If Not Silver, What? Part 2

And by the same token the gold dollar is worth 200 cents in silver. The answer is as logical as the quip, and neither is worth notice. Such a process merely a.s.sumes an arbitrary standard and measures all other things by it, as the drunkard in a certain stage of intoxication thinks that his company is drunk while he is duly sober. And, by the way, where do you get your moral right to say that a dollar which will buy two bushels of wheat or twenty pounds of cotton is any more honest than one which will buy one bushel or ten pounds? Is it because with the dear dollar the farmer must work twice as long to pay off a mortgage, that the interest paid on the great debts of the world will buy twice as much, and the debtor nations are put at a terrible disadvantage as to the creditor nations personally?

Is that honest?

A very safe test of any theory is to follow it to its logical conclusion.

Take your "honest" money argument, on the basis of twenty years'

experience, and see where it will take you in the near future. The dollar which buys two bushels of wheat or sixteen pounds of cotton is "honest,"

you say, and a dollar which buys but one bushel or eight pounds is not. By and by, if your fallacy prevails, the dollar will buy three bushels of wheat or twenty-five pounds of cotton, and will then, by your reasoning, be much more "honest" than now. Is that your idea? How much lower must prices go before you will admit that gold has gained in purchasing power?

=But it cannot be that prices have fallen because of the scarcity of money, for the low rate of interest now prevailing proves that money is abundant and cheap.=

That is a very old fallacy, and a singularly tenacious one, as it seems that no amount of experience drives it from the minds of men. Look over the history of our panics and you will find that after the first convulsion is past the banks are soon crowded with idle money, and the rate of interest falls. Take notice, however, that the money lenders always declare that they must have "gilt-edged paper." Interest on first-cla.s.s securities is never lower than in the hardest times which follow a particularly severe panic, and the reason is obvious: all far-seeing business men know that prices are likely to fall, and, consequently, investments become unprofitable: therefore they do not invest; therefore they do not want money; therefore they do not borrow, and idle money acc.u.mulates. This is a phenomenon always observed in hard times. In good times, on the contrary, when investments are reasonably sure to be profitable, there is naturally an increased demand for money, and so the rate of interest rises. As a matter of fact, however, interest rates, when properly estimated, have been for several years past very much higher than previously--that is, the borrower has, in actual value, paid very much more; so rapid has been the increase of the purchasing power of money, that the six per cent. now paid on a loan will buy more than the ten per cent. paid a few years ago. In addition to that, the value of the loan has been steadily increasing. Make a calculation for either of the years since 1890, and you will find it to be something like this: the six per cent. paid as interest has the purchasing power of at least ten per cent. a few years ago, and the lender has gained at least two per cent. a year, if not twice that, by the increased value of his money; so the borrower will have paid, at the maturity of his obligation, at least twelve per cent. per annum, and probably much more.

The silent and insidious increase of their obligations, by reason of the enhanced and steadily enhancing value of gold, has ruined many thousands of business men who are even now unconscious of the real cause or of the power that has destroyed them.

I may add in this connection that the three per cent. now paid on a United States bond is worth about as much in commodities as the six per cent.

paid previous to 1870, and at the same time the bond has doubled in value for the same reason; thus, calculated on the basis of twenty-five years, the bondholder is really receiving, or has received, the equivalent of ten per cent. interest.

DEMONETIZATION OF GOLD.

Gold has an intrinsic value, says the monometallist, which makes it the money of the world. It is sound and stable, while silver fluctuates. See how much more silver an ounce of gold will buy than in 1873, but the gold dollar remains the same, worth its face as bullion anywhere in the world.

But suppose there had been a general demonetization of gold instead of silver, how would the ratio have stood then? Would not the same reasoning prove silver unchangeable, and gold the fluctuating metal?

Oh, nonsense! it is impossible to demonetize gold, because the civilized world recognizes it as an invariable standard by which all commodities are measured in value. The supposition is absurd. It would be very much like deoxygenizing the air.

But, my dear sir, gold has been demonetized, and not very long ago, either, and very extensively, too. It was deprived of its legal tender quality by four great nations, comprising some seventy million people; demonetized because it was cheap and because the world's creditors believed it was going to be cheaper; the demonetization, so far as it went, produced enormous evils, and nothing but the firmness of France and the far-seeing wisdom of her financiers prevented the demonetization becoming general on the continent of Europe, which would have reversed the present position of the two metals in the public mind.

Of the many singular features in the present overheated controversy, probably the most singular is the fact that comparatively few bimetallists know of, or, at any rate, say much about, this demonetization of gold, while the monometallists ignore it entirely, and many of them, who ought to know better, absolutely deny it.

