The History of Bimetallism in the United States

§ 1. The gold discoveries of California and Australia were directly the cause of the Latin Union. It will be remembered that in 1853, when the subsidiary silver of the United States had disappeared before the cheapened gold, we reduced the quantity of silver in the small coins sufficiently to keep them dollar for dollar below the value of gold. Switzerland followed this example of the United States in her law of January 31, 1860; but, instead of distinctly reducing the weight of pure silver in her small coins, she accomplished the same end by lowering the fineness of standard for these coins to 800 thousandths fine. This, of course, only amounted to the same thing as a reduction of weight; since if, without altering the standard weight of a coin, more alloy is used (as, in this case, introducing 2/10 instead of 1/10 alloy), there will be less pure silver in the coin than before. Like the United States, Switzerland was forced—by the fall in the value of gold, or the corresponding rise in the value of silver relatively to gold—to reduce the amount of silver in her small coins in order to keep them in circulation. The fall in the value of gold affected countries differently according as they had, or had not, a unit of low value in their coinage. Where countries, like France, had the franc as a unit, it is easy to see that a fall in the ratio of silver to gold should have driven out silver, and so removed from circulation in these states the silver currency in which a unit of low value was necessarily established. Such changes were very serious to the convenience of the people in ordinary payments. In order to keep such a unit in such a metal, they would be obliged to alter the weight of their small coins, and so to change the character of their common unit of account. To meet this difficulty, Switzerland, when she found that her silver coins were fast being exported, made the five-franc piece (instead of the franc) her monetary unit,
*46 which was maintained at its former weight and fineness (900); but she lowered the value of her silver pieces of two francs, of one franc, and of fifty centimes, to the position of subsidiary coins, at 800 thousandths fine.

Meanwhile France
*47 and Italy had a higher standard for their coins than Switzerland, and as the neighboring states, which had the franc system of coinage in common, found each other’s coins in circulation within their own limits, it was clear that the cheaper Swiss coins, according to Gresham’s law, must drive out the dearer French and Italian coins, which contained more pure silver, but which passed current at the same nominal value. The Swiss coins of 800 thousandths fine began to pass the French frontier and to displace the French coins of a similar denomination; and the French coins were exported, melted, and recoined in Switzerland at a profit. This, of course, brought forth a decree in France (April 14, 1564) which prohibited the receipt of these Swiss coins at the public offices of France, the customs-offices, etc., and they were consequently refused in common trade among individuals.

Belgium also, as well as Switzerland, began to think it necessary to deal with the questions affecting her silver small coins, which were leaving that country for the same reason that they were leaving Switzerland. Belgium then undertook to make overtures to France,
*48 in order that some concerted action might be undertaken by the four countries using the franc system—Italy, Belgium, France, and Switzerland—to remedy the evil to which all were exposed by the disappearance of their silver coin needed in every-day transactions. The discoveries of gold had forced a reconsideration of their coinages systems. In consequence of these overtures, a conference of delegates representing the Latin states just mentioned assembled in Paris, November 20, 1865, and, passing from the immediate question of the subsidiary coins, they advanced to the discussion of the general metallic circulation of the four countries. Belgium, Switzerland, and Italy strongly urged the adoption of a single gold standard, retaining silver in a subsidiary office for coins of denominations below five francs. This was defeated by the action of the French delegates, under influences said
*49 to come from the Bank of France and the Rothschilds. But the Conference, fully realizing the effects of the fall of gold in driving out their silver coins, agreed to establish a uniform coinage in the four countries, on the essential principles adopted by the United States in 1853. They lowered the silver pieces of two francs, one franc, fifty centimes, and twenty centimes from a standard of 900 thousandths fine to a uniform fineness of 835 thousandths, reducing these coins to the position of a subsidiary currency. They retained for the countries of the Latin Union, however, the system of bimetallism. Gold pieces of one hundred, fifty, twenty, ten, and five francs were to be coined, together with five-franc pieces of silver, and all at a standard of 900 thousandths fine. Free coinage, at a ratio of 1 15½:1, was thereby granted to any holder of either gold or silver bullion who wanted silver coins of five francs, or gold coins from five francs and upward. Each coin, although stamped by either of the four countries with the distinctive devices of the issuing country upon it, was to be of uniform weight, fineness, diameter, and tolerance, as may be learned from the treaty signed December 23, 1865, which is elsewhere given.
*50 The subsidiary silver coins (below five francs) were made a legal tender between individuals of the state which coined them to the amount of fifty francs; and the issuing state agreed to receive them from their own citizens in any amount. The quantity of coin outstanding was to be limited to a quota of six francs
per capita, as follows:

As regards five-franc silver pieces, however, there was unlimited free coinage to any individual in the Latin Union at the old ratio of l5½:1.

