The "free-silver delusion" is not dead, nor will it die unless the
McKinley administration shall give it its quietus by providing the
country with a sound and popular system of bimetallism. Even the most
sanguine of the Republican leaders must admit that the prospect of
accomplishing this task by international agreement is not so encouraging
as to make the tentative consideration of other plans, not requiring
concerted action, unnecessary or useless. The purpose of this article is
to present such a plan, and to contrast it with those which have already
been tried, or have thus far been proposed.
That the financial policy we have pursued since 1878, the year of the
Bland-Allison Act, has been absurd and ruinous hardly admits of two
opinions. Secretary Carlisle, in his letter of September 16th last, gave
authoritative utterance to what had long been tacitly understood. He
said, "If the time shall ever come when the parity of the present silver
dollars and silver certificates cannot be otherwise maintained, they
will be received by the government in exchange for gold." In other
words, the vast stores of silver purchased by the United States under
the laws of 1878 and 1890 are a dead asset of the Treasury, and cannot
be utilized for purposes of redemption until sixteen ounces of silver
shall again be equivalent to one of gold, or until they are re-sold in
the open market for gold. To render this treasure available for ultimate
redemptions thus becomes a prime condition of our problem.
There is a growing disposition in certain influential quarters to evade
the difficulties in the way of international bimetallism by taking the
government out of the banking business, and relegating the matter of
currency issues more and more to the banks. Whatever may be said in
behalf of this course, it is certainly not popular with the masses, who,
justly or ignorantly, have come to look upon national banks as favored
objects of legislation, and in league with syndicates and trusts. But,
aside from this, the real core of the trouble is not removed. We but
shift the burden of responsibility. The ultimate fund for redemption
remains limited to the one metal as beforehand can serve the banks even
less efficiently, for the more divided the responsibility the larger the
proportion of gold required for reserve purposes.
International bimetallism at the contemplated ratio of 16 to 1, and
bimetallism by independent action at the same ratio, although opposing
issues in the late campaign, are founded upon the same errors and
misconceptions. Both assume that monetization creates a commercial
demand for the metals, thereby enhancing their values; that the use of
gold and silver as money substances has been one of choice with us
instead of necessity; and that legal-tender laws create value.
It may be going too far to say that monetization creates no demand, but
whatever demand it may be supposed to create is not a commercial one. In
the latter sense the word signifies both an actual purchase, or the
exchange of one thing for another, and a permanent withdrawal from the
market of the thing bought. The act of coinage is certainly not a
purchase, for, directly or indirectly, it aims to restore to the offerer
of the bullion not something else, but the _precise thing received_; nor
is the metal retired from the market, since it is actually or virtually,
though in an altered form, immediately restored thereto. The whole
process is merely one of bailment. It would therefore seem incumbent
upon those affirming the efficacy of monetization to raise the price of
the metal to show by scientific analysis just how, why, and to what
extent it does so. The fact that from 1792 to 1873, with free coinage at
a very close approximation to the market value, not once did the legal
and commercial ratios coincide, and that the change of the former from
15 to 1 to 16 to 1 in 1834 had no perceptible effect on the market,
seems to be conclusive proof that the general belief that free coinage
at a fixed ratio appreciates the over-valued metal is delusive.
It is important to inquire into the grounds upon which the use of silver
and gold is founded, for if we have _chosen_ them for that purpose there
is an implication that other substances might have served the same
object almost, if not quite, as well. Such is not the case. Silver and
gold are absolutely unique in possessing the qualities indispensable for
money, and not only nature, but immemorial custom and deep-rooted
prejudice combine to compel their use in the exchanges irrespective, and
even despite, of legislation. Monetization, therefore, cannot, for this
further reason, add to, or take away from, their respective values,
because the exchangeability that monetization is supposed to give them
is a natural quality and not the creature of law. But so much more is
this true of gold than of silver, that the dependence of modern
commerce, and, through it, modern civilization, upon it is almost
absolute. If, therefore, free coinage at a ratio unfair to gold were
attempted, gold would cease to be offered at the mints, but it would
nevertheless continue in use in final settlements, especially in
transactions of some magnitude, thus preventing its decline in value.