So extensive was this demonetization of gold, and so far-reaching were its consequences, that it may easily be believed that it was the beginning of all our misfortunes, and that the crime of the century, instead of being the demonetization of silver in 1873, was really the demonetization of gold in 1857; for that was the first general or preconcerted international action to destroy the monetary functions of one of the metals and throw the burden upon the other, and it first familiarized the minds of financiers, and especially of the creditor cla.s.ses, with the fact that the thing might easily be done and that it would work enormously to their advantage.

It may also be said that it led logically to the action of 1867, which was but the beginning of a general demonetization of silver.

The history of gold demonetization is full of instruction and is here given in detail.

In 1840-45 the world was hungering for gold. All the leading nations had just pa.s.sed through financial convulsions which shook the very foundations of society. Several American states had either repudiated their debts outright or scaled them in ways that to the English mind looked dishonest, and there was a general uneasiness among the creditor cla.s.ses of the world. A universal fall of prices had produced the same results with which we are now so painfully familiar. In the half century terminating with 1840 the world had produced but $529,942,000 in gold, coinage value, and $1,364,697,000 in silver, or some forty ounces of silver to one of gold; yet their ratio of values had varied but little, and the variation was not increasing. Why? Monometallists have raked the world in vain for an answer. Bimetallists point to the only one that is satisfactory, namely, the persistence of France in treating both metals equally at her mints.

But there were grave apprehensions that France alone could not maintain the parity, and so, as aforesaid, all the world was hungry for gold.

And in all the world there was not one observer who dreamed that this hunger would soon be far more than satiated, and the philosopher who should have predicted half of what was soon to come would have been jeered at as a crazy optimist. In 1848 gold was discovered in California, and three years later in Australia. The supply from Africa and the sands of the Ural Mountains had previously increased, so that in 1847-8 it was equal to that of silver. But how trifling was this increase to what followed. In 1849 there was still a slight excess of silver production, and in 1850 the proportion was but $44,450,000 of gold to $39,000,000 in silver. Then gold production went forward by great leaps and bounds. How much was produced?

Well, the estimates vary greatly. Soetbeer places the amount at $1,407,000,000 by the close of 1860; but Tooke and Newmarche have put it about $100,000,000 less. In the same era the production of silver varied but a trifle from $40,000,000 a year. A committee of the United States Senate, appointed for investigating the facts, reported that in the twelve years ending with 1860 the gold produced was $1,339,400,000; and in the next thirteen years, ending with 1873, it was $1,411,825,000. Thus, in the thirteen years following the California discovery the stock of gold in the world was doubled, and in the twenty-five years ending with 1873 it was more than tripled. Several economic writers have made the statement very much stronger than this, and M. Chevalier, in his famous argument for the demonetization of gold, written in 1857, declares that the production of gold as compared with silver had increased fivefold in six years and fifteenfold in forty years, and that, owing to the export of silver to Asia and its use in the arts, there would, in a very little while, be no possible method of maintaining the parity of the two metals in money at any ratio which would be honest and profitable.

And what was the real fact? The ratio, which in 1849 was 15-78/100 of silver to 1 of gold in the London market, and the same in 1850, never sank below 15-19/100 to 1, and never rose above the ratio of 1849 till after silver was demonetized. Why this wonderful steadiness? The answer is easy.

In the eight years of 1853-60 France imported gold to the value of 3,082,000,000 f., or $616,000,000, and exported silver to the value of $293,000,000; in short, her bullion operations amounted to $909,000,000.

She stood it without a quiver; she grew and prospered as never before. She resolutely refused to change her ratio. Her mints stood open to all the gold and silver of the world, and thus did she save the world from a great calamity.

Scarcely, however, had the golden flood begun when the moneyed cla.s.ses and those with fixed incomes raised a loud cry. From the laboring producers no complaint was heard. They never complain of increased coinage. In the United States we knew nothing of this clamor, for we then had no large creditor cla.s.s, no great amount of bonds, and very few people interested more in the value of money than in the rewards of labor. In Europe, however, all the leading writers on finance and industries took part. In 1852 M. Leon Faucher wrote: "Every one was frightened ten years ago at the prospect of the depreciation of silver; during the last eighteen months it is the diminution in the price of gold that has been alarming the public."

In England, the philosopher DeQuincey wrote that California and Australia might be relied upon to furnish the world $350,000,000 in gold per year for many years, thus rendering the metal practically worthless for monetary purposes, and another Englishman, as if resolved to go one better, declared that gold would soon be fit only for the dust pan. M.

