value for deferred payments, a tabular statement
of the prices of the principal articles of commerce, to be made by
official authority and published from time to time, by the average of
which the fluctuations of gold could be ascertained and proper allowance
made for them in the settlement of time transactions. Professor Jevons,
Prof. Francis A. Walker, and other political economists of note have
expressed approval of such a tabular standard for long-time contracts,
as securing greater equity than would gold as a measure of values.
Those who now assert that silver has fallen and that gold has not risen
in value arrive at this conclusion by a very safe process of reasoning.
First, to show that silver has fallen they measure it by gold alone,
without reference to the general range of prices; and then to prove that
gold has not risen they make it the measure of itself. An increase or
decrease of the value of either can not be ascertained by reference to
the other, and certainly not by constituting either of them a standard
by which to judge itself. It would of course be forever impossible to
show any change in the value of gold or silver, or of anything else,
measuring it by itself. It is only by looking at the relations which
both metals bear respectively to a considerable range of commodities
generally dealt in as well as to each other, that it can be ascertained
with certainty what has happened.
Not only upon consideration of all the facts I have given, but upon the
logic of the situation, it must be obvious that gold has risen and will
continue to rise in value as long as its volume decreases and the demand
for it increases. Since 1860, when 77 per cent. of the combined yield of
the two metals, it has diminished not only in relative proportion to the
yield of silver, but it has diminished absolutely. For the five years
ending with 1860 the yield of gold throughout the world was $137,000,000
a year; for the five years ending 1889 the yield was but $110,000,000 a
year. If, as claimed by the advocates of the single gold standard, an
increase in the yield of silver decreases the value of silver, by what
system of logic can they deny that a decrease in the supply of gold
increases the value of gold?
In a late issue of the London Economist, that of April 26, 1890, I find
an editorial article relating to the recent discussion on bimetallism in
the British House of Commons. That article comments somewhat sharply on
Mr. Smith's assertion that "a conspiracy had been formed among the
financial class in Europe and America to get rid of silver as
full-valued money in order to increase the value of gold, in which their
revenues are paid." In the course of his comments the editor, by
"confession and avoidance," admits our whole contention as to the rise
of gold and the fall, as a natural consequence, of the prices of
commodities. He says:
It may not be amiss, however, to point out that the increase in
the exchangeable value of gold has been by no means such a gain
to the financial class as he in common with many others suppose;
for advantage has been very largely taken of it to cut down the
return upon the capital which the financial classes have
invested. It has favored debt conversion schemes, and it has been
one of the influences that have caused the rate of interest in
general to decline so decidedly, that, all round, the yield of
investments is now very appreciably lower than it was fifteen
years ago. The idea that the creditor class have realized unmixed
gains and the debtor class have suffered unmitigated losses by
the alteration in the purchasing power of gold is thus altogether
fallacious. There has in their case, as in all others, been a
species of compulsory give and take. Each has gained and each has
lost something, and now that the process of readjustment has been
carried so far it would be unwise to the last degree to unsettle
everything again by such legislation as the bimetallists propose.
The editor of the Economist is to be commended for at least one thing.
He does not quibble as to the most important point in the bimetallic
controversy. He frankly admits that gold has risen, and does not, as
some others do, attribute the fall of prices to improvements in methods
of production.
He also admits that coincidently with and caused by the rise in gold
there has been a great decline in the rates of interest, and, strangely,
claims that the debtor is compensated for the rise in the value of money
by the ability to convert the debt into one bearing a lower rate of
interest, or, as he calls it, resorting to "debt-conversion schemes."
He does not inform us how any compensation can be made to the the debtor
for the time the debt has been running, as to which it can not be
converted, nor for the enhanced amount exacted from the current earnings
of labor by the rise in the value of money to pay taxes and the expenses
of Government, nor for the loss entailed on the debtor whose property is
mortgaged on long time, where the holder of the mortgage refuses to
convert it into an obligation bearing a lower rate of interest than
originally contracted for. He suggests no method by which to make whole
those who have lost their property through sheriff's sale by reason of
falling prices and the rise in the value of money. Neither does he state
how long it will be before the next confiscation is to take place, by
reason of the continued operation of the cause that produced the first.
But he has been frank enough to concede (what is never disputed except
when the money question is under discussion) that there has been a rise
in the exchangeable value of gold, and conceded its natural sequence, a
fall in the rates of interest.