Suppose, then, that such a law, national or international, should go
into effect to-day, would anyone be so fatuous as to part with his gold
until the effect of the law could be discerned? If the governments at
the same time should exercise the same good sense, they would retain
their gold and disburse their silver, but such conduct would defeat the
very object of the law. If, on the other hand, they should release their
gold, retaining their silver, they would give fresh point to the
oft-proved saying, "The fool and his money are soon parted." A
_bona-fide_ attempt on the part of one or more powers to change the
market ratio of the metals could result only in transferring government
gold to private coffers, and in a general fall to the silver basis with
all its attendant evils. Meanwhile the gold would continue its functions
as money in new transactions, but at its market value, never by any
chance reaching the public treasuries except on the same basis. The
inconvenience of transacting business with a metal some thirty times as
heavy, value for value, as that to which they had been accustomed would,
without further reason, speedily induce the governments to a restoration
of the gold standard at any cost.
As for the legal-tender quality, it cannot be denied that governments
here possess a peculiar power which individuals cannot exert; but that
fact does not make the exercise of that power morally right. The
quality of legal tender infused into the debased dollar cannot but add
temporarily to its exchangeable value in a degree gradually diminishing
with the exhaustion of the accumulated credits. When, however, the last
debtor in the series is reached, and there is no longer a Peter to rob
for the sake of Paul, the fraudulent coin must inevitably sink to the
value it had as bullion prior to the act that created it.
Upon such fallacies as these it is sought to erect the elaborate
superstructure of the civilized world's monetary system! Some of the
more advanced thinkers among the self-styled bimetallists, realizing
that some deference must be paid to the lessons of experience, which
offers not a solitary instance of the concurrent use of the two metals
under a fixed ratio, argue that, even so, the chief blessing of
bimetallism--a less variable standard--will have been secured in the
automatic oscillation from one circulation to the other. If this
oscillatory feature is the object sought, the adoption of a ratio of 16
to 1, or thereabouts, would certainly not secure it, but one almost
identical with the market ratio would be imperative. Not once in the
history of our country did this alternation occur, although from 1792 to
1873 we were upon the double standard. It is true that in 1834 the
circulation changed from silver to gold, but that was due not to the
automatic effect of that system, but to an actual change of the legal
ratio from 15 to 1 to 16 to 1. But if the legal ratio is now made to
conform to the market one, what becomes of our present silver coins?
Must they be called in and be replaced by the new? If so the convenience
of our subsidiary coinage will be sacrificed, for a silver dollar twice
its present size would be intolerable.
The obstacles in the way of international bimetallism need not be
enumerated here. The proceedings at the Brussels monetary conference in
1892, though they accomplished little besides, certainly served to make
these difficulties plain. The primary object is to make silver coins and
gold coins continuously interchangeable in trade at a ratio
approximating as closely as possible to 16 to 1, and the discussion of
the means to accomplish this has apparently narrowed down to one
proposition to be answered by a simple yes or no: Shall the free coinage
of gold and silver at the ratio of 1 to 16 be restored? It will not do
to insert any other ratio (except, perhaps, 1 to 15 or 1 to 15-1/2),
because if a ratio closely approximating the commercial one is
contemplated, each nation might decide the question for itself, and an
international agreement would be superfluous. All the civilized nations
have their own established ratios of coinage varying from 15 to 15-1/2
or 16 of silver to 1 of gold, and whichever of these should prevail the
result could not but be a serious matter to those nations obliged to
reform their coinage in accordance therewith. Neither horn of the
dilemma presented by the plan of a fixed ratio is practicable; the
convenient one of 16 to 1 is impossible, and the commercial one would
necessitate recoinages and make the coins prohibitively cumbrous. The
choice of an intermediate ratio would be a virtual relinquishment of the
principle itself, for how would that ratio be arrived at if not by mere
guess? There are no data to guide us, nor is there any formulated rule
by which the desired ratio may be determined. Besides, the intermediate
ratio would still remain open to the objections advanced against the
higher ratio, both in requiring recoinage and in unduly enlarging the
coins.
The inevitable result of free coinage at a fixed ratio is to expel the
undervalued metal from circulation. There can be but one way to prevent
this, and that is by a system of sliding scale whereby scrupulous
fidelity to the state of the market from day to day may be preserved.
Diurnal recoinages are of course out of the question, but the thing is
nevertheless both easy and practicable.
Let us assume that gold only has hitherto been used as money, that 25.8
grains thereof have been taken to be one dollar, and that it is now
desired to supplement it with the use of silver. Our proposition will
necessarily take this form: If one dollar is equal to 25.8 grains of
gold, it must be equal to as many grains of silver as 25.8 grains of
gold will buy in the open market. Here we must remember that what is
true to-day may not be true to-morrow or a year hence. So many grains of
gold may to-day be worth 412-1/2 grains of silver, to-morrow they may be
worth but 400, and next day, 420. By _fixing the amount_ of silver in
the dollar we thus utter through these coins a new falsehood each day.
