What shall we do with silver?

What shall we do with silver?
by Roger Q. Mills

OCR from [1]. The North American Review. / Volume 150, Issue 402. Publisher: University of Northern Iowa Publication. Date: May 1890. City: Cedar Falls, Iowa, etc.


The function of money, whether of gold, silver, paper, or other material, is to measure the value of things to be exchanged, to aid in effecting exchange, and to pay debts. The value of everything to be exchanged is fixed by the amount of money in actual circulation. This is not the amount in the country, but that part of it which is used in transacting the daily business of the country. We now have in the United States over two thousand one hundred millions of dollars. Over seven hundred millions of this is locked up in the vaults of the Treasury. It has no more influence upon the exchanges of the country than if it were buried in the earth. A very large part of the fourteen hundred millions outside the Treasury never enters the markets, and exerts no influence on the prices of articles seeking exchange. If the amount of actual circulation is small compared with the business to be done, prices will be low; if the condition is reversed, they will be high.

Before we decide that our circulation shall be increased by adding silver to the present volume, we must determine whether it will promote the general prosperity to have high prices. Some persons are easily alarmed by the danger of inflation; but the increase of the circulation by any addition of gold and silver cannot produce inflation. It is permanent, not vacillating. It is not, like paper money, suspended in the air—money which sooner or later must collapse and bring disaster to the whole country. But a paper circulation is never dangerous when it is interchangeable with gold and silver over every counter and at the will of every holder. It is this interchangeability that anchors it sure and steadfast. It is only dangerous when its anchor-hold on gold and silver slips, and the balloon ascends in the air, taking the business of the country with it. Sooner or later it must come down, and bring sacrifices in its train. The business of the country follows its downward movement, and only realizes a sense of security when it touches the bed-rock of gold and silver.

It is as rational to fear the inflation of food and clothing as of gold and silver. Like all other products of labor, they have a commercial value fixed by the unerring law of demand and supply. The paper which is made the representative of a dollar has no value except that given to it by legislation, and that is confined within the jurisdiction of the country where it is made. On the contrary, the value of gold and silver is fixed by the demand and supply of the world, and is the same all over the world, when not interfered with by legislation. There can, therefore, be no danger to the country in any increase of either or both of the precious metals.

There is a class in all countries which is interested in keeping the volume of money of all kinds below the demands of business, because that makes the price of money high and the price of labor and its products low. This is a comparatively small class, who live on fixed incomes, who do not engage in business, but, like drones, live on the labor of others. But every person who lives by labor in any department, who is carrying on any kind of business, large or small, is aided by every increase in the gold and silver circulation of the country. Every addition to the volume increases the supply, lowers the price of money, and raises the price of labor and its products. As prices of commodities rise, exchanges become active and all branches of business become prosperous. Then idle money comes from its hiding-places, enters the channels of circulation, and actively seeks investment. Its owners, like all other persons, desire to make profit, and when they see prices rising they buy today to sell for the higher price of to-morrow.

This demand is not confined to the things already produced, but it causes the making of more. It stimulates production, transportation, and consumption, and it infuses new life into every department of business. It makes more demand for the employment of labor; that increases the wages of labor, and that, again, increases the distribution of the wealth created by labor; and that increased distribution enables each one of the many millions of toilers to satisfy more of his own wants by his own labor; and in purchasing the things that satisfy his wants he, in turn, gives more employment to his fellow-laborers.

High prices are a centrifugal force that throws out and distributes the wealth of the country among the laborers who produce it. Low prices are a centripetal force that concentrates the wealth of the country in the coffers of the large capitalists who live on bonds and stocks and fixed incomes. High prices build more railroads, erect and operate more factories, establish more banking-houses, build more hotels, move and sell more goods, feed more months, and clothe more backs. High prices make it easier to pay taxes to national, State, and local governments; for the demands of government are for so many dollars for annual support, and if increased prices bring excess of revenue, the tax-rate will be reduced. High prices lessen the burden of debt, and make easier the payment of principal and interest; and this is one of the most important features of the subject.