Chevalier took up the task of convincing the nations that gold should be demonetized as too cheap for a currency, and of course the interested cla.s.ses soon organized for action.

Holland had already begun the process in 1847, but had managed it so awkwardly that her condition is not easily understood or described as it was in 1857. The estimated amount to be thrown out of use was only half the real amount, and in the attempt to avoid a small evil they produced a very great one.

Austria was at that time involved in trouble with her paper money system, and thought the cheapening of gold offered a fair opportunity to come to a metallic basis. The reasoning of her statesmen was singularly like that of General Grant in 1874, when he pointed to the great silver discoveries in Nevada as a providential aid to the restoration of specie payments, being at the time in sublime ignorance that he had long before signed an act demonetizing silver, and thereby depriving this country of the benefit of such providential aid. But the strength of the creditor cla.s.ses was entirely too much for Austria and Prussia, and the German States allied with them almost unanimously declared for throwing gold out of circulation. A convention had been held at Dresden in 1838, with the view to unifying the coinage, but little had been accomplished, and now a convention was called at Vienna, which was attended by authorized representatives of Prussia, Austria, and the South German States. It was there stated that, besides various minor coins, there were three great competing systems in Germany, namely, those of Austria, Prussia, and Bavaria. It is needless to go into details of this once famous convention, but suffice it to say that the following points were agreed upon: (1) The Prussian thaler was to be the standard for Prussia and the South German States, and was to be a silver standard exclusively. (2) The Austrian silver standard was to prevail throughout that empire. (3) The contracting powers could coin trade coins in gold, but none others, except Austria, which retained the right of coining ducats, and these gold coins were to have their value fixed entirely by the relation of the supply to the demand. "They were not therefore to be considered as mediums of payments in the same nature as the legal silver currency, and n.o.body was legally bound to receive them as such;" in short, none of the gold coins permitted by the convention were to be legal tender, but all were to be mere trade coins precisely for the same purpose as the trade dollar once so famous in the United States. The result, of course, was to make silver the standard and gold the fluctuating money or token money. The effects of this convention remained with but little change till 1871.

Of course, gold at once became "dishonest money." It was worth less than silver, and a regular gold panic set in. Holland had already demonetized most of her gold coinage, that is, had deprived it of the legal tender quality, and Portugal now practically prohibited any gold from having current value, except English sovereigns. Belgium demonetized all its gold at one sweep, and Russia prohibited the export of silver. Thus, in an alarmingly short s.p.a.ce of time five nations had practically demonetized gold, and others were threatening to do so, and the world was rapidly being taught that gold was the discredited metal, while silver was the stable and sound money.

Some curious and a few amusing results followed. Among a certain cla.s.s in England a regular panic broke out, and in Holland and Belgium even the ma.s.ses of the people became suspicious of gold and disliked to take it in payment. In the latter country a few traders hung out signs to attract customers, to this effect, "L'or est recu sans perte," meaning that gold money would be taken there without a discount. It is probably not known to one American in a thousand that the practice of inserting a silver clause in contracts became at that time so common in Europe that it was actually transferred to the United States, and in England life insurance companies were established on a silver basis. Several American corporations stipulated for payment in silver, especially of rents, and to this day a New England establishment is receiving a certain number of ounces of fine silver yearly under leases then drawn up.

It is equally interesting to note in the literature of that period arguments against gold almost word for word like those now used against silver. The financial managers threw gold out of use and then urged its non-use as a reason for its demonetization. "None in circulation,"

"variation shows impossibility of bimetallism"--such were the phrases then applied to gold, as we now find them applied to silver. An artificial disturbance was created, and then pleaded as a reason for further disturbance.

All this while the financiers of England were bombarded with arguments and prophecies of evil, but her geologists pointed out clearly that Australian and Californian products were almost entirely from the washing of alluvial sands and consequently must be very temporary. Her statesmen believed the geologists rather than the panic-stricken financiers, and so she held for gold monometallism.

But it is to France that the world is indebted for maintaining the parity through those years of alarm and panic. M. Chevalier urged upon French statesmen the importance of returning to the system which had been in force previous to 1785, when silver was the standard and gold was rated to it by a law or proclamation. The proposition was actually brought forward in Council and urged upon the Emperor that silver should be made the standard and gold re-rated in proportion to it every six months. The net result was, by France taking in gold and letting out silver, that in 1865 that country had a larger stock of gold than any other in Europe. Suffice it to repeat that several nations, including seventy million people, actually demonetized gold, deprived it of its legal tender, and treated it as a ratable commodity; while France, single-handed and alone upon the continent of Europe, was able to absorb the enormous surplus of gold and maintain the parity by the simple process of keeping her mints open to both at the ancient ratio.