_Constant values, not constant weights, is what we are driving at; so
in lieu of the silver coin we must substitute a promise to pay a gold
dollar, or a gold dollar's worth of silver, whatever the state of the
market._ This is what I designate _natural bimetallism_. The silver
dollar and fractional pieces as we now have them may nevertheless
continue in circulation, for the promise can be written into them by
legislation to redeem them, upon surrender, in the same manner as the
paper promises. It is possible that Hamilton and his successors in
office prior to 1837 may have thought of this expedient, but discarded
it as not then feasible. We must remember, however, that they had
serious practical difficulties to contend with, which are now happily
removed. The advantages of the telegraph, the cable, the improved means
of transportation, and our admirable system of market quotations, enable
us now with certainty and ease to determine daily what any given thing
is worth in terms of any other.
In order to make my plan as clear as possible, I shall run the risk of
seeming elementary by following through, step by step, a typical
transaction under it: Let us fancy that the reader, bearing a nugget of
gold in his left hand and another of silver in his right, and desiring
to convert them into money, repairs to the Philadelphia mint. He applies
there to the proper clerk, who, for simplicity's sake, we will suppose
performs all the operations. The clerk weighs and assays the two pieces
of metal, and finds the gold one to contain 25,800 grains of standard
gold, worth precisely $1,000, which are counted out in bills. A similar
operation reveals that the lump of silver weighs 35,500 grains, but the
clerk is now observed to consult a table before saying, "The market
equivalent of a gold dollar is to-day 710 grains, consequently your
35,500 grains are worth $50;" and he then proceeds to count out the
money in bills precisely like those given in payment for the gold. Upon
examining these at his leisure the reader discovers imprinted thereon a
contract running as follows: "This note entitles the bearer on demand to
[the denomination of the bill] dollars in gold or to the market
equivalent thereof in silver."
In the course of time, say five years hence, these identical notes, by
the accidents of trade, have come into my hands, and I desire to have
them redeemed. Applying to the United States Treasury I find I am
granted the privilege of taking payment in silver, in gold, or partly in
one and the balance in the other. For the purposes of our illustration,
however, we will adhere to the figures already used. In exchange for the
$1,000, then, I receive back precisely the weight of gold originally
given for them. For the $50 I receive six pieces of silver of different
sizes, which I notice are arranged upon a decimal scale of grains. They
contain respectively 30,000, 5,000, 1,000, 500, 100, and 50 grains; in
all 36,650 grains, or 1,150 grains in excess of the original quantity.
Upon inquiry I learn that this excess is not due to any mistake by the
clerk, but that since the first transaction silver has fallen so that
733 grains are now commercially equal to 25.8 grains of gold, and that
the government has simply redeemed my notes at par. After this first
experience I have many subsequent transactions with the mint and with
the Treasury. At the former I find that I have the choice of notes, gold
coin, or silver coin. At first I reject the silver coins as being under
weight, but upon its being explained that they are purposely made light
for the sake of convenience, and that they are by general law redeemable
in the same manner as the notes, I no longer object to them. At the
Treasury, on the other hand, I am sometimes, though rarely, informed
that the government is exercising the option reserved in its contract;
that it is paying exclusively in gold, or exclusively in silver, or
partly in one and partly in the other. These occasional disappointments,
however, never affect the integrity of the money I have in hand, for
whether redeemed in gold or silver, everyone knows that it will be
redeemed at its _face value_, and it accordingly passes unquestioned.
Upon several occasions I present bonds of the government for redemption,
some of them issued previous to the inauguration of the new system, and
others issued afterward. In either case I find that the same system of
redemption prevails as in the example of the notes. Treasury notes,
silver coins, and silver certificates--one and all I discover are also
redeemable like the new notes or convertible into them, so that I need
never concern myself about any matter save their genuineness.
Gold certificates and greenbacks must, of course, be redeemed as their
special contract requires, but, once redeemed, they must reissue in the
new bimetallic notes which I have described. Thus a very simple method
is provided whereby this form of currency may be transmuted into another
without contracting the circulation.