A vast volume of the business of the world is done on credit. The national debts exceed thirty thousand millions of dollars. No one can tell the amount of private debts, but it must be much in excess of that sum, large as it is. If sixty thousand millions be taken as the public and private debts of the world, the annual interest at 5 per cent. would require the sum of three thousand millions, and to pay it would require the labor of ten millions of men working 300 days in each year at one dollar per day. The burden of the principal of the debt is made to rest more lightly upon the country when prices are high and money is cheap. It requires less labor and property to pay at high, and more at low, prices.

Now let us reverse the condition, decrease the circulation, and lower prices, and see what the effects will be on the business of the country. When prices are low, it is because there is little demand for the products of labor, and the decreased demand is the result of the want of money with which to purchase and pay. Those who have money hoarded will not buy to sell again in a falling market. If the things cannot be sold, then production will be limited or stopped altogether. This throws labor out of employment, not only in production, but in transportation. The millions who live by labor can buy but little because they have little with which to pay. The car of progress slows up and the hum of industry grows faint. No one will invest in that which will be worth less to-morrow than it is to-day. As there is little demand for the products of labor, the production must decrease to conform to the decreased demand. Employment must be restricted, wages must be reduced, and transportation and every form of exchange must shrink with a shrinking circulation. There must be less employment on the farm, less employment in the factories and forests, less employment in the mines, less employment on the lines of transportation, less employment of merchants and middlemen, less increase and distribution of the things which are necessary to the comfort and subsistence of the human family.

When prices are so low that products cannot pay the cost of transportation to the consumer and be sold for enough to pay the cost of expenses, then a farmer in Kansas may freeze for want of coal to burn, and at the same time a miner in Pennsylvania may starve for want of bread to eat. The miner would be glad to exchange his coal for corn, and the farmer his corn for coal; but the low prices of the products make it impossible to overcome the obstructions in the way of exchange. If it were in the power of the government or of the man to restrict the wants of the body for food, clothing, and shelter, then we might accommodate ourselves to the restricted condition of the circulation without enduring the privations and sufferings which it entails; but that is not within the range of human power.

These things are indispensable to human existence, and we must have them or perish. If from want of sufficient employment we are not able to obtain a sufficient amount of the necessaries of life to make us comfortable, but only enough for a meagre subsistence, then we may continue to exist, but it will be an existence in daily contact and companionship with hunger and want. The things that satisfy human want must be procured by labor, and transported from producer to consumer by the vehicles of exchange. Labor without exchange is insufficient, because no one can satisfy all his own wants by his own labor. He must have the means of reaching his fellow-laborers and exchanging services with them. He must have railroads, steamships, steamboats, wagons, drays, merchants, bankers, bills of exchange, gold, and silver. The more of these agencies of commerce a country has, the easier will be its exchanges; and the fewer it has, the slower, the more expensive and difficult the exchange becomes.

If it is wise statesmanship to decrease the volume of money, it is equally wise to decrease the railroads, steamships, and all other agencies of commercial exchange. If it is wise to stop the coinage of silver, it is wise to stop building railroads, organizing banks, and issuing bills of exchange. The converse is equally true: if it is good policy to construct more railroads, build more steamships, organize more banks and clearing-houses, and make exchanges cheaper, quicker, and easier, then it is good policy to coin more gold and silver. All of these instruments of exchange stand upon the same footing; and there can be no more wisdom in fixing a limit to the money of the world than there can be in prescribing a limit to the employment of its labor, the movement of its products, or the multiplication of its vehicles of exchange. Money is a more subtle and potent factor in exchange than either of the others. Without it the value of each commodity to be exchanged would have to be measured by another commodity, and the adjustment would have to be made between new parties every time the article changed hands. Money, therefore, levels a vast field of obstructions over which commerce is to move, and, having done that, it enters the list with other agencies and powerfully aids in carrying and distributing throughout the world the products of labor, and delivering to each one at his own door the things that his wants demand.

If these positions are true,—and they cannot be assailed,—why should we keep our mints closed against the coinage of silver? Why should we not open the doors to the unlimited coinage of both gold and silver? They have both been the money of all civilized peoples in all ages of the world. And they have been the money of the world because they are perfectly adapted to the work which money alone can do. No other metals have ever been discovered by man that can supply their places. After thousands of years they still retain their places without a challenge. Some nations have one for their standard; some have the other; but both are used in every country on the globe where civilization has a seat. England has gold for her standard, but she has a large stock of silver for subsidiary coinage, which is in daily use among her people. India has the silver standard, but she uses gold, too, to a limited extent; and as the English population of India increases, doubtless the use of gold will increase with it.

