Popular Science Monthly/Volume 32/December 1887/Changes in the Relative Values of the Precious Metals

Popular Science Monthly Volume 32 December 1887  (1887) 
Changes in the Relative Values of the Precious Metals by David Ames Wells




THE Economic Disturbances Resulting from Recent Changes in the Relative Values of the Precious Metals.—Not-withstanding the great attention that has been given to this subject in recent years—with its almost interminable resulting publications and public and private discussions—there is probably no other one economic or fiscal problem concerning which there is so little comprehension on the part of the general public, or so little agreement as to causes and results among those who have made it a matter of special investigation.[1] It is of the first importance, therefore, for the understanding of the past involved economic disturbances, that a clear and succinct statement of what has happened should be presented, and such a statement it is now proposed to attempt.

For many years prior to 1873 the bullion price of silver remained very nearly constant at from 60 to 61 pence per ounce on the London market, while the market ratio of gold to silver, or the ratio according to which gold and silver could be interchanged, was limited in London, from 1851 to 1872 inclusive, to a range of variation of from 1 to 15·19 (the minimum) in 1859 to 1 to 15·65 (the maximum) in 1872.[2]

In 1873 the new German Empire—recognizing the importance of having a monetary system better suited to her advanced industrial and commercial situation than that which she then possessed, and also the desirability of having a uniform coinage throughout the numerous small states that had come to be included under an Imperial Government—took advantage of the command of a large stock of gold, that had accrued through the payment by France of an enormous war indemnity,[3] to effect reform. An exceedingly miscellaneous system of coinage and currency—consisting of seventeen varieties of gold money; sixty-six different coins of silver, possessing full legal-tender powers and constituting (in 1870) 65·7 per cent of the entire circulation; forty-six kinds of notes issued by thirty-five different banks, besides state paper money of various kinds to the extent of 7·5 per cent of the circulation—was accordingly called in, and replaced by a new system of gold and silver coinage and paper currency. In this new system, gold was established as the sole monetary standard of the empire, unlimited of necessity in respect to legal-tender powers, while to silver was assigned the function of subsidiary service; and for the latter purpose an issue of silver coinage was provided, not to exceed in the aggregate 10 marks ($2.50) for each inhabitant of the empire (a comparatively low figure), with its legal-tender value limited to 20 marks ($5). An issue of new paper currency was also authorized, with a prohibition of the use of notes of a less denomination than 100 marks ($25), to be distributed according to population among the various states, and redeemable in the new imperial coinage. A proportion of the old silver coinage, which, having been supplanted by gold, was not needed for recoinage under the new system, was offered for sale in the open market as bullion, and the amount actually sold between 1873 and the end of May, 1879, when the sales were suspended, realized $141,784,948. Of this aggregate, $45,644,311 was sold between the years 1873 and 1876, and $96,140,627 between 1877 and 1879 inclusive.

Concurrently with this action of Germany the bullion price of silver began to decline, and this decline was undoubtedly further promoted by the subsequent action of the so-called "Latin Union"—comprising the four countries of Europe using the franc system, namely, France, Belgium, Italy, and Switzerland—which, fearing lest the silver liberated from use in Germany, and offered for sale, would flow in upon and flood their respective mints, to the entire exclusion of gold if the free coinage of silver was continued; first restricted (in 1874), and finally (in 1877-'78), owing to the continued decline in the value of silver, entirely suspended the coinage of silver five-franc pieces. The coinage of subsidiary silver, or silver of smaller denominations than five francs, was, however, permitted and continued.

In 1873, also, the Congress of the United States, in revising its coinage system, dropped from the list of silver coins authorized to be there-after issued from its mint, the silver dollar of 4121/2 grains, although providing for the unlimited issue and coinage of silver in pieces of smaller denominations than the dollar; and mainly for the reason, that this particular silver coin was not then in circulation in the country, and indeed had not been for a period of more than twenty-five years.

The extent of the decline in the price of bar-silver per standard ounce, in pence, upon the London market since 1873, is shown by the following exhibit of annual average quotations:

1873, 591/4 d. 1879, 511/4 d.
1874, 585/16 d. 1883, 503/4 d.
1875, 567/8 d. 1885, 489/16 d.
1876, 523/4 d. 1886, 453/8 d.

In July, 1886, the price of silver temporarily fell to 421/2 d. per ounce—the lowest price ever known in history—but reacted in October of the same year to 461/6d. From January to September, 1887, the average price was 46·8d., declining to 441/8d. in October.

During the early years of the decline of silver, the opinion was extensively entertained, that it was primarily and mainly occasioned by the new supply to the world's market, consequent upon the sales of silver by Germany,[4] and this opinion found so much of favor with leading German bankers, that it is understood that Germany suspended her sales of silver in 1879 in accordance with their advice, and with the expectation that a partial or entire recovery of price would thereby ensue. But no such result, as is well known, followed the suspension of sales thus recommended. How little, moreover, there was of foundation for this opinion, will appear from the following circumstances:

The aggregate silver product of the world during the years (1873-'79), when Germany was selling her discarded coinage, was $581,800,000, or more than four times the amount of the sales ($141,781,000) which Germany actually effected. Again, during the same period of years when Germany was increasing the world's supply of silver, through her sales, to the extent of $141,781,000, the United States drew upon and reduced this same supply by increasing her dollar and subsidiary coinage to the amount of $111,307,187.[5] Surely the world's status of silver during these years must have been one of extraordinarily unstable equilibrium from antecedent causes, threatening serious fluctuations in price even in the absence of anything abnormal, if the addition of so small a net product during six years as $30,473,000 to the current market supply of silver could depress the average bullion price of the world's mass of this metal from 591/4 to 511/4 pence per ounce, or over thirteen per cent.