The great desideratum is to make our vast stores of silver available for
ultimate redemptions, and this, natural bimetallism effectually
accomplishes. Our gold reserve would therefore cease to be indispensable
to the preservation of our national credit just as soon as the
greenbacks and gold certificates were converted into the bimetallic
notes or cancelled. But there need be no fear that the gold reserve
would ever become depleted. By removing all danger of the debasement of
our money, by insuring the parity of every dollar of our currency with
gold, and by permanently retiring the greenbacks, we destroy the
incentive to hoard gold, cause its return to the reserve, relieve it of
half the burden it formerly had to sustain, and reduce to a minimum the
tendency to withdrawals. The copious supply of gold thus secured would
enable the Treasurer to waive his option to pay in silver whenever the
customer preferred gold, thereby enabling merchants to use the less
cumbrous metal for foreign shipments. Indeed, it is entirely probable
that the new notes would be preferred to gold in international as well
as in domestic exchanges.
An advantage of especial importance is that the metals can be
concurrently used. The oscillation from one to the other, even if it be
admitted that it would provide us always with the better of them under
whatever changes may occur, is certainly not to be preferred to the
constant and equal use of both. The unlimited coinage of the two metals
upon a plan so equitable, recognizing as it does their precise market
relations from day to day, would enable us to view with indifference the
fluctuations of the market, however great, and to whatever cause due.
Incidental to this advantage, and second only to it in importance, would
be the establishment of a par of exchange simultaneously with the
gold-and with the silver-using countries by allowing customs duties to
be paid in silver bullion at market prices, or in gold.
It may be contended that under the plan here proposed the government
might lose by a continued decline in silver, and that the silver it
already has would remain depreciated far below the price the government
paid for it. I frankly admit this. But is it reasonable to suppose that
silver will continue to decline? The probabilities are that in the
succeeding twenty years the production of gold will increase more
rapidly in proportion than silver; and it also seems that whereas
processes for extracting and refining silver have well-nigh reached
their limit of economy, the new processes for treating gold are rapidly
improving. Nor must it be forgotten that should such a decline occur the
mint deposits are from day to day keeping pace with the withdrawals, the
losses on the latter thus being counterbalanced by concurrent gains, and
interest-bearing debts being constantly transmuted into non-interest
bearing currency. It is equally clear that the utilization of a dead
asset, as the government stock of silver now is, is a distinct gain, and
will permanently dispense with the future issue of bonds for the
repletion of the gold reserve. As for the silver purchased by the
government under the Acts of 1878 and 1890 having become depreciated,
the fact is there whether we choose to recognize or ignore it. There is
no better way for palliating that loss than to make that silver
immediately available for the payment of the nation's debts.
Allied to the question of the costliness of the system is that of its
tendency toward, or freedom from, speculative disturbances. So long as
payment solely in gold was compulsory, speculators had a fertile field
for their operations. By giving the Treasurer the option of payment in
silver or gold, however, raids upon either metal can be met by paying
exclusively in the other until the proper equilibrium is restored. If a
real difficulty should still be found to exist in practice, a slight
mint charge would effectually put an end to it. In any event, natural
bimetallism is much less open to criticism on this score than the
existing system, or than that of the fixed ratio.
The pieces of silver with which redemptions are to be made are in no
sense to be regarded as money. They are distinctly merchandise,
possessing a commercial value precisely equivalent to the number of
money units received or surrendered therefor, and when the notes have
been redeemed, and the commercial equivalent has been given therefor,
the government's responsibility ends. The government assumes no
obligation to maintain silver bullion at a given ratio to gold, but it
does assume to make each unit of money the equal of 25.8 grains of gold.
In other words, the fluctuations in the value of silver are confined to
it in its bullion shape, and cannot enter into its form as money. The
idea that paper currency must be redeemed in gold, _as money_, or
silver, as money, is erroneous. It is redeemed in those metals because
they have value as _merchandise_. In domestic transactions this fact is
often lost sight of, but it becomes manifest in international exchanges
when the metallic money passes strictly on its merits as bullion, and
without regard to the stamp it bears. For these reasons the Treasury
should not be understood as guaranteeing the weight or fineness of the
metal, except in its immediate transactions, although to facilitate its
ready acceptance between reputable merchants, the affixing of the
government's seal upon the pieces would be a very proper practice.
Nor is there any mechanical difficulty in the way of the operation of
the plan. The silver could be fashioned into pieces of different sizes
graduated upon a decimal scale of grains, with the smallest piece
containing fifty grains, being somewhat larger than the current dime. By
limiting redemptions, then, to fifty dollars and multiples thereof, our
pieces will in every conceivable instance enable us to make the
exchange, or redemption, to the accuracy of a single grain on each
dollar, which is certainly sufficiently close for all practical
purposes.