Different countries fix the relative value of the two metals at different ratios. England has one ratio; France another; the United States yet another. All these are so many obstructions to exchange, and, therefore, hindrances to the prosperity of all. If the peoples who are carrying on the vast exchanges of the world would, by agreement, fix the relative values of silver and gold at 15 or 15.50 or 16 to 1, these values would remain fixed and invariable throughout the world. But, unfortunately for the welfare of mankind, those who own the money of the world and who desire to keep it as dear, and labor and its products as cheap, as possible, have now, and have had in the past, too strong a hold on the governments of the world to permit that to be done, if it is possible for them to prevent it.

After the opening of the gold mines of California and Australia, with the large amount of gold they poured into the markets of the world, this same class demanded the closing of the mints against that metal, and wished to make the money of the world stand upon silver because it was the scarcer metal. Belgium made silver the single standard in 1850, and the German states and Austria in 1857. The movement for the demonetization of gold was arrested by the opposition of France. In the course of a decade the two metals changed positions, and the financial philosophers of the world changed with them. By 1865 gold had declined, and silver was the metal of the larger production, and the movement was set on foot to close the mints against it to prevent the consequent rise in the prices of labor and its products. In that year the Latin Union was formed, and Belgium, Italy, and Switzerland declared for the gold standard. In 1873 Germany and the United States joined the crusade; the next year they were followed by the Scandinavian states; and by 1875 the mints of France, Belgium, Italy, Switzerland, Holland, Germany, Spain, and the United States were closed to silver. This cut off a large part of the demand for its consumption, at a time when the mines were pouring an extraordinarily large product upon the market. Any one could foresee the result: silver must fall and gold must rise. The labor of the world was paralyzed in order to raise the price of gold to the small, but powerful, class who lived on incomes.

As there is no prospect that we shall at any time in the near future have the aid of any of the European powers to accomplish this beneficent reform, it becomes necessary for us to examine the subject closely and ascertain if we cannot, without their coöperation, put the silver of the world into its monetary circulation. The mints of the commercial world being practically closed against silver and the annual output still being large, its price is greatly reduced below the standard of 1870, when it began to decline. The demand for its consumption in the arts and for limited coinage does not keep pace with its production, and it is still declining when it is measured by gold. Whether it is keeping pace in its decline with other commodities, or is decreasing faster, is a mooted question. In each year since 1870 its price has been below that in the preceding year.

How may we bring the two metals together, keep them together, and make them one money throughout the world? We cannot do it by coining at different ratios, with all obstructions removed. Each country by that method will keep the metal which it values the more highly, and lose that which it values lower. If Europe should open her mints tomorrow to the unlimited coinage of silver at the values established by her laws, and we should do the same, we should lose all our silver in a short time, and she would lose her gold. This she will not do, and we can safely open our mints to the unlimited coinage of silver at our established ratio as long as she keeps hers closed. Should we open our mints to-morrow to unlimited coinage, silver would rise at once to 15.98 for 1. That being a higher price than it could find elsewhere in the world, it would come here to be coined, and remain here after it was coined. The pure silver contained in our standard dollar is worth, outside of the mint, seventy-two cents; it would then be worth one hundred cents in gold. The cause that has depressed all the products of American labor is the closing the markets of the world against them, and it is precisely the same cause which has depressed the price of silver. The way to restore both is to reopen the markets to both. While we cannot, without the coöperation of other governments, wholly restore them, we can very materially benefit them. In doing so we can restore prosperity to our people, and we should not hesitate to do it.

The world’s production of silver for the year 1888 was $142,000,000. For the last fifteen years the average is about $100,000,000. Our part of that product is about $50,000,000, and we coin about half of that amount. The remainder of the world’s product depends for its consumption on the limited coinage of other countries and the use of silver in the arts. India takes for her mints about $45,000,000 per annum. That amount, or more, is consumed in the arts and mints of all other countries. So that if we opened our mints to the unlimited coinage of all silver, we could not get more than $75,000,000, and our annual coinage would come nearer $50,000,000. We should at once remove all restrictions and replenish our circulation. As we cannot induce the commercial people of Europe to join us in establishing a uniform relation, we can, at least, conform to that already established by the chief silver-using countries of Europe. These countries have adopted the relation of 15.50 to 1, and by changing ours from 15.98 to 15.50 we can prevent the exodus of our silver in case the mints of the Latin Union should be reopened, which may be done in the future.