Thus ended the scheme to drive gold out of circulation and base the business of the world upon one metal, and that the dearer metal, silver.

But suppose the scheme had succeeded; suppose France had been less firm; what a wonderful flood of wisdom on the virtues of silver we should have had from the monometallists! How arrogantly they would have denounced us--who should, I trust, in that case have been laboring to restore gold to free coinage--how arrogantly they would have denounced us as the advocates of cheap money, dishonest tricksters, repudiators! How they would have rung the changes on "dishonest money," "fifty-cent gold dollars!" What long, long columns of figures should we have had to prove the stability of silver, the fluctuating nature of gold! What denunciations, what sneers, what gibes, what slurs would have filled the New York city papers in regard to those Western fellows who want to degrade the standard! How glib would have been the tongues of their orators in denouncing all who advocated the remonetization of gold as cranks, socialists, populists, anarchists, ne'er-do-wells, and Adullamites, kickers, visionaries, and frauds! Is there any practical doubt that we should have witnessed all this? None whatever; in fact, something of the same sort was heard in Europe at the time of the demonetization of gold. It all goes to show that self-interest blinds the intellects of the best of men so that they readily believe that which is to their interest is honest, but that the farmer who seeks to raise the price of what he has to sell thereby throws himself down as dishonest. Of course, the successful demonetization of gold would have brought about an enormous appreciation of the value of silver, since it would have thrown the whole burden of maintaining the business of the world upon one metal, and equally, of course, we should have had the same attacks upon the owners of gold mines that we now have upon the owners of silver mines. As the withdrawal of silver from its place as primary money and its reduction to the level of token money has thrown the burden of sustaining prices upon gold, so unquestionably would the reverse process have occurred had gold been reduced to token money in place of silver. All this we know would have taken place from what actually did take place, and this makes important the history of the demonetization of gold.

RELATIVE PRODUCTION OF GOLD AND SILVER.

Among the many plausible pleas of the monometallists, the most plausible, perhaps, is the plea that the great divergence between the metals since 1873 has been due entirely to the increased production of silver. A very brief examination, I think, will show its falsity, and that it is equally false in fact and fallacious in logic; for, first, there has been no great "depreciation" in silver, that metal having almost the same power to command commodities, excepting gold, that it had in 1873; and, second, the claim that the increased production of ten or twenty years would alone greatly cheapen silver is flatly contradicted by all previous experience.

Of many statements of the fallacy, I take a recent one from the New York _Times_ as the most terse and catchy for popular reading, and likewise most ludicrously absurd:

"=Why Silver is Cheap.=

"In 1873 the total product of silver in the world was 61,100,000 ounces, and the silver in a dollar was worth $1.04 in gold.

"Last year the world's product of silver was 165,000,000 ounces, and the silver in a dollar was worth only 50.7 cents.

"In 1894 the potato crop of the United States was, in round numbers, 170,000,000 bushels, and the average price 53c.

"In 1895 the estimated potato crop was 400,000,000 bushels, and the average price was 26c.

"The fall in both cases was due to the same cause."

Observe the a.s.sumptions: 1. That the output of one year determined the value of silver as the crop of potatoes does their price for that year!

The schoolboy who does not know better deserves the rattan. If the theory were correct, gold in 1856 should have been worth but a fourth what it was in 1848, whereas the largest estimate of its decline in value puts it at 25 per cent.

2. That the increased silver production of twenty-two years would reduce its value in the exact mathematical proportions of the increase. This theory ignores the two most important facts determining the value of money: that the silver or gold mined in any one year is added to the existing stock, to which it is but a minute increase; and that wealth, population, and production are also increasing rapidly, relative to which the increase of silver is but a trifle indeed. The yield of the Monte Real a thousand years ago may have cost five times as much labor per ounce, and that of Laurium ten or even twenty times as much; but all of both which is not lost goes with the last ounce mined into the general stock, which is now about $4,000,000,000 in coin alone. The greatest annual production has in but a very few cases added so much as 3 per cent. to the stock on hand, and about half of it is consumed in the arts. If the increase of the annual production of silver by 2-3/4 to 1 in twenty-two years reduced its value one-half, will the _Times_ tell us what should have been the reduction in the value of gold when this product increased by fivefold in eight years? It should further be noted that the discovery of a "Big Bonanza" is an event so rare that it has not happened, on an average, more than once in three centuries since the dawn of history, and that since 1873 the growth in the world's production and trade has been, relative to former times, even greater than the increase in the production of silver.