That the term "unstable equilibrium" is truly expressive of the real status of silver in 1873 would further appear from the following evidence: There was a well-recognized movement in France against silver and in favor of gold from 1853 to 1865, and its influence would probably have shown itself in a fall in value of silver, had it not have been for the cotton-famine consequent on the American war, which occasioned extraordinary shipments of silver to India, and so counter-acted any tendency then existing to a surplus in the European markets. In 1867 an International Monetary Conference at Paris voted almost unanimously in favor of the adoption of a single gold standard by the chief commercial nations. As far back as 1860, the late Professor Cairnes, who is recognized as a far-seeing economist, ventured the prediction that silver was in the process of depreciation. Another influence tending to powerfully affect the status of silver in 1873 was due to the circumstance that, subsequent to 1868-'69, the India Council greatly increased the sale of their bills (i. e., drawn on India and payable in silver) on the London market, and so virtually increased the stock of marketable silver at that point to the extent of from $20,000,000 to $30,000,000 annually, in excess of what it had been for the years immediately previous.[6]

The German "sales" theory being thus untenable, another hypothesis has found wide acceptation—namely, that, notwithstanding any absolute or comparative increase in the supply of silver during recent years, its decline in price and the economic disturbances which are alleged to have followed, would not have occurred, had it not been for the "demonetization" or the general discrediting of this metal for use as money; which has been contingent on the adoption of gold as the sole monetary standard and as a larger instrumentality of exchange by several of the most important commercial countries—notably Germany and the United States; or, as a leading American statesman has expressed it, "but for the striking down of one half of the world's coinage," and "compelling gold to do the work of both gold and silver." But here, also, the evidence in confirmation of this hypothesis is exceedingly unsatisfactory or wholly lacking. If by demonetization is meant that there has been less of silver in use and circulation as money, absolutely or comparatively, throughout the world since 1873 than formerly; or that the people of any country have been inhibited to their disadvantage in its use; or that, in consequence of any restrictions on its use for coinage, production and trade have decreased, and the prices of commodities and wages have fallen—the assumptions are not warranted, and the term demonetization is meaningless. The world's average annual production of silver since 1873 has been greater than ever before. Between 1873 and 1887, inclusive, the aggregate product—measured in dollars of 4121/2 grains each—has been in excess of $1,250,000,000, and most of it has passed into circulation as coin, or lies piled up in national depositories awaiting any popular demand for its employment;[7] and the greater number of the daily transactions of trade continue to be settled by the use of silver, just as formerly. "If you take," says Mr. Robert Giffen, in his testimony before the British Gold and Silver Commission, 1886, "the fifteen years from 1870, and compare them with the fifteen years before, you will find that the practical diminution for the demand for silver in France, and I suppose it has been the same in other Latin countries, has not been sensible at all." The continually increasing importation of silver into India, China, Burmah, and Japan is conclusive also as to the absence of any restrictions on the use of this metal for coinage purposes in these countries.[8] In short, all that is now claimed by one of the most distinguished economists who inclines. to the view that the monetary use of silver has been artificially restricted, is that its employment for coinage might possibly have been greater if it had not been for the action of the Latin Convention countries.[9] But it is obvious that this opinion must be necessarily a matter of conjecture.

Again, the world has never made so great a progress in respect to all things material in any equal number of years as it has during those which have elapsed since silver began to decline in price in 1873. Never before in any corresponding period of time has labor been so productive; never has the volume of trade and commerce been greater; never has wealth more rapidly accumulated; never has there been so much abundance for distribution on so favorable terms to the masses; never, finally, would an ounce of silver exchange for so much of sugar, wheat, wool, iron, copper, coal, or of most other commodities, as at present. If the fall in the price of all desirable commodities has been an evil, as not a few seem to believe, it can not be conclusively proved, in respect to even one article, that any such fall has been extensively due to any decline in the value of silver or any appreciation of gold.

On the other hand, a more rational explanation of the decline since 1873 in the value of silver, and one which the logic of subsequent events is substantiating, would appear to be as follows: Since 1860 the annual product of silver has been rapidly increasing—i. e., from $40,800,000 in 1880 to 151,950,000 in 1865; 61,050,000 in 1871; $80,500,000 in 1875; 896,000,000 in 1880; $124,900,000 in 1885.[10] The aggregate product from 1860 to 1873, inclusive, was $990,000,000. Previous to 1871-'72 neither France nor the Latin Convention states of Europe bad been large consumers of silver. In fact, from about 1850 to 1864, France, instead of being a consumer, was really a seller of silver, and during that period disposed of about £75,000,000 ($375,000,000). After 1864 the tide turned, and France began to take back silver, but up to 1873-'74 her imports had by no means balanced her previous exports. M. Victor Bonnet, writing in 1873 ("Revue des Deux Mondes"), after the greater part of the French indemnity had been paid, estimated the quantity of specie remaining in the possession of the French people at 6,000,000,000 francs ($1,200,000,000). China, also, which previous to 1864 had been a silver-importing country, after 1864 and until up to about the time of the drop in silver, became a silver-exporting country.[11] From 1853 to 1873, inclusive, the United States furthermore coined but very little silver, and during this whole period drew on the world's supply of silver for coinage purposes to an extent (measured in dollars) of only $57,137,000; while, during her long period of suspension of specie payments, subsequent to 1861, her stock of silver coin entirely disappeared from circulation, and in great part was doubtless added to the supply of other countries.

Under such circumstances, which were perfectly well known to the custodians and dealers in silver everywhere, Germany entered the world's market as a seller of silver. The amount offered at first was absolutely very small and comparatively insignificant, but it nevertheless probably constituted a supply in excess of any current demand. As the states of Europe and the United States could not at once increase their consumption and import of the products of Asia, Africa, and South America, and so increase their sales (exports) of silver, and, as the price which the surplus of any commodity forced for sale will command determines the price of the whole stock of such commodity, the price of the whole stock of silver bullion naturally began to decline. The general policy of Germany respecting the use of silver for coinage, which was subsequently favored and adopted by Sweden, Norway, Denmark, and Holland, with the concurrent suspension by the states of the Latin Union of the free coinage of the silver five-franc pieces, also unquestionably favored and intensified the decline in the price of silver thus inaugurated, by creating an apprehension (or scare) among the bullion-dealers as to what might further happen.

