THE UNITED STATES, 1792-1873
Part I, Chapter I
The Arguments of Bimetallists and Monometallists
§ 1. The conflicting opinions of the day in regard to the adoption of bimetallism by the United States, and the disregard of the facts within our own experience, make it desirable that these facts should be investigated historically, and the results presented in a simple form for general use. Monetary science, moreover, will gain by any honest attempt to collect accurate data which may serve in the process of verification of economic principles, enabling us either to confirm the truth of previous conclusions, or to demonstrate their divergence from actual facts. In a monetary investigation of this kind induction is our main dependence; here, in truth, as we seek the means for verification, is the proper field for the historical method.
In order, however, to place the present history in its proper light—in order that it may bear to some purpose on the bimetallic discussion—it has seemed fit to give a very brief résumé of the main arguments of both parties to the controversy.
§ 2. I. BIMETALLISM has been proposed under two such widely differing conditions that the following general division of arguments may properly be adopted:
A. National Bimetallism.
B. International Bimetallism.
(A.) (1) The selection of both gold and silver by an individual state as legal payment of debts to any amount at a ratio fixed without regard to the legal ratios of other states may be defined as national bimetallism. An example is the proposal for free silver coinage in the United States, where, although no other country of importance has the same ratio (and although the legal ratio does not correspond with the market value of the two metals), we have a proportion of 1:16. Such a system is not upheld by any economic writer of repute. Whenever it is advocated in the United States (2) it has been urged from a strong belief that, if we do not use silver, there will not be enough of the precious metals in existence to perform the exchanges; or (3) with the expectation of inducing other countries to adopt bimetallism; (4) or to sustain the price of silver; (5) or to force the cheaper metal into use as an easy means of scaling debts and of relieving debtors of a part of their burdens. The theories of national bimetallism, as thus advocated, are widely different from the tenets of another school of writers, who are also known as bimetallists.
(B.) An agreement between the chief commercial nations of the world on one given ratio (e.g., 15½:1) would, in the opinion of this other school, keep the value of silver relatively to gold invariable, and so cause the concurrent use of both metals in all the countries of such a league. This may be termed international bimetallism, to distinguish it from the other body of theories. (6) The essential part of this theory is that the legal provision for the use of silver in the coinage of each state creates a demand for silver; and that, inasmuch as other states of the league have the same ratio, no reason could exist why either silver or gold should leave one country for another. (7) In close connection with this argument it is urged that the "compensatory action" of a double standard will prevent that extreme fluctuation of the standard of prices which is made possible by a single standard; since, as prices follow the metal which is for the time the cheaper, the latter will feel a demand just in proportion as the other metal loses it. (8) The desire to use gold, it is held, should be discountenanced, as tending not only to lower the value of silver, but to concentrate the monetary demand of the whole civilized world upon gold; and that, as its quantity would be alone insufficient for the needs of commerce, the value of gold must increase, and the prices of all things diminish, to the great discouragement of business enterprise. There would be a "gold famine" the effects of which would be intolerable. (9) This same school also present very strongly the opinion that the general demonetization of silver would so increase the value of gold, and the value of the unit in which the enormous public debts of the world must be paid, that it would entail a heavy loss to the taxpayers.
(10) )ther writers, still, urge that the two precious metals were designed by a Higher Power as media of exchange, and that it is a mistake arbitrarily to set up one of them as a standard by which other commodities are to be measured, and to discard the other.
§ 3. II. MONOMETALLISM is not a belief in the sole use of gold. Its advocates regard gold as the least variable of the two metals, as best suited for large payments; and believe that silver, as a heavier and cheaper metal, should also be used for smaller payments, but not as all unlimited legal tender. (1) Monometallists hold that "national bimetallism" is an impossibility for any length of time, since, as soon as one metal in the market falls slightly below the legal ratio, the other metal will be driven out of circulation, and the country will really have only a succession of single standards, alternating between gold and silver. (2) They believe that one country alone can not hold up the value of silver against the tendencies of many countries to disuse it; and if it should try, the holders of silver bullion would gain at the expense of the single country, which is sacrificing itself by buying silver which will depreciate on its hands; (3) that, if it is an object of the United States to induce other countries to join us in a league, we can best force that policy on them by withdrawing from our isolated and unsupported position until the others manifest a disposition to join us; (4) and that the movement to force silver upon the United states at the present ratio of 1:16 is a disguised form of the policy which a few years ago led to the "greenback" heresy, and is intended to favor owners of silver mines, and dishonest debtors who wish a cheaper unit of payment, at the expense of national honor and credit.