The treaty was ratified, and went into effect
*51 August 1, 1866, to continue until January 1, 1880, or about fifteen years, as decreed by Article 14: “The present convention shall remain in force until January 1, 1880. If not dissolved a year before the expiration of this term, it shall remain in full force for a new period of fifteen years, and so on, fifteen years at a time, if not dissolved.”

The Latin Union, while due primarily to the disturbances caused by the new gold, was aided in its formation by the growing disposition in enlightened minds to demand a uniform international coinage; by the natural wish of countries having the same monetary unit to prevent as much as possible all friction in trade across their frontiers; and largely, no doubt, by political considerations which led the French Empire to strengthen its dominant position over its smaller neighbors.
*52

§ 2. The ratio of 15½:1 retained by the Latin Union had been adopted by France in 1803
*53 (An XI), at the beginning of her bimetallic legislation. We saw, in the course of our story,
*54 that the United States had established a double standard in 1792, but that, owing to the fall in the value of silver, it soon resulted in a single standard of silver. It will be recalled that, in that discussion, it had been claimed that silver had not fallen, but that gold had risen, in value. Moreover, it had been asserted that the reason why gold left the United States in that period was the existence of a ratio in France of 15½:1, different from ours; which, by offering half an ounce more of silver in exchange for gold than was secured by the ratio of 15:1 in the United States, led to the exportation of silver to France .
*55 Unfortunately for this theory, the facts are against it, for M. Chevalier has told
*56 us that soon after the year 1803 there occurred the first of three great movements which have disarranged the French coinage from that time to this. He assures us that soon after the law of 1803 was passed the relative values of gold and silver in France changed so considerably, in comparison with what they had been before, that the market rate no longer coincided with the Mint ratio of 15½:1; that the market ratio in France rose beyond 15½:1; so that an ounce of gold bought more silver in the bullion market than it did at the Mint. As a consequence, gold was bought and sold only as merchandise. Now this was exactly the process which we found going on in the United States at the same time; and, to my mind, there can not be a moment’s doubt that the events in the two countries were due to the same cause—the enormous production of Mexican silver after 1780. And, moreover, if gold was being withdrawn from the French circulation, it is difficult to understand how it could have gone from the United States to France, attracted by the French Mint ratio of 15½:1, when gold was not being coined there. In fact, the simultaneous withdrawal of gold in two widely separated countries, so soon as the market ratio diverged from the Mint ratio, starts the presumption that a cause was at work of greater fundamental importance than the difference between the legal ratios of two countries, which acted the one upon the other. France, however, did not modify her ratio, as did the United States in 1834, but remained content with a circulation which, as M. Chevalier states, was composed almost exclusively of silver. This state of affairs continued with some interruptions until 1848, during which the market ratio sometimes approached more nearly to 15½:1, because the production of gold from the Russian mines had largely increased by the year 1841. To 1848, consequently, and during the greater part of the period since 1803, France had virtually but a single standard of silver; although by law she had a double standard of both gold and silver.