The continued decline in the value of silver in more recent years—i, e., from an annual average of 511/4d. in 1879 to 453/8d. in 1886—may also be rationally referred to a continuance of the same influences. The annual product of silver has continued to increase—i. e., from $96,000,000 in 1879 to $124,900,000 in 1886, or $762,000,000 in the aggregate for this period. No one knows what is to be the product of silver in the future; but it is reasonable to believe that, if the price of silver were to advance materially, its product would be largely augmented. Recent reports made under the auspices of the Mexican Secretary of the Interior, and published in the "Mexican Economist" (1886), claim that the cost of working the argentiferous lead-ores of Mexico, which "exist in prodigious abundance," has been greatly reduced within recent years, and that under a better system of taxation and with an adequate supply of capital the annual product of the silver-mines of Mexico could be quickly doubled and even trebled. Furthermore, an average decrease of at least thirty per cent in the prices of the commodities that represent the great bulk of the world's production and consumption (comparing the data of 1885-'86 with those of 1867-'77) has in itself been equivalent to largely or entirely supplementing any increased demand for the use of silver and gold as money, consequent upon any increase in the volume of the world's business during the same period. The constantly-increasing tendency of civilized countries to use less and less of coin in the transaction of business, and the continued invention and successful application of numerous and unprecedented devices for economizing the use of metallic money, must at the same time have been equivalent to a constant comparative increase in the supply of precious metals for coinage purposes. Still another factor exercising a disturbing influence on the price of silver, and preventing its price recovery, undoubtedly grows out of the fiscal relations of Great Britain with India. The regular annual sales at London of India Council bills—the character of which has been heretofore explained (see page 173)—are in the nature of forced sales of silver, and at present average about $45,000,000 per annum. How much effect these sales, at the point where the silver-bullion trade of the world centers, have had in depressing the market price of silver, is undetermined; but that it has not been unimportant can not well be doubted.

Attention is next asked to the character of the economic disturbances which have resulted from the change since 1873 in the relative values of gold and silver. Omitting from consideration the extreme views on this subject, in which silver seems to be regarded in the sense of a personality that has been unjustly and designedly "outlawed" and deprived of some ancient prerogative, the disturbances in question are the same in character as have always accompanied the use of a depreciated, fluctuating currency, with this additional and novel peculiarity—namely, that while, heretofore, depreciation of currency has been due to the forced issue of redundant and irredeemable paper money or debased coin, and has been local in its influence, the present experience is due to a depreciation in the value of one of the precious metals with reference to the other, and extends to many countries in very different degrees. Let us particularize these disturbances, and see how serious or otherwise have been their resulting influence.

In the United States, all the evil which has thus far been experienced has been solely from apprehensions of evil in the future, which in turn have been occasioned by the circumstance that the United States, in harmony with her protective policy, buys from the owners of the (present) most productive and cheaply-worked silver-mines in the world, silver bullion for coinage to the value of $2,000,000 monthly, irrespective of any current demand or necessity for such coinage on the part of her own people. In the coinage system of Great Britain the function of silver remains as it has for a long period, almost as unimportant as that of copper. In Germany, "although the imperial mark is now everywhere recognized as the standard, all Germans, whether they live in Bavaria, Prussia, or Hanover, are able to sell their commodities with the consciousness that the 'marks' they receive in payment for them are good money, with the same purchasing power, whether paid out as silver thalers or as gold crowns."[12]

Furthermore, at a meeting of the representatives of the various Chambers of Commerce in Germany, in March, 1887, seventy-one chambers to four voted against any change in the existing monetary policy of the Empire. In the other states of Europe, the currencies of which are on a specie-paying basis, the situation is substantially the same as in Germany.[13] In exclusively silver-using countries, like India and Mexico, the decline in the value of silver has not appreciably affected its purchasing power in respect to all domestic products and services; but the silver of such countries will not exchange for the same amount of gold as formerly, and it might be supposed that, owing to this change in the relative value of the two metals, the silver of India, Mexico, and other like countries would purchase correspondingly less of the commodities of foreign countries which are produced and sold on a gold basis. But the people of such countries have not thus far been sensible of any losses to themselves thereby accruing, for the reason that the gold prices of such foreign commodities as they are in the habit of buying have declined in a greater ratio since 1873 than has the silver which constitutes their standard of prices—a condition of things which Don Francisco Bulnes, the distinguished Mexican economist, in a recent official report, has exemplified to his countrymen by the following felicitous illustration:

"Two merchants, named Mexico and Foreigner, exchange annually cotton shirtings for silver dollars: Mexico delivers $100, and receives from Foreigner one hundred pieces of cotton shirting. By the depreciation of silver, it results that Foreigner only wishes to accept the Mexican dollar for eighty-six cents for each one, but gives in exchange each piece of cotton shirting for sixty-six cents. Which of the two will be the loser?" Nevertheless, if silver had maintained its former relative value to gold, the benefit accruing to silver-using nations from the decline in the prices of commodities through improvements in their production and distribution might have been greater; but, if so, the loss does not appear to have been made by them a cause of complaint.