If we should open our mints to unlimited coinage at our present ratio and continue it for some years, and get a large stock of silver on hand, and then the mints in Europe should open at their ratio, we should soon lose our whole stock. An ounce of gold would buy more silver here than it would in Europe, and a large profit could be made by exporting European gold to us and buying silver with it and importing it into Europe. When we began coining silver in 1792, we established the ratio of 15 to 1. The result was that Europe got our gold and we got her silver, because we gave more for silver and she gave more for gold. Gold would pay more debts and buy more commodities in Europe than it would here, and it went there; while silver would pay more debts and buy more commodities here, and it came here. So we had, in fact, a silver-standard country prior to 1834, when, to prevent the exodus of gold, the relative values of the two metals were changed from 15 to 1 to 15.98 to 1, while the silver-using countries of Europe continued to coin at 15.50 to 1.

Instead of retaining both metals in our circulation, as it was intended to do, we got just as far from it as we were before. The only difference was that after 1834 we exchanged our silver for European gold. Our silver dollar soon rose to a premium over the gold dollar, and it was worth four cents more in Europe than it was at home. These coins were all leaving the country, and it was only a question of time when they would all be gone. To prevent this, Congress in 1853 provided for the coinage of fractional silver at the ratio of 14.95 to 1, and then the coinage was limited so that only sixty millions of dollars were coined between 1853 and 1873, while our mines turned out three times that amount during the same period. If we had permitted our mints to coin without limit all the silver brought to them, as we did the gold, we should have driven away our gold coins as we had done previously to 1834. In order, therefore, to keep some silver in the country to meet the demands of smaller exchanges, the coinage was limited in amount, so that silver could not compete with gold for the circulation, but would occupy toward it a subsidiary position.

During the entire period from 1853 to the passage of the Limited-Coinage Act of February 28, 1878, we had only coined about ninety-five millions of subsidiary silver, while we had coined more than ten times that amount in gold. Since 1878 we have had a limited coinage of silver of two millions per month, from which we have now in the country $426,000,000. During the last thirty-seven years we have taken from our mints more than $800,000,000, the greater part of which had to be exported to foreign countries, instead of being thrown into the volume of our home circulation. Why should we not have had the whole product of our mines added to our stock? Why should we not begin now, and open our mints to the silver of the world? What injury could possibly result from such a measure?

It is said by some that, if we open our mints to unlimited coinage, we shall be flooded with the cheap silver of the whole world. Unfortunately for the country, there is no danger of such a boon. The only cheap silver in the world is the uncoined and unwrought silver—the “raw material” just from the mines. There is not enough of that to submerge us with its incalculable blessings; but there is enough to contribute very materially to our improvement.

Scarcely anything could be a greater boon to our country and to mankind than a cheapening of gold and silver; and this to some extent we have it in our power to accomplish. The average annual supply of gold for the world during the last fifteen years is $104,000,000, and that of silver $100,000,000. If the whole $200,000,000 were added to the monetary circulation of the world, it would not be sufficient to keep pace with the increased production and exchanges of the world. As the increase in the volume of money falls behind the increase in the products of labor to be exchanged by it, it becomes dearer and the products become cheaper. It requires more of the products of labor to pay debts and taxes; the burden of debt and governmental support grows heavier, and the struggle of the debtor and taxpayer grows harder. As money becomes scarcer, it appreciates in value; it will buy more labor and its products, and the creditor grows richer, while the debtor and laborer grow poorer. If the policy that demands a shrunken circulation is carried to its extreme, and money is made so scarce that labor and its products are depreciated to nothing in value, then the debtor, the laborer, and the whole country with them are dragged down to ruin. If the other extreme is reached, as can only be done by discarding gold and silver and placing the whole business of the country on the wings of an unlimited volume of paper money,—then all debts are practically confiscated, creditors are ruined, public confidence is destroyed, and all departments of business are paralyzed. The only safe course is to cling to gold and silver—not a part of them, but all of them—and to bind our paper circulation by indissoluble bonds to them, so that it can never get beyond the reach of redemption.