It would be hard to say what the monometallists hold in regard to international bimetallism, since it is largely a matter of theory and of future potentiality. Monometallists do not—as is so often said—believe that gold remains absolutely stable in value. They hold that there is no such thing as "a standard of value" for future payments in either gold or silver, which remains absolutely invariable; but that, so long as we must use one of the two, gold is preferable, inasmuch as it has proved in the past more steady in value than silver. (5) They admit that a general agreement of states to coin silver at a ratio higher than the present market value would have an effect to raise its value; but, while it is extremely doubtful whether this league could overcome natural forces, it is denied that such a league is politically possible, and the experience of the conferences of 1878 and 1881 is cited to show it. (6) As regards the "compensatory action" of a double standard, it is denied that this can act without alternately changing the standard from a single standard of gold to a single standard of silver—and this is not regarded as a "double standard." There can be no "compensation " except as one metal drives out the other. While it may prevent extreme fluctuations of the standard of prices, it brings more frequent fluctuations, each of which is sufficient to drive one metal out of circulation. (7) The tendency to disuse silver is, they claim, due to natural causes affecting the demand, and the legislation hostile to silver but registers the wishes of commerce. (8) The fall of prices since 1873 is used to prove an appreciation of gold; but it is denied that prices depend directly on the quantity of money, and that it can not be said that because prices fall money has appreciated. The fall of prices, used to indicate an increase in the value of gold, is found to depend quite as much on a collapse of credit, and lessened cost of production of the commodities against which gold is exchanged, as on any relative scarcity of gold. (9) As regards national debts, it is distinctly averred that neither gold nor silver forms a just measure of deferred payments, and that if justice in long contracts is sought for, we should not seek it by the doubtful and untried expedient of international bimetallism, but by the clear and certain method of a multiple standard, a unit based upon the selling prices of a number of articles of general consumption. A long contract would thereby be paid at its maturity by the same purchasing power as was given in the beginning.
(10) Far from being true that the value of any metal is providentially fixed, it depends, on the contrary, on the power of that metal to satisfy the demands of commerce as an artificial medium of exchange to save us from barter; as countries grow in wealth, it is found that, as an historical fact, commercial centers, where transactions are large, prefer gold to silver; consequently, the value of a metal, merely as affected by its demand, can not remain the same. Moreover, the supply of a metal can very seriously disturb its permanent value. No commodity, not even gold, has any sacerdotal qualities which beep its value invariable.
§ 4. In regard to some of the above differences of opinion, the history of bimetallism in the United States will, in my opinion, give such teaching as ought to settle all cavil or dispute. The experience of this country has been unique. No experiment of bimetallism has ever been inaugurated under circumstances more favorable for its success; and no hostility or suspicion attended its progress. No fairer field for its trial could have been found; and its progress under such conditions makes its history peculiarly instructive. We have had in this country a legal and nominal double standard from the establishment of the Mint in 1792 to the present day, with the exception of the years between 1873 and 1878; and in this period of about ninety years we have had almost every possible experience with our system. Has it proved a success in the past? What lessons does it offer for the future?
It will be remembered that the question of bimetallism has been actively discussed only since the great fall of silver in 1876, and that great animation and warmth have been shown both by its friends and foes. An experience of bimetallism, therefore, under no attacks and under friendly auspices, during the years preceding 1876, for more than three quarters of a century, ought to furnish us lessons which we can readily accept, because they are drawn from results caused by normal conditions, and not vitiated by any suspicion of prejudice against silver. A ship which had proved unseaworthy in fair weather would not be a secure refuge in stormy seasons. Has our system proved successful under these fair and normal conditions?
§ 5. In detailing the events of our history in the following pages it will be found convenient to divide the time into certain periods, distinguished by important legislation and by the consequent effects:
I. Silver period, 1792-1834.
II. Gold period, 1834-1853.
III. Gold period, 1853-1873.
IV. Single gold standard, 1873-1878.
V. Transition period, 1878-1893.
Part I will include the first three periods, from 1792 to 1873; Part II will offer a statement of the antecedent facts, and an explanation, of the late extraordinary fall in the valve of silver, which was most marked in 1876; and Part III will include the history of the periods in the United States from 1873 to the present day, with a statement of the present situation.