Mr. Giffen the statistician of the London Board of Trade, in an article
recently published in an English magazine, berating and deriding the
bi-metallists, maintains that it is not the demand for gold as money,
but for gold as a commodity, to be used in the arts, that determines its
value.
To prove his case, Mr. Giffen states that the supply of gold is about
$95,000,000 per annum, the annual demand for the arts $60,000,000, or
about two-thirds of the annual supply; while the demand for money is
only $35,000,000, or about one-third that supply. He therefore argues
that the art demand, being the greater of the two, contributes more
largely to the maintenance of the value of gold than does the demand for
that article as money. It is hardly necessary to point out the absurdity
of this claim.
The commodity demand in any one year is not made upon the current year's
supply, but upon the entire amount in existence, which, is estimated to
be about $4,000,000,000. If the demand for the arts entirely ceased,
would the addition, to the money volume, of the $60,000,000 now used in
the arts produce any appreciable effect on the value of the
$4,000,000,000 in existence?
On the other hand, what is the demand on gold for the money use? All the
labor and all the salable property of the western world are constantly
offered in exchange for it. It is a moderate estimate to assume that
each dollar is earned, demanded, and paid once a week, or fifty times in
each year. This constitutes a total annual money demand of
$200,000,000,000, compared with which colossal sum how inconsequential
is the commodity demand of $60,000,000 in maintaining the value of gold.
The amount of gold annually used in the arts is not very definitely
ascertained, but in 1886 it was estimated by the then Director of the
United States Mint to be $46,000,000 per annum. Mr. Giffen estimated it
at $60,000,000. It is my opinion that the arts forage on the money-stock
of gold to the extent of about the entire annual yield. The bullion or
commodity value of that metal being determined by its money value,
whoever desires to use it for any purpose other than money, takes the
bullion at its coinage value, or else melts up the coin.
Were gold demonetized and deprived of its money function, and its demand
confined solely to that arising from its adaptability for various other
purposes, the present stock of that metal on hand and in use as money
would, according to the estimates of the director of the mint, supply
the art demand for more than seventy-five years to come. But, assuming
that the estimate of the Director of the Mint is too low, and that my
own is nearer the truth, there is at least fifty years' supply on hand.
Were there fifty or seventy-five years' supply of any other commodity on
hand in the market, what would be the commercial value of that
commodity? What would be the value of copper, of brass, or of iron, if
there were fifty or seventy-five years' supply of either of those metals
in the market for disposal at one time? Nobody can pretend that any
commodity of which there is an available supply on hand equivalent to
the whole demand for fifty or seventy-five years can have any but the
most trifling value.
Contrary, therefore, to the generally received conviction that the
commodity demand is the dominating force in fixing the value of gold I
maintain and insist that the commodity demand, if entering into the
account at all, is insignificant. It is the supremely important
_money_-demand, as correlated to the supply, that fixes the value of all
money of every description whatsoever.
The demand for gold as a commodity is limited and fluctuating, but when
that metal is invested by law with the higher function of money, and
thus constituted a common denominator of all values, that limited and
fluctuating demand is changed to an unlimited and constant one, which
fixes its value for other and inferior uses. If the commodity-demand for
gold were, as many believe it to be, essential to its acceptance as
money, it would be a great misfortune to society. The happiness and
prosperity of the world, if not wholly dependent upon, are largely
influenced by, steadiness in the value of money, and this can not exist
without steadiness in its volume. Whatever demand exists for gold as a
commodity can only affect the volume of money injuriously--that is to
say, by decreasing it. The admonition of history is that a deficiency in
the money-supply is more probable, and infinitely more to be feared than
an excess, and this deficiency is, in great measure, caused by the
insidious and constant encroachment, upon the precious metals, of
demands for them for other than the money use. When we contrast the
magnitude of the world's interests and equities, which rest on
steadiness in the value of money, with the comparative unimportance of
the uses of the metals as commodities, it becomes apparent that the
subjection of the value of money to disturbance from the demands for
gilded signs, looking-glasses, bangles and breast-pins, is an evil for
which society is but poorly compensated by the benefits derived from
such uses.
Whatever other quality gold may posses than as the bearer of the money
function is inconsistent with the healthful and proper exercise of the
task assigned it as such. Whenever any portion of the metal is used for
any other purpose than money it destroys the money and thus changes the
value of every unit of money in circulation, for, at already
stated--other things remaining unchanged--the value of each dollar
depends on the number of dollars that are out. Without forewarning, and
with out knowledge on the part of the people, large amounts of the money
volume, on which so infinite a number of equities rest, and on the basis
of which all debts and time contracts have been entered into, are, as it
were, surreptitiously abstracted and appropriated to other and always
inferior uses, for by far the highest and noblest use of any material
upon which the money function has been conferred, is the money use. No
other use can possibly be so high or so noble as that of maintaining all
equities undisturbed.
It seems unworthy a highly developed civilization which, as to all
subjects other than money, regulates its affairs by the application of
intelligence, and bases its policies upon exact data, scientifically
ascertained and correctly applied, to depend for its money system upon
the accidents, make-shifts, and expedients to which primitive society,
by reason of the limitation of its powers and the undeveloped condition
of the human mind and hand, was compelled to resort. If the quantitative
theory of money be correct--if the money standard be, as I insist it is,
a steady and duly proportioned numerical relation existing between the
units of population and units of money--it is the duty of society and
government to see that as far as practicable that principle is put into
operation.
The history of the production of the precious metals from the remotest
ages demonstrates that under the automatic system of money this can only
be effected by the unrestricted coinage of, and conferring the full
legal-tender function on, both metals.
THE PROPOSITION THAT THE GOVERNMENT SHOULD LEND MONEY ON THE SECURITY
OF REAL ESTATE.
If a change in the whole number of money units in circulation relatively
to population and business do not affect the value of each unit, then no
objection can be found to the proposition recently presented in the
Senate by the distinguished Senator from California, which created some
surprise among Senators. The resolution of that Senator contemplates a
loan by the Government to holders of real estate based upon the security
of the property; and the issue of a large amount of Treasury notes for
that purpose. Certainly, if a dollar, in order to perform properly the
money function, must have in it or back of it a dollar's worth of
material, there can be no safer security found than that suggested by
the Senator from California, namely, the arable land of the United
States.
It is the most absolutely secure of all securities; it can neither run
away nor be stolen, it can not be burnt up, lost, or destroyed.
Arable land is, in and of itself, capable of supplying all basic wants,
and must be always in demand, while gold, so far as concerns any use to
which it is, or can be applied, might be dispensed with altogether, with
scarcely any inconvenience to society.
Certainly money based on land would seem to be better than money based
on gold. Senators who are sticklers for so-called "intrinsic value"
money, and "full-value" money, should be found supporting that
proposition. But it must, on reflection, be obvious that, other things
remaining unchanged, whenever the total number of units of money (or
dollars) in the circulation of a country increases, the value of each
unit will decrease. It is an axiom of political economy that no amount
of increase in the number of units of money in a country increases the
aggregate value of the money of that country.
The aggregate value of the money in circulation in a country, can,
_ceteris paribus_, be increased only by an increase of population and
business, that is to say, by an increase in the demand for it.
If, without increase of population, the money of a country be increased
from, say, $1,000,000,000 to $2,000,000,000, the effect would be not to
add to the aggregate value of the money of the country, but to decrease
the value or purchasing power of each unit of the money, so that it
would take ten dollars to buy what had before cost but five.