In contrast to the national banking system, the bonds could be retired
without derangement to our finances, the metals forming a basis upon
which our outstanding currency could directly rest--thus obviating the
extravagant features of that system and stripping us of the impediment
of an immense debt. And not only this: the encouragement natural
bimetallism would hold out to owners of bullion of both kinds would
cause our national vaults to be filled to overflowing with the sinews of
war, and make us the best equipped nation on the earth for a prolonged
struggle, should such a struggle come.
By providing a means for the remonetization of silver at the market rate
we are doing its friends a greater kindness than they ask. Free coinage
on seemingly more favorable terms would result in immediate
overproduction and a glutted market, from which condition it would be
most difficult to escape. If there be any merit in the contention that a
"demand" for the metal is what is needed, and that that demand will
enhance its price, so much the better, for in that case not only will
the condition of the silver industry improve, but the government itself
will be benefited by the enhancement in the value of the metal it
already holds and may hereafter acquire. The example set by the United
States would be gladly imitated by other nations, and the use of silver
as a basis for money would speedily rival that of gold.
Viewed as an experiment the trial of it would be inexpensive and without
peril, while congressional debates pending its consideration would give
no cause for apprehension or disturbance to business, since the gold
standard would not be jeopardized. But why should it be regarded as
experimental when the most elementary and most familiar business
principles are followed?
The question may be raised whether the preservation of the gold standard
is desirable, since, it is claimed, it is gradually appreciating in
value. To this it may be said that the peril of the gold standard does
not consist in the fact that it is rising, but that it has been hitherto
accompanied by the non-use of silver in final redemptions. That an
appreciating dollar is necessarily an evil is, moreover, fairly
debatable. During the period from 1864-1872 (which our Democratic
friends delight to laud as the most prosperous in our history), although
we were nominally on a bimetallic basis, contracts were made on that of
the greenback, which rose during that time an average of ten per cent
per annum, to wit: from 49.2 cents in 1864, to 89 cents in 1872. In
other words the debtor who borrowed $492.00 in 1864 was obliged, eight
years later, to pay his creditor $890.00 of like purchasing power as he
had received, in addition to a considerably higher interest than now
current. I do not wish to be considered as standing sponsor for the
rising dollar, but it is a pertinent question to ask those who decry the
gold standard for this reason, why the same cause did not have the same
effect in each instance.
The objection may be made that I would make of a silver mere commodity,
but the point is not well taken, inasmuch as the mint offerings are
transmuted into paper currency, which is virtually making silver, money;
moreover, the silver itself is retained in its present form of
subsidiary coinage. Silver is not a moral being possessed of rights and
sensitive to insults; it is a mere thing whose function it is to serve
us in any way we may deem most conducive to our interests. If under the
system of natural bimetallism it does this best, the question as to its
money or commodity character is vain. Moreover, under Gresham's law, one
metal under the fixed ratio is not only "reduced to a commodity," but is
absolutely expelled from circulation and as a basis for circulation; and
we have also seen that in the last analysis both silver and gold are
commodities under any system of specie payments.
Under a republican form of government, where frequent and extreme
changes from one policy to another must be guarded against, that policy
should be adopted which most nearly conforms to justice, and which the
sense of the largest majority commends. What proposition, then, could be
fairer and more apt to commend itself to the general intelligence than
that the metals should be monetized at their commercial values from day
to day, or what policy more likely to remain unaffected by the mutations
of parties and politics?
In conclusion let me sum up the salient points: We have seen (1) that
the chief weakness of the present system is the non-availability of
silver for final redemptions; (2) that "currency reform" is inadequate
because of its unpopularity and in failing to increase the primary basis
of money by the addition of silver; and (3) that the principle of the
fixed ratio is fallacious and impracticable. On the other hand, we have
discovered Natural Bimetallism to be the application of the principles
of everyday business to that business which underlies all
others,--national finance,--and that the advantages resulting therefrom
are: It dispenses with the necessity of an international agreement with
its attendant uncertainties, perils, and delays, and at the same time
points out the way to a sound and permanent home policy upon which all
our factions could unite. It practically restores to silver its
unlimited coinage at its just market rate, injects a healthy stimulus
into the languishing silver industry, preserves our admirable system of
subsidiary coinage, and utilizes both metals as companion pillars of our
national credit. It coaxes gold to the mint, keeps it there, and does
away permanently with bond issues. It provides for the retirement of the
greenbacks, supplies their place with currency equally sound but less
hazardous, and insures the absolute parity of every dollar in
circulation with every other, and with gold. In fine, as every true
principle must, and as only a true principle can, it answers every
condition of the problem to which it applies, and commends itself as the
best, if not the only, way out of our financial embarrassments.