The second experience of France with her coinage began with the discoveries of gold in California and Australia. In comparing the beginning of the century with 1864 it appears that the production of gold had increased fourteen or fifteen times, while the production of silver had increased only one third. The consequent effects of this enormous production of gold on the French coinage after 1850 I have already described.
*57 The circulation of France underwent a complete change,
*58 in spite of the frequent representations that the ratio established in 1803 had kept the relative value of gold and silver within such limits as to preserve the concurrent circulation of the two metals. In such questions more satisfaction is to be derived from facts than from vague declamations. After 1850, not only five-franc silver pieces, but the small coins employed in the retail transactions of every-day use, began to disappear. The absence of small silver led, as we have seen in the last section, to the events which brought about the convention of the Latin Union in 1865. But the appearance of gold was hailed by the public of France with that evident satisfaction which, as has been referred to many times before, always results from the universal preference of mankind in commercial and civilized countries for gold over silver. In the years preceding 1848 international commerce with France had been but little developed,
*59 and there had been little need for the transportation abroad of very large sums of specie. After 1850, however, commercial conditions began to change, and the use of gold in large payments was naturally a great convenience. The state of mind in France is thus described by M. Chevalier, from whom I again quote:
*60

“The public applauded this introduction of gold into the place of silver for the same reasons which had earlier attracted the English people—viz., gold pieces are more easily handled, a certain amount can be carried more conveniently, and counting takes less time.”

Such was the condition of monetary affairs in France at the time of the creation of the Latin Union in 1865. Since 1803 she had first lost her gold and taken an alternative standard of silver instead; and then, reversing the process, because she still maintained the legal ratio of 15½:1, she lost her silver and took an alternative standard of gold. This last operation undoubtedly acted as a “parachute” to lessen the fall which otherwise gold must have suffered.

The whole of this history is a striking commentary on the fact that an increase in the production of silver does not lead to an additional employment of it by the civilized world as a medium of exchange; but that an increase in the production of gold, so long as human nature remains what it now is, does lead inevitably to a more extended use of it as a medium of exchange in modern commercial countries; and just to the extent of its increase does gold push out of use the silver it displaces, as an inferior instrument of exchange, thus contracting the monetary field in which silver can be used, and lessening the demand for it. An increased production of gold has caused a depreciation in silver which forms a part of the movement by which mankind is furnishing itself with better instead of inferior tools in all the departments of commerce and industry. When new and lighter plows come into competition with the heavy and cumbrous machines of the last century, the latter will go out of use and decline in value. So it will be with the heavier and more cumbrous of the precious metals.

§ 3. The International Monetary Conference of 1867, which assembled in Paris with the original motive of bringing about a uniform system of coins throughout the world, was led to ask, Of what metal shall the uniform coins be struck? The almost unanimous verdict of this conference was that the single standard of gold should be recommended. Such was the state of public opinion in the chief commercial nations in 1867. Several elaborate monetary reports were made by French commissions created for the purpose between 1867 and 1870, and it seemed as if the adoption of a gold standard by France in 1870 was a settled thing. Then the Franco-Prussian war broke out, and the close of the war was immediately followed by the German monetary reform. There can scarcely be any doubt that, had not Germany acted when she did, France and wide-awake Belgium would have demonetized silver, and done exactly what Germany anticipated them in doing.

Cut off from this policy, France and the Latin Union, however, were soon forced to consider the effects of another change (the third since 1803) in their monetary system arising from unforeseen movements in the relative values of gold and silver. The convention of 1865 had been entered into because gold had become cheaper than silver. But, a very few years after the contracting powers had ratified this convention of 1865, a change in the market value of silver removed all ground for its existence. Silver began to fall
*61 relatively to gold as early as 1872, and soon reached a value more nearly in accordance with the ratio of 15.5:1. Had the fall ended there, all further difficulty would have been avoided. But the progress of events was against this supposition. The fall of silver (which did not reach its culmination until 1876) continued, and the countries of the Latin Union were threatened with conditions the very opposite of those which existed in 1865; then they were studying how to keep gold from driving out even their subsidiary silver coins; by 1873, on the contrary, they were occupied with the question how the enormous influx of silver could be prevented: “When, then, toward the end of 1873, Prussia having announced its intention of demonetizing silver, which at that time had already undergone a sensible depreciation in the market, some of the states bound by the convention thought it necessary to protect themselves against an excessive and sudden influx of this coin, and called a new meeting of the Conference. Any restrictive measure, such as the limitation or suspension of coinage, if undertaken separately, would be ineffective so long as any of the allied states continued to issue coins which would be introduced into other states of the Union.”