All the evidence seems to indicate that the economic disturbances contingent on the decline in the value of silver, apart from what have been due to the apprehension of evil (or scare), have thus far been almost exclusively confined to the trade or financial intercourse between the gold-standard and the silver-standard nations, or between the states of Western Europe and the United States, and the nations of the Eastern hemisphere and of Central and South America; and that the manifestations of these disturbances have been greatest in England and Holland, where the foreign trade of the silver-using countries largely centers. And it seems further to be admitted that these disturbances have not resulted so much from a fall in the value of silver per se as from the uncertainties or fluctuations in its price, or, as commonly expressed, in the rates of exchange—an eminent merchant of Manchester, England, largely engaged in trade with India and the East, being reported as saying, at the last meeting of the British Association (September, 1887), that with the present excellent telegraph service, and a level (non-fluctuating) monetary basis, exchange in India would be as steady as in New York. In all this, there is, however, nothing unprecedented or in the nature of the unexpected; nothing which the world has not heretofore repeatedly experienced. For it is to be remembered that fluctuations in exchange are the invariable accompaniment of trade with nations using a depreciated and fluctuating currency; and that there is no good reason for supposing that the disturbances which have characterized the trade of Europe with India and the East during recent years, from fluctuations in the price of silver, have been any different in kind than, or as great in degree as, those which characterized the trade of Europe with the United States from 1861 to 1879, or which characterize to-day the trade of the outside world with Russia, whose currency is depreciated and fluctuating. Moreover, the difficulties arising from the uncertainties of exchange, at least between England and India, appear to have been greatly exaggerated. Mr. Lord, a director of the Manchester (England) Chamber of Commerce, testified before the Commission on the Depression of Trade, in 1886, that, "so far as India was concerned, it is not necessary to run any risk at all," from the uncertainties of exchange. Mr. Bythell (representing the Bombay Chamber of Commerce) testified before the same commission: "He [Mr. Gibbs] says that commerce with India is paralyzed. I deny the assertion. There is no difficulty in negotiating any transaction for shipping goods to India, and in securing exchange." It is also beginning to be generally recognized that, owing to telegraph correspondence and rapid steam communication, the risk in transacting business between different countries, contingent on fluctuations in exchange, is being gradually eliminated, inasmuch as sales and purchases, or remittances, and all the incidents of exchange, freights, commission, etc., can be practically arranged between the operators at one and the same time.[14]

But whatever may have been the disturbances resulting from fluctuations in rates of exchange between Great Britain and the silver-using countries (of which India is the chief), contingent on the fluctuations in recent years in the price of silver, these disturbances do not appear to have had any effect up to 1884-'85 in checking the volume of British trade with Eastern nations, or in changing the relations of exports and imports that previously existed. Thus, from returns officially presented to the British Gold and Silver Commission, 1886, it was established that the trade of Great Britain with India since 1874 had relatively grown faster than with any foreign country, "except the United States and perhaps Holland." Assuming 100 to represent the trade between the two countries in 1874-'75, the imports from the United Kingdom into India rose from 100 to 154 in 1884-'85, and the exports from India to the United Kingdom from 100 to 149. Much also has been said respecting the serious injury which the export trade in cotton manufactures from England to India has sustained in recent years in consequence of the "dislocation" of the money of England's Indian customers. But the facts do not bear out such statements. Taking the number 100 as representing the condition of the cotton-fabric export trade of England with India in 1874, the numbers for 1876 were, respectively, 134 for quantity and 96 for value; and this change in value, as was testified to before the Gold and Silver Commission, has "occurred since 1883"; or was coincident with a recognized increase at that date in the manufacturing capacity of the cotton-factories of Europe and the United States, greatly in excess of any current market demand for consumption.[15]

In like manner the official returns also show that while India during recent years has largely increased her exports of domestic cotton fabrics—cloth and yarn—to China and Java, the exports of like products from England to these same countries from 1875 to 1884-'85—the period covering the greatest decline in the price of silver (or of the fall in exchange)—also continually increased; or for 1884 were 14 per cent in the case of piece goods, and 32 per cent in yarn, greater in the aggregate than they were in 1875. Since 1884-'85 the condition of the British export trade to China is reported to have been less favorable.

It might also seem that the Government of India, in selling its remittances in silver—India Council bills—to cover its liabilities in England, for a less price in gold than formerly, constantly experiences a loss; but, on the other hand, it is well established that the increase in the revenues of India, since the decline in silver began, owing to the increased prosperity of the country and the increased receipts of the government railways, fully counterbalances any loss they may have incurred in remitting silver against their gold liabilities.

Another pertinent example, and one not in any way connected with the trade of Europe or India, is afforded by the recent trade experiences of Mexico. This country has almost exclusively a silver currency; and the fluctuations in the price of silver since 1873—Mexican exchange having varied in New York in recent years from 114 to 140[16]—would seem necessarily to have been a disturbing factor of no little importance in the trade between the United States and Mexico. But the official statistics of the trade between the two countries since 1873 (notoriously undervalued) fail to show that any serious interruption has occurred; the domestic exports from the United States to Mexico having increased from 83,941,000 in 1873, to 811,089,000 in 1884; while the exports from Mexico to the United States during the same period increased from 84,276,000 to 89,016,000.

In recent years there has been a notable increase in the cotton manufacturing industry of India—i. e., from fifteen factories, with 450,156 spindles and 4,972 looms in 1873, to seventy factories, with 1,698,000 spindles and 14,635 looms in 1884; and the cause of this increase, which is enabling India to compete (as never before) with Lancashire (England) in supplying cotton yarn and fabrics to the Indian and other Eastern markets, and to the alleged serious detriment of English interests, is popularly believed and asserted to have been occasioned mainly by the decline and fluctuations in the price of silver. The cross-examination of experts in the Anglo-Indian trade by the British Gold and Silver Commission conclusively showed, however, that the prime cause of the increasing ability of India cotton manufacturers to compete successfully with those of England is to be found in the advantages which accrue to the former from the lower wages and longer factory-hours[17] of their employés. But the existing differences as respects the condition of labor in England and India have existed from time immemorial; and the only novelty of the present situation is, that now India, with railroads and factories, and the advantage of cheap ocean freights, is emancipating herself from chronic sluggishness and beginning to participate in the world's progress; and under English auspices, and largely with English capital, is, for the first time, extensively utilizing her cheap and abundant labor in connection with labor-saving machinery. And it is to be further noted that her progress in cotton manufacturing exhibited itself unmistakably some years before the commencement of the decline in silver; that the first shipment of cotton yarns from India to China, in competition with yarns of English make, was in 1866, and that between 1865 and 1873 the increase in the number of cotton spindles in India was in excess of 57 per cent.

