Fourth Edition, with New Appendices,
A Study on the Fall of Silver Since 1885, and the
Experience of the United States with Silver Since 1878
To M. M. L.
"Oftentimes have we reflected on a similar abuse
In the choice of men for office, and of coins for common use;
For your old and standard pieces, valued and approved and tried,
Here among the Grecian nations, and in all the world beside,
Recognized in every realm for trusty stamp and pure assay,
Are rejected and abandoned for the trash of yesterday;
For a vile, adulterate issue, drossy, counterfeit and base,
Which the traffic of the city passes current in their place!"
ARISTOPHANES, "Frogs," 891-898, Frere's Translation.
"Whilst each of the two metals was equally a legal tender for debts of any amount, we were subject to a constant change in the principal standard measure of value. It would sometimes be gold, sometimes silver, depending entirely on the variations in the relative value of the two metals; and, at such times, the metal which was not the standard would be melted and withdrawn from circulation, as its value would be greater in bullion than in coin."
Preface to the Fourth Edition
In the second edition, published in 1888, additions were made to the appendices; but no revision of the body of the text was made until 1896.
The demand for this volume in the summer of 1896, when the revision was going on, was such that the publishers issued a third edition with the appendices revised to this year, and a new chapter at the end of Part II (Chapter XIII). The chapters in Part III, relating to the bimetallic history of the United States in the third edition, ended with the year 1886. Additional chapters, covering the story of our silver experiment to its legislative end in 1893, are now presented in this fourth edition (Chapters XV, XVI, and XVII); and the status of our metallic currency is shown, so that the reader may be able to judge intelligently of the wisdom of future proposals in regard to gold and silver. Three new Charts (XVIII, XIX, and XX), illustrative of our monetary history since 1878, are also added to this edition.
It may not be necessary to inform readers again that I have aimed in this book to present only the facts bearing on the experiments of the United States with metallic money. No special attention, therefore, has been devoted to the theory of bimetallism or to the larger principles of money involved in current discussions. In a historical study, such as this aims to be, there is neither space nor propriety for an extended treatment of principles. Hence I do not wish to be regarded as having tried to "settle the money question" merely by this book, even though the facts given must necessarily have an important bearing on the acceptance or rejection of current schemes. In due time I hope to present a careful discussion of the principles of money, and also an examination of the logic and theory of bimetallism.
J. Laurence Laughlin.
THE UNIVERSITY OF CHICAGO,
Preface to the First Edition
Although the plan of this book was conceived with the view of presenting simply a history of bimetallism in the United States, it has been necessary, in the nature of the subject, to make it something more than that. And yet it was my hope that the effect of an historical inquiry in suppressing some of the theoretical vagaries of the day might be realized by showing what our actual experience with bimetallism has been, in contrast with the assertions of some writers as to what it may be. The practical lessons from facts in such a subject are more instructive than the suppositions of theory. That the facts of our experience may be found in these pages in such a way as to enable just conclusions to be drawn by any judicially minded reader has been my aim throughout.
But it has also been necessary, in taking up the history of an economic subject like bimetallism, to deal with some matters of economic principle as well as with the facts to which they are applicable. An economic history could not be otherwise treated. In all such cases, however, I have tried to treat the question without the use of technical language, and in a manner intelligible to the ordinary reader. And yet I have not made this volume a treatise on the theory of bimetallism. The theory has been discussed only so far as the hard facts of our own experience have directly borne upon some part of the theory.
In the pursuit of this object it will be found that there are some portions of the book which, at first glance, may not seem to be relevant to a history of bimetallism in our own country; but I trust that, if they are taken in connection with the thread of the history, they will be found to be absolutely essential to clear conceptions of the causes affecting the relative values of gold and silver. There are two illustrations of this method which will convey my meaning, and which have been put forward as important, even if they are somewhat new. The first is the extraordinary production of silver beginning near the close of the last century, and which I must consider as momentous as the well-known production of silver soon after the discovery of America. In order to discuss the effect of this surplus silver on the values of the precious metals, it was necessary to furnish the materials for comparison in other and earlier periods. This is the occasion for Charts IV, V, and VI. In truth, I think sufficient attention has not been paid to this part of the history of the precious metals by our writers. The second illustration, to which I wish to call attention, is the explanation in the chapters of Part II of the cause of the late fall in the value of silver. I can not but believe that the discussion as to the cause hitherto has been partial, disjointed, and unhistorical. I have made an attempt to supply what seemed to me a more rational explanation; and, if this explanation is accepted, it must materially alter the policy of the United States in regard to the coinage of silver. Our present attitude is utterly unjustifiable.