The downward tendency of silver in 1873 led the Latin Union to fear that the demonetized silver of Germany would flood their own mints if they continued the free coinage of five-franc silver pieces at a legal ratio of 15½:1. Fifteen and a half ounces of silver were still counted as equal to one ounce of gold at the Mint; but since in the market more than that number of ounces of silver were needed to buy one ounce of gold, naturally silver rushed to the mints of the Latin Union. In 1871-1872, before the fall in the value of silver was noticeable, there had been presented at the French Mint for coinage into five-franc pieces only 5,000,000 francs of silver bullion; in Belgium, only 33,000,000; but in 1873 alone, because it was profitable to money-brokers, there was suddenly presented at the French Mint 154,000,000, and at the Belgian Mint 111,000,000 francs. As a consequence of this movement, December 18, 1873, an act was passed by Belgium which gave the government authority to suspend the coinage of silver five-franc pieces.

This condition of things led to the meeting of delegates from the countries of the Latin Union at Paris, January 30, 1874, who there agreed to a treaty supplementary
*62 to that originally formed in 1865, and determined on withdrawing from individuals the full power of free coinage by limiting to a moderate sums the amount of silver five-franc pieces
*63 which should be coined by each state of the Union during the year 1874. The date of this suspension of coinage by the Latin Union is regarded by all authorities as of great import in regard to the value of silver. At the time perhaps its importance did not seem so evident.
*64 The French authorities believed that the action of Germany was only a temporary incident affecting the value of silver; they stated,
*65 therefore, that “to an irregular and accidental event they [the Latin Union] opposed a temporary measure, as exceptional as the decision which called it forth.” They did not then see that the action of Germany was important, not for itself, but because of its place in a series of events due to the progress of monetary ideas. We must, therefore, regard the suspension of unlimited coinage of silver by the Latin Union as a very important step, because it forms another event in the series to which the demonetization of silver by Germany belongs.

§ 4. The suspension of the free coinage of five-franc silver pieces by the Latin Union was a consequence of the falling value of silver. So long as the ratio of silver to gold remained above 1:15½, these four countries could not continue to receive silver at their mints unless they were willing to see gold disappear from their reserves and from circulation, and to see silver alone take its place. About this decision there was no hesitation whatever; the Latin Union had no intention of giving up gold, once that it had flowed into their territories. The preference for gold over silver, when there is a free choice between the two, again received a striking illustration. And all the subsequent movements of the Latin Union have been prompted not so much by the wish to show a preference for a silver medium as by a desire to protect themselves against the loss arising from the possibility of selling the silver with which they have already burdened themselves. They would all, at this moment, gladly embrace an opportunity to place themselves on a gold basis if they could do so without serious loss in disposing of their silver.

After 1874 the Latin Union, owing to the continued decline in the value of silver, maintained their policy of restricting the coinage. In 1875, pursuant to the agreement of a year before, another monetary conference was held in Paris, and limited quotas
*66 of silver were fixed for coinage by each state. The annual conference in 1876 lessened the total amount
*67 to be coined to 120,000,000 francs for the whole Union. About this same time Holland, a country not a member of the Latin Union, took a step away from a silver medium by forbidding
*68 any further coinage of silver after July 1, 1875. The various states of the Latin Union, moreover, did not coin all the silver assigned to them as their quotas. In 1875 and 1876 Switzerland cautiously did not coin any of her quota.

In studying this example of a monetary union between different states it is to be noticed that each state reserved to itself the power to suspend the coinage entirely. The agreements of the convention fixed only the maximum amounts beyond which the coinage of silver should not go. As we have already seen, Belgium had passed a law in 1873 giving the government power to suspend the coinage of silver entirely. France likewise found it expedient,
*69 on August 5, 1876, to shut the doors of the Mint to silver. It will be seen, therefore, that one country after another, so long as the old ratio of 1:15½ was adhered to, was obliged to close its mints to the coinage of silver.