The belief is also very general that the decline in silver has abnormally stimulated exports from silver-using countries, to the great detriment of the wheat-growers of the United States and Australia, who offer their surplus in competition with the surplus of India upon the European market. Nothing is easier than to get into a state of mental confusion in respect to this matter, and, in fact, there seems to be no assignable limit to the multiplication of words upon it. But, in forming an opinion concerning it, it is important to steadily keep in mind the fact, that international trade is trade in commodities, and not in money; and that the precious metals come in only for the settlement of balances. In fact, all such exchanges are, to within a very minute fraction, the result of an organized and elaborate system of barter, and the principle of barter prevails in them, and determines to a great extent the methods employed. The trade between England and India is an exchange of service for service. Its character would not be altered if India should adopt the gold standard to-morrow, or if she should, like Russia, adopt an irredeemable paper currency, or, like China, buy and sell by weight instead of tale. Will India give more wheat for a given amount of cloth because she uses silver instead of gold in her internal trade? Will England give less of cloth for a given amount of wheat because she keeps her accounts in pounds, shillings, and pence instead of in rupees? Unless all the postulates of political economy are false—unless we are entirely mistaken in supposing that men in their individual capacity, and hence in their aggregate capacity as nations, are seeking the most satisfaction with the least labor, we must assume that India, England, and America produce and sell their goods to one another for the most they can get in other goods, regardless of the kind of money that their neighbors use or that they themselves use. A silver currency does not give any additional strength to a Hindoo ryot, nor does it increase the fertility of his soil, or add to the number of inches of his rainfall. Nor does a gold currency detract in any way from the capability and resources of his rival, the American farmer. Nor does the difference in their respective currencies affect the judgment of the buyer of wheat in Liverpool. Is any single factor in the elements of production and transportation, by which alone the terms of competition are settled, changed by the local currencies of the several countries, or the mutations thereof? Surely no mutations were ever more sudden or violent than those of the currency of the United States during the late war. They were not without their effects; but the effects were not of a kind to change the terms of competition in international trade. It may be that the Indian wheat-grower has been enabled by the decline in silver to get labor for less wages than before, and has thus gained an advantage over his competitors in America and Australia; but the evidence is all to the effect that wages generally in India in recent years have advanced and not declined. But the terms of international competition are not altered by any division of the joint product of labor and capital in one of the competing countries. The person that has the most of a grievance growing out of the present state of the wheat-trade is the American farmer, who is restricted from buying in the same market in which he sells his surplus wheat to as good advantage as his competitors; but this is not due to any change in the value of silver, but to the fiscal policy of his own Government.

The whole subject of the disturbing influence of the decline in the value of silver on the trade between gold and silver using countries is complicated and difficult of analysis, and the opinions of persons practically interested in such trade are not harmonious; but it is difficult to see how one can investigate the subject, with the light of the experience which the years that have elapsed since 1873 has contributed, without coming to the conclusion that the seriousness of the disturbances has been greatly exaggerated, and that the expediency of attempting to provide remedies by legislation for such as may be acknowledged to exist—if legislation were practical—is very doubtful.[18]

One feature contingent on the fall in the value of silver, which appears to be regarded in England somewhat in the light of a popular grievance, is the decline in the value of the pensions, or "half" pay allowances which have been given by the Indian Government to their retiring officials for good and extended service. These pensions are granted in India, and are payable there in the current money of the country—i. e., the silver rupee—and, before the decline in silver, had an equal purchasing power with gold; and at the present time, so far as these pensions are spent in India, no loss occurs, because the purchasing power of silver in that country has not fallen materially. But, on the other hand, if the rupees are remitted to England, and sold there at the price of bullion, or if, what amounts to the same thing, the remittance is effected by the purchase of a bill of gold exchange on England, the loss in English money to the pension or half pay recipient residing in England is considerable, and has been estimated to average about 25 per cent. At the same time, it is to be remembered that there has been no loss, but rather a gain, in the present purchasing power of silver, as compared with its purchasing power at the time when the pensions or half-pay in question were granted. It is not alleged that the Indian Government has violated any contract or stipulation; but that they "have proved ungenerous employés."[19] Important, however, as this matter doubtless is to those especially interested, it is one in which the world at large can not be expected to take much interest.

In Holland the disturbances assumed to have been occasioned by the decline in the value of silver have attracted public attention to an even greater degree than in England. But even here the disturbances have been mainly restricted to the commercial and financial relations of Holland with her East Indian colonies, Java, Sumatra, and other islands, and have been specially occasioned by the extraordinary fall in recent years in the prices of the principal exports of these islands, namely sugar and coffee. But no commercial fact is capable of more complete demonstration than that the fall in the price of these great staples has been in no way contingent upon any change in the value of silver.[20]

Finally, the idea of disturbance in connection with the decline in the value of silver has been and is pre-eminently connected with an annunciation and belief in two propositions: First, that the almost universal decline in the prices of the world's staple commodities since 1873 has been occasioned by the fall in the price of silver; and, second, that a decline of prices is an evil. The first of these propositions rests upon an assumption which can not be verified by any conclusive evidence whatever; and, as for the second, if the fall of prices has been mainly due, as has been demonstrated, to natural and permanent causes, namely, the increased power of mankind in the work of production and distribution; then the result, by creating a greater abundance of all good things, and bringing a larger amount of the same within the reach of the masses for consumption and enjoyment, has been one of the greatest of blessings.