But let us see where that vast volume of silver is that is to be precipitated on ns like an avalanche when we open our mints. The coined silver of the world, outside the United States, is of the value in our money of $2,337,000,000, of which amount Mexico has $48,000,000; Japan, $49,000,000; Belgium, $48,000,000; Italy, $20,000,000; Switzerland, $14,000,000; Austria-Hungary, $75,000,000; Spain, $83,000,000; France, $646,000,000, and India, $1,352,000,000. This is the supply with which we are threatened if we open our mints to unlimited coinage. This large stock of silver, when it passes the boundary of its own country, ceases to be money and becomes a commodity. It ceases to carry with it the value given to it by law, and only retains the value given to it by commerce. It is worth to-day seventy-two cents in the dollar in the open markets of the world, while it is worth at home more than one hundred cents to the dollar. The 371¼ grains of fine silver which are required to coin our standard dollar, and into which the imported silver would be coined, are worth here 23.22 grains of fine gold, which is our gold dollar. That is equal to 15.98 grains of silver to 1 grain of gold.

Now, France has 3,250,000,000 francs in silver, which is worth within her jurisdiction $646,695,000 in gold, at her ratio of 15.50 to 1. If that were sent here and coined at our mints at our ratio of 15.98 to 1, it would be worth $627,250,000, which would be at a loss to her of more than $19,000,000. And if our government should buy it at the market price for silver, seventy-two cents in the dollar, France would realize $478,820,000 for her stock worth at home $646,695,000! She would lose, by “flooding” us with her “cheap” silver, $167,000,000. Belgium, Italy, Switzerland, and Spain, which coin at the same ratio, would sustain a corresponding loss on their silver. India, which coins at 15 to 1, has a stock of silver worth at home $1,352,000,000, and worth at our ratio $1,269,000,000. If she should attempt to flood us with her silver, it would be at a loss to her of $83,000,000. If we should buy her silver at the market price in gold to-day, it would be at a loss to her of $350,000,000. It is evident from this plain statement that no country whose silver is coined at a ratio higher than 15.98 can export it to us. Japan coins at 16.18 and Mexico at 16.50. They have, together, a stock of silver amounting to $98,000,000, which would be worth in our coin $100,000,000. It is possible that they would get that amount of our gold for their silver. But it is beyond the region of possibility that the coined silver of other countries would come to the United States.

Where, then, are we to get the large importation of silver with which we are threatened? There is a considerable stock in the arts. Its amount cannot even be approximated; but it is far more valuable than the coined silver, and it would be a still greater loss to melt it down and send it to us to be coined into dollars. All of it is worth more than one hundred cents per 371¼ grains, and much of it is five times as valuable. In the arts its value is enhanced by the amount of skilled labor bestowed upon it. That would all be lost in coining it into money.

Then there is no silver that could come to us except from the annual product of the mines. That for the year 1888 was $142,000,000 for the whole world, of which India took $46,000,000; and as she coins at a higher ratio than we do, she will always get what she wants for her annual supply before we get any. For several years her annual average consumption of the world’s product has been about $45,000,000. This would leave, in round numbers, $100,000,000 to supply the demand in the arts, and the demand of other countries for subsidiary coinage, before we could be supplied. Our share at best could not exceed $75,000,000, and would be nearer $50,000,000. It would be far better for us and for the world if the amount were doubled. With the whole amount of gold and silver which we could add to our coinage, we could not have enough to keep abreast of our industrial development.

The only danger that would menace us, if we should open our mints to the unlimited coinage of silver, would be that which menaces us now; and that is such a loss of our silver as occurred after 1850, when silver at our ratio began to rise in value over gold. It left us then, when the mints of Europe were open for silver coinage; and when they open again, the same result will follow, and we shall lose our entire stock of full-weight silver. We should take steps at once to prevent that; and the way to do it is to change our ratio from 15.98 to 15.50, and make it conform to that of the silver countries of Europe. We should coin our standard dollar with the same amount of fine silver that is now contained in two half-dollars, and fractional coins in the same proportion—that is, 347.22 grains of fine silver, or 385.8 grains of standard silver. This is precisely the amount of fine silver in the five-franc piece of the Latin Union. It is the fineness of the rix dollar of the Netherlands, of the five-peseta piece of Spain, of the pesos of the Central American states, of the Argentine Republic, of Bolivia, of Ecuador, of Peru, and of Venezuela. To do this and retain the ratio of 15.50 to 1, we must decrease the fine gold in our dollar to 22.43 grains and the standard weight to 24.90. Having done this, if all the mints were opened in all these countries, there would be no disturbance of our monetary circulation. Our silver would be worth no more in Europe than it is at home, and our gold would be worth no less. The value of each would be precisely the same at home and abroad, and nothing could be accomplished by the importation or exportation of either.