In 1877 the Union suspended entirely the coinage of five-franc pieces for that year (except a sum of 10,000,000 francs for Italy). This position in regard to silver, however, was only preliminary to the decisive action of the Union in a treaty of November 5, 1878. In order to prevent gold from disappearing and being replaced by silver, a policy of successive restriction was originally adopted in 1874; but in 1878 the final policy of complete suspension was accepted. It was mutually agreed by the contracting parties that the “coinage of silver five-franc pieces is provisionally suspended. It may be resumed when a unanimous agreement to that effect shall be established between all the contracting states.”
*70 This agreement was to hold until January 1, 1886. The Union was not, however, dissolved, because they continued their coinage of subsidiary coinage (at 835 thousandths fine) on the common terms of the original convention of 1865. The suspension of five-franc pieces was the important point of the treaty of 1878, because it was the only silver piece which bore a ratio of 15½:1 to the gold coins.
*71

Since 1878, therefore, the chief bimetallic countries of Europe decided that, so long as they chose to retain the legal ratio of 15½:1 between gold and silver coins, it was impossible to keep open the mints for the presentation of silver bullion. This was their “expectant attitude” toward silver; they hoped that, if the value of silver rose, the coinage of silver might be again resumed. They are evidently hoping against hope, for since then Italy has resumed specie payments, in 1883, while Switzerland and Belgium are evidently anxious to place themselves on a gold basis; and, worst of all for the continuance of a coinage convention based on a ratio of 15½:1, silver has steadily fallen in value since 1878, and at the present writing (September, 1885) the price has fallen to 47¼
d. per ounce in London, equivalent to a ratio of more than 20:1. In the face of such facts, the return to a bimetallic system at 15½:1 by the Latin Union is an impossible thing. I do not think it will ever occur.

The depreciation of silver weighs heavily on France, because she has coined a vast quantity of five-franc pieces since 1865, which have entered into circulation or have accumulated in the reserves of the Bank of France; and whenever in the course of the international exchanges a payment of specie is to be made by France to a foreign country, it must be made in gold out of a fund in the bank which is not over large. France can not return to the double standard, nor can she adopt a single gold standard, because the sale of her superfluous silver, except at a very great sacrifice, is now a practical impossibility. France is forced into her present “expectant attitude” because of the quantity of silver she has to dispose of. It is her object, therefore, to continue the Latin Union as long as possible, for a dissolution of the league would necessarily oblige each state to liquidate its own issues of silver coinage. In the future each state must have its own system, and the coins of one country would not be received reciprocally by the others, and, when rejected, they would be sent home to the banks of the issuing country under such financial pressure as would make it necessary to redeem them in some form or other. Of a total sum of 6,117,000,000 francs coined by the countries composing the Union, 3,910,000,000 are still on hand,
*72 of which 3,100,000,000 bear the stamp of the French Mint. In case of a dissolution of the Union, the Belgian and Italian pieces in France would be sent out for redemption in gold to the issuing states, and to that extent France would be temporarily better off. For this reason some persons in France are urging the dissolution of the Latin Union. The silver pieces of other states are not a legal tender in France, although the Bank of France has hitherto received such silver on sufferance. The existence of a large amount of silver in the reserves of the bank requires that its wishes should be consulted by the authorities of France in a settlement of this question. More silver is in circulation in the Latin Union than can pass current at the legal rate, and it flows to the large banking-houses and encumbers the vaults of the bank.

The treaty of 1878 expires January 1,1886, and even now the delegates of the Union are assembled in Paris discussing the continuance of the present agreements. Belgium, which has been very energetic in dealing with economic questions, is now anxious to demonetize silver and adopt the gold standard. The same is true of Switzerland, and France stands almost alone. The negotiations looking to a renewal of the Union are not yet fully known. France demands “that each of the powers forming the Union shall bind itself to redeem at their par value all its silver five-franc pieces that may be circulating abroad if and when the Union comes to an end.”
*73 Belgium objects, because coins have been issued from her Mint not only for herself, but on the account of Switzerland, of Italy, and even of France. Belgium, however, will be forced in some way to redeem her coinage, and it is highly probable that the Union will be continued. At the third sitting of the Conference, which began July 20, 1885, Belgium declined to accept the demands of France, and declared that, if this was a
sine qua non for the renewal of the treaty, she preferred to withdraw; but, whatever the result of this last Conference, it is quite clear that they have no thought whatever of adding to their burden of silver, from which it is now their problem to escape. This being true, there is not a mint in Europe now open to the free coinage of silver.