Any discussion of the economic disturbances resulting from changes in the relative values of the precious metals, would be incomplete, that failed to point out how the events that originated the so-called "bimetallic" controversy were the natural outcome of the revolutionary changes in the methods and production and distribution that have occurred in recent years in all countries in proportion to their advance in civilization.

It is not easy to imagine that any person of ordinary intelligence can seriously believe, that the enactment of laws looking to the recognition of gold as the single standard of value, thereby effecting what is called the demonetization of silver, could ever have resulted from mere whim or caprice, or with a view of occasioning either domestic or international economic disturbance. There was a time when nations, with the expectation of receiving benefit, did adopt policies and enact laws with the undisguised and sole intent of injuring the industry and commerce of neighbors with whom they were at peace; but happily such days have long past. And the inference is, therefore, fully warranted that whatever steps have been taken, which have resulted in any territorial restriction of the use of silver as money, have been in consequence of a belief by the parties—nations—thus acting, that such a policy was called for by change in the economic condition of their affairs, and was likely to be to them productive of benefit. And the answer to the pertinent question as to what benefit, is simply, that which might be expected to accrue from the using of the best rather than an inferior tool; of a money instrumentality adapted to new, rather than to old conditions of production and distribution.

One needs but to stand for a brief time at the marts of trade in countries of varied degrees of civilization, to quickly recognize and understand, that the kind of money a country will have and use, depends upon and will vary with, the extent and variety of its productions, the price of its labor, and the rapidity and magnitude of its exchanges; and investigation will further inform him that when mankind, savage, semi-civilized, civilized, or enlightened, find out by experimentation what metal or other instrumentality is best adapted to their wants as a medium of exchange, that metal or instrumentality they will employ; and that statute law can do little more than recognize and confirm the fact. In truth, legislation in respect to money, as is the case in respect to other things, never originates any new idea; "but merely enacts that that which has been found beneficial or prejudicial in many cases, shall be used, limited, or prohibited in all similar cases within its jurisdiction." Thus, in all countries where prices are low, wages small, transactions limited, and exchanges sluggish, nothing more valuable can be used as money for effecting the great bulk of the exchanges, than copper; and in countries like Mexico and China, even the copper coin corresponding to the American "cent," the English "half-penny," and the French "sou" is often so disproportionate in point of value to the wants of retail trade, that in the former country it is made more useful by being halved and quartered, and in the latter is replaced with some even cheaper metal, as iron, or spelter. The wages in all such countries do not in general exceed twenty to twenty-five cents a day, and the sum of such wages, when represented in money, must be capable of division into as many parts in order to be exchanged for the many daily necessities of an individual or a family. But with wages at twenty-five cents per day, the use of coined gold would obviously be impracticable. The equivalent of a day's labor in gold would be too small to be conveniently handled; the equivalent of an hour's labor would be smaller than a pin's head. And in a lesser degree would be the inconvenience of using coined silver for effecting the division of similar small wages.[21]

In countries of higher civilization, but still of comparatively low prices and limited exchanges (and these last mainly internal or domestic), silver naturally takes the place of copper as the coin medium of exchange and as the standard of value; and as more than a thousand million people are the inhabitants of such countries, silver, reckoning transactions by number and probably also by amount, is to-day the principal money metal of the world.

On the other hand, in countries of high wages, rapid financial transactions, and extensive foreign commercial relations, the natural tendencies are altogether different, and favor the more extensive use of gold for money, without at the same time displacing from their legitimate monetary spheres either copper or silver.

The metal coinage system of the world is not therefore " mono-metallic," nor "bi-metallic," but tri-metallic; and the three metals in the form of coin, have been used concurrently throughout the world ever since the historic period, and in all probability will always continue to be so used; because by no other system that has yet been devised can the varying requirements of trade in respect to instrumentalities of exchange and measures of value be so perfectly satisfied. And the only change in this situation of monetary affairs has been, that gradually and by a process of evolution as natural and inevitable as any occurring in the animal or vegetable kingdom, gold has come to be recognized and demanded as never before in all countries of high civilization, as the best instrumentality for measuring values and effecting exchanges. It has become, in the first place, the money of account in the commercial world and of all international trade; and any country that proposes to find a foreign market for the surplus products of its labor must employ the very best machinery of trade-railroads, steamships, telegraphs, or money-if it does not propose to place itself at a disadvantage.

In respect to portability, convenience for use, adaptation to domestic and foreign business alike, the balance of advantage for all transactions, above $25 or £5, is also largely on the side of gold; as will be evident when it is remembered that it required, even before its depreciation, sixteen times more time to count silver in any considerable quantity than an equal value of gold; sixteen times more strength to handle it; sixteen times more packages, casks, or capacity to hold it, and sixteen times more expense to transport it. In other words, in this saving age, when the possibility of extensive business transactions is turning on profits reckoned not in cents but in fractions of cents per yard, per pound, or per bushel, to use silver for large transactions in the place of gold, is a misapplication of at least fifteen sixteenths of a given unit of effort, time, expense, and capacity, when one sixteenth would accomplish the same result.

Another factor which has without doubt powerfully influenced public opinion in countries of large and active domestic and foreign trade in favor of gold as the sole monetary standard in preference to silver, has been the Advantage which gold seems to possess over silver in the element of stability of cost of production. The amount of labor involved in the mining or washing for gold has remained nearly constant for ages; while in the case of silver not only are new deposits of great richness continually being discovered, but many old mines hitherto unworked and unprofitable by reason of inaccessibility, or by the character of their ores, have been reopened and rendered profitable by improved facilities for transportation and cheaper processes of reduction.