If we open our mints now and coin without limit, or continue to coin with a limit at our present ratio, we shall lose our entire stock of standard silver whenever the European mints shall open. They will then take our silver and we shall take their gold. It may be asked, What objection could there be to such an exchange? The answer is, It would deprive us of the use of a money for small exchanges. It would be giving up a great convenience. It would be a calamity to the world if the whole stock of silver were converted into gold, or that of gold into silver. Gold is adapted to large transactions; silver to small. When values are to be exchanged which amount to thousands and millions, told is the convenient money; but for the tens of thousands of small transactions that are daily occurring outside the banking circle silver is the convenient coin. In the growth of our civilization and business, we have found that convenience has forced ns to adopt the paper dollar, as well as the metal dollar, and even in the fractional money it is a mooted question if it was not a step backward when we dispensed with the paper half- and quarter-dollar.

There can hardly be a surer test of the civilization of a people than that which is shown in their facilities and conveniences for transacting their daily business. In that respect we are ahead of all others, not only in the amount of trade carried on among ourselves, but in the means which we have created for its easy and expeditious movement. To keep the primacy which we now hold, we must retain all the means now employed and grasp all others within our reach. We must not only keep our present mileage of railroads and telegraphs, but build more; not only keep all our present vehicles of transportation, but increase them. As our population increases and its labor multiplies its products for exchange, all the means for effecting that exchange must keep pace with the national growth; and it is just as essential to the national prosperity that our circulation should increase as it is that railroads, telegraphs, steamships, and wagons should. To close the doors even partially against either gold or silver is a step backward: to throw them wide for both is to advance forward.

It would be an additional convenience to the people, and further increase the facilities for the movement of our products to their markets, if the government should authorize the Treasury Department to receive the bullion and coin of both metals and issue to the depositors, in exchange, coin notes invested with the same money functions as the gold and silver dollars, and redeemable in coin at the pleasure of the holders.

It has been very earnestly argued that, if we open our mints to the unlimited coinage of silver, all our gold coins would leave us. In fact, this was predicted, prior to the act of February 28, 1878, as an inevitable result of a limited coinage of two millions per month. We had in 1877, before we began the limited coinage of silver, $167,000,000 of gold coinage in the United States. Instead of that leaving the country, the Director of the Mint informs us that we have now $622,000,000. We had on the 1st of January, 1878, $65,000,000 of silver coins in the United States, and we now have $426,000,000. Neither has driven the other out. Gold remains here because it has a higher commercial value than it has elsewhere, and our coined silver remains here because it has a legal value higher than the commercial value in the open market elsewhere, and because the mints which give it higher commercial value are closed against it.

If our gold leaves the country, it is important to understand what we are to receive in exchange for it. We have seen that it is impossible to obtain the silver of the world, except the raw material, and of that we are the largest exporters at present; but when our mints are opened, we shall cease to export, and the small part we should receive of the product of other countries must be paid for in something that is cheaper here than abroad. But that is not gold. So gold cannot go for silver, either coined, in the arts, or the raw material. Gold is guided in its movements like all other things that have exchangeable value. It goes from the market where it is cheapest to the market where it is dearest. Gold cannot leave us to be exchanged for cotton, breadstuffs, and provisions, for they are cheaper here than in any other country, and could only be imported at a loss.

Then for what can gold be exchanged? Only for such things as can be produced cheaper in other countries than here, or such things as cannot be produced here at all, or if at all, not in sufficient quantities to supply the demand—such as coffee, tea, sugar, and some other products of manufacture. But for these we export cotton, breadstuffs, and provisions, which are cheaper than gold, and which must go to foreign markets or be a total loss to the producers. Gold, by an inexorable law, has remained here with the limited, and by the same law it will remain with the unlimited, coinage of silver.

Roger Q. Mills.