The explanation of the late fall in the value of silver, however, is intimately connected, to my mind, with an argument commonly heard, and urged with great ability and learning, in favor of bimetallism—the argument that gold has appreciated, and that there is not enough to satisfy the needs of trade. This position has been maintained, among others, by Mr. Goschen and Mr. Giffen in England, and by several writers and speakers in this country. I feel that this argument should not be passed by without pointing out an economic fallacy in it. The "appreciation of gold" is spoken of as if a change in the purchasing power of gold were a direct proof of the abundance or scarcity of gold. Nothing is more common than the presentation of tables of falling prices, and a conclusion drawn from the figures that gold has "appreciated." It is perfectly true that, as prices fall, a gold dollar buys more of commodities, and in this sense, that the gold coin has appreciated in value. But in all such arguments the implication is conveyed that this increased purchasing power of gold, when prices fall, is due to a diminishing supply of gold (or to an increased demand for it). This, I contend, is a complete non sequitur. When prices fell after the panic of 1857 the gold dollar bought perhaps seventeen per cent more than before the disturbance; but every one knows that the gold supply was increasing in an untold quantity. And yet the gold dollar had as certainly "appreciated" as it has since 1873. This makes it necessary to say that no direct inference whatever can be drawn from tables of prices as to the quantity of gold in existence at a given time. All economists know that prices are affected by purchasing power of any kind; that purchasing power, or demand for goods, comes not merely from the actual amount of money in the hands of the public, but also from the amount of credit used; and that the rapid use of money, banking devices, paper money, credit-substitutes for gold and silver, checks, drafts, and book-credits, all go to increase the demand for goods, if offered, and so act to increase prices. So that, even if the supply of metallic money were to remain exactly the same, prices might vary, owing to changes in the other factor affecting prices, namely, credit. Since 1873 a great collapse of credit and confidence has occurred; and it can not be argued logically that, therefore, because prices have fallen, gold is becoming scarce. It may, or may not, be true that gold is scarce, but it is not proved solely because prices have fallen.
Moreover, even if credit and the supply of money had remained exactly the same, the purchasing power of gold might have increased. The value of gold increases if its power to purchase other commodities increases; and if diminishing rates for transportation, new and improved processes of manufacture, the introduction of labor-saving machinery, the opening up of fertile agricultural lands, take place, as they have taken place on an extraordinary scale in late years, the prices of all articles exchanged against gold must fall—and fall, too, without implying any change whatever in the existing quantity of gold. That is, the purchasing power of gold may increase solely because of changes affecting the articles against which the gold is exchanged. In this way, if "appreciation of gold" means an increase of its purchasing power, then gold has "appreciated"; but that is nothing new. In fact, changes in the value of gold are constantly taking place. After any disturbance of trade, gold, or any money (not merely gold alone), "appreciates." And it is fallacious to connect with the words "appreciation" of gold any inference whatever as to its scarcity.
In order to prove that gold has increased in value from causes affecting the quantity alone, the onus probandi lies on any one to show that no changes have taken place in any of the uses of credit in any of its forms, that no changes have taken place in the cost of production of the commodities in the list whose prices may be given, and, after all this allowance has been made, it must be shown that gold prices have fallen. I do not believe any human being is capable of carrying on such an investigation. No one, in the nature of things, can know what changes are going on in all the articles exchangeable for gold.
I have also wondered why bimetallism should have drawn so much attention when its whole economic purpose may be accomplished in a more certain and effective way by the multiple standard. Money has three chief functions to perform: as a medium of exchange (to transfer value), as a common denominator of value (to compare values), and as a standard of deferred payments. Now, bimetallism is concerned mainly with this last function. Its chief end is to secure, as its advocates claim, a less changeable standard for paying long contracts; and to accomplish this an international league is indispensable to even a shadow of success (even if this could cause success). But, as we have found out by the monetary conferences of 1878 and 1881, this is a very difficult end to accomplish. Now, the same object can be attained by the separate action of individual states, irrespective of the action of others, by creating a legal unit of payment derived from the prices of a sufficient number of staple articles. By this means a long contract would be paid at its maturity with exactly the same purchasing power which was borrowed at the beginning. In brief, the multiple standard would take away all reason for bimetallism. The avocation of the bimetallist would be gone.
J. Laurence Laughlin.
HARVARD UNIVERSITY, CAMBRIDGE, MASS.