Now it is not asserted that it was exactly these considerations, as thus specified, that influenced Germany in 1873 to take advantage of the opportunity afforded by the payment of the French war indemnity[22] to adopt gold as the standard of her metallic coinage system—a policy which France would probably have adopted in 1870, had not war intervened—and that subsequently induced other countries to follow the example of Germany. But it can not be doubted that the motive in general which prompted the action of Germany in 1873, and which to-day enrolls so many of the best of the world's thinkers, financiers, and merchants, on the side of gold rather than that of silver in the pending and so-called bimetallic controversy, has been and is a conviction, that the movement in favor of a gold standard, by highly civilized and great commercial nations, is in consonance with the spirit of the age; that it was a necessity for the fullest development of production and traffic, and the same in kind which prompts to the substitution, regardless of cost, of new machinery for old, if even the minimum of gain can be thereby effected in the production and distribution of commodities. It may, however, be urged that granting all that may be claimed respecting the superiority of gold over silver as a standard of value and a medium of exchange, there is not a sufficiency of gold to supply the wants of all who may desire to avail themselves of its use for such purposes; and therefore, any attempt to effect innovations in former monetary conditions would be impolitic because likely to be generally injurious. But this would not be considered as an argument of any weight if pleaded in opposition to the whole or partial disuse of any other form of tool or machine in order that some better tool or machine might be substituted. That in such a case there would be an advantage to those who could afford to have and use the new, and a corresponding disadvantage to those who could not, may be admitted; but what would be the future of the world's progress, if the use of all improvements was to be delayed until all to whom such use would be advantageous could start on terms of equality?

If, therefore, the above premises are correct; if certain of the leading states of the world have given a preference to gold over silver in their trade, and have selected a single in place of a former double standard of value—not by reason of the adoption of any abstract theory or desire for experimentation, but rather through a determination to put themselves in accord with the new conditions of production and distribution that have been the outcome of inventions and discoveries during the last quarter of a century—then the inference is warranted, that all attempts to enforce, through any international conference or agreement, any different policy or practice, would be as futile as to attempt to displace through legislation railroads by stage coaches and steamships by sailing-vessels.

  1. "It has been my experience, that about nine men out of ten, even of those who might be expected to have some definite views upon the subject, when asked their opinion upon the expediency or necessity of adopting a bimetallic monetary system, will reply. Oh, that is a very important question, but I do not pretend to understand it."—Edward Atkinson, British Association Proceedings, 1887.
  2. Pixley and Abell's "Tables," London.
  3. The amount in gold which France paid to Germany directly was $54,000,000; but in addition there were French bills of exchange which gave Germany a title to gold in places like London, on which such bills were negotiated.
  4. The amount of silver (old coin) which Germany up to 1880 was able to sell, as the result of her policy of displacing silver by gold, has been estimated at $270,000,000. Of this amount $141,781,000 had been sold up to May, 1879, when the sales were suspended; and since then, it is understood, that only a few additional millions have been marketed, i. e., to Egypt. In addition, Denmark, Sweden, and Norway, which followed the lead of Germany, and changed their silver circulation to gold, have since thrown upon the market about $9,000,000 of silver. (See Laughlin's History of Bimetallism in the United States, pp. 141-145.)
  5. During the twenty years from 1853 to 1873, the aggregate silver coinage of the United States was $57,137,000, or an average of only $2,856,000 per annum, and of this aggregate but $5,538,948 was in the form of silver dollars. From 1874 to 1879, inclusive, the silver coinage of the United States was 35,859,360 trade-dollars, 35,801,000 standard dollars, 22,899,785 halves, and 16,747,042 quarters and twenty-cent pieces; total, $111,307,187, or an average of $18,560,000 per annum.
  6. The Government of India is under obligation to pay annually in England certain fixed charges in gold, the same being in the nature of reimbursements—principal or interest—to England for loans on account of public works in India, receipts from railroads belonging to the British Government, pensions chargeable to India, etc. India being exclusively a silver-using country, pays its taxes and railroad freights and fares, etc., exclusively in silver; and in liquidation of its foreign monetary obligations, silver is remitted to London in the form of bills (exchange) payable in the silver currency of India, namely, rupees, which are drawn by the India Council, or the Government of India residing in London. It must be obvious that to just the amount of such council bills or drafts as are sold in London, to just that same extent the exportation of silver for business purposes is supplemented or made unnecessary.
  7. The number of standard silver dollars in the United States in 1879, the year of the redemption of specie payments by the Federal Government, was reported at 85,801,000. The number coined between March, 1878, and August 31, 1887, was 270,200,117, of which 65,336,063 remained at the latter date in the Federal Treasury, after deducting the silver held for the redemption of silver certificates in circulation. The Mint estimate of the silver coin in circulation in the United States in 1886 (dollars and subsidiary) was $308,784,223.
  8. During the fifteen years from 1855 to 1870 the annual demand of India for silver was very nearly £10,000,000. This period embraced the cotton-famine. From 1872 to 1873, just before the drop in silver, the amount that India annually received was £3,000,000. From 1875 to 1880 it was £7,000,000; from 1880-'83, £6,000,000; and for 1885-'86, nearly £12,000,000.
  9. "The suspension of the free coinage of silver by the Latin Union operated not to diminish the actual employment for silver as compared with what had been in existence before 1872, but a possible employment which might have come into existence if the law had not changed."—(See testimony of Mr. Robert Giffen, British Gold and Silver Commission, First Report, p. 28)
  10. The average annual production of silver, according to M. Soetbeer, was $24,334,'750 from 1811-'20; $20,725,000, 1820-'31; $26,840,000, 1831-'40; $35,118,000, 1841-'50.
  11. Testimony of Mr. Robert Giffen, First Report of the British Gold and Silver Commission, p. 29.
  12. Communication by a director of the Bank of England (Mr. H. H. Gibbs) to the "Dar Kampf une die Währung," Berlin, April 30, 1886.
  13. "There are no indications of any change in the policy of the fiscal authorities of the several states visited by me (Great Britain, France, Germany, Belgium, and Holland) which warrant any expectation that the subject of a bimetallic treaty for a common legal tender, coupled with the free coinage of silver, will be seriously considered at the present time by them. . . .

    "There is no indication that the subject of bimetallism has received any intelligent or serious consideration, outside of a small circle in each country named, as a probable or possible remedy for the existing causes of alleged depression in trade."—Report to the President of the United States "On the Present Status of Bimetallism in Europe, October, 1887, by Edward Atkinson.

  14. "If trade can go on profitably between countries having an inconvertible paper of a widely fluctuating kind and the rest of the world, a fortiori, it can go on between gold and silver countries. The exchange is a hindrance and obstacle, as many other things are hindrances and obstacles, but it is nothing more. . . . Such difficulties are the ordinary incidence of trade and life, and will be dealt with like other difficulties of a far more serious kind by those concerned."—London Times, September 14, 1886.
  15. In 1870 the British export of cotton piece-goods to India was returned at 923,000,000 yards, representing 28·4 per cent of the entire trade of the United Kingdom with India. In 1884 the export of these same goods was 1,791,000,000 yards, or 40·6 per cent of the entire trade. In respect to cotton yarns the British exports to India for 1870 were 31,000,000 pounds, or 16·5 per cent of the total exports; and in 1884, 49,000,000 pounds, or 18·1 per cent of the total exports. The bulk of the trade of Great Britain is with gold-using countries; and yet, while the trade of India with Great Britain was 8·3 per cent of the whole trade of the kingdom in 1870, it constituted in 1883 as much as 9·9 per cent of the whole trade.—Testimony before the Gold and Silver Commission of Mr. Henry Waterfield, Financial Secretary of the India Office, London. (See First Report of Commission, pp. 122, 123.)
  16. That is, one hundred and forty Mexican dollars to one hundred dollars of the United States gold standard.
  17. The hours of labor in the factories of Bombay are reported at eighty per week in comparison with fifty-six per week in England. The wages of skilled labor in Bombay, in common with the wages of similar labor in countries of the western hemisphere, are reported to have materially advanced in the recent years.
  18. In connection with this subject, the following extract from the record of the examination of Mr. H. Waterfield, Financial Secretary of the India Office, London, before the British Trade and Silver Commission (February, 1887), will be read with interest:

    Question (Sir T. Farrer). "So that, while India has been doing much more, Lancashire has been doing more than she did before?"

    Answer. "Yes."

    Q. "Then I will ask you, do the figures [submitted] justify the statement that the present state of things—that is, the fall in exchange—is causing the gradual transfer of the yarn-trade of China to India; that the exports from England have steadily declined since the fall of silver commenced, while those from India have enormously increased?"

    A. "The increase of the imports from India may, indeed, be termed enormous; but it is not correct to say that the exports from England have steadily declined since the fall of silver commenced; and I think that the fall in exchange is not the cause of the improvement in the Indian trade."

    Q. "At any rate, you would not see in these figures any reason for protecting Lancashire against India by a radical alteration of our currency system?"

    A. "No; I should think it as objectionable as allowing any protection of India against Lancashire."

  19. It is curious to note that when the rules regulating the pensions of the Indian Civil Service were established in 1863, the Indian Government stipulated that the rupee should not count for more than two shillings, which had been about its equivalent in sterling from time immemorial, even if at any time exchange on England rose to a higher point (as it actually did at one time, in 1861); but, not expecting that the rupee would ever fall in value to any great extent below 2s., or below that par of exchange, they omitted to provide against it.
  20. "During the last five years Java has been subject to the most fearful natural calamities. They have had a cattle-plague which destroyed almost the whole cattle in parts of the island; they have had cholera; they have had earthquakes of an unprecedented character, and they have had further an extraordinary fall in the values of their principal exports, which are sugar and coffee, owing, in the first place, to the competition of beet-root sugar in Europe; and, in the second place, to the fact that South America has been able to export coffee more favorably than Java; and to this extent we can trace a loss of £5,000,000 annually in these two articles. That has been the result in the last five years of natural causes, without any question of currency at all."—Testimony of Mr. Paul F. Tidman, East India merchant. First Report of the British Gold and Silver Commission, p. 142.
  21. In many of the sugar-producing islands of the West Indies, the greatest number of the separate retail purchases at the established stores do not exceed from two to three cents in value. In the Island of Trinidad, probably 75 per cent of an annual importation of about 22,000,000 pounds of breadstuffs (110,000 barrels) pass into the ownership of the laboring-classes (whose average annual consumption is estimated at 31 pounds per bead), through purchases for cash of quantities rarely exceeding a pound at any one time.

    Corea, a country which until recently has been almost unknown to the civilized world, affords another striking illustration of the principle that the kind of money a people will have and use, if left free to choose, will be determined by the nature of their exchanges, through what may be termed a natural process of evolution, and not by artificial arrangements. Thus, Corea has been proved to be a very poor country; raising little more of any one product than will suffice for home consumption; and with a very restricted internal trade, owing to small production and the lack of facilities for personal intercommunication and product distribution. To a majority of her people a monthly income equivalent to two or three dollars, is represented to be sufficient to meet all their necessities. Yet even under these unfavorable and limited conditions of exchange, money has been found a necessity; and has come into use in Corea, in some unknown manner, in the shape of small metallic coinage—nominally copper, but really a sort of spelter-piece—500 to the dollar. With the opening of the ports of the country, a demand for certain foreign products has been created; and these, when obtained in exchange for hides and gold-dust, are sold to the people in quantities so small, that only coins of the value and character mentioned can be conveniently used as media of exchange—kerosene, for example, being sold by the half-gill, and matches in bunches of a dozen.

  22. "It was from this source that Germany proposed to help herself before it was too late, and thereby array herself in the rank of commercial states which, having large transactions, chose gold, not merely as the most stable in value of the two metals, but as the best medium of exchange for large payments."—Professor Laughlin, History of Bimetallism in the United Stales, p. 135.