Chapter 3
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 classes 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 class, 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 classes 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 classes 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 nobody 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 space 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 class in England a regular panic broke out, and in Holland and Belgium even the masses 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 assumptions: 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.
Consider the following facts, which I have condensed from Mulhall: In 1800 the total yearly international commerce of the world was estimated at $1,510,000,000. Forty years later it had only increased 90 per cent., amounting in 1840 to $2,865,000,000, and in that year there were in all the world but 4,315 miles of railroad and no electric telegraph. The total horse-power of all the steamships of the world was but 330,000, and the carrying power of all the shipping but 10,482,000 tons. To-day the international commerce of the world is almost $20,000,000,000, and increasing at the rate of $1,000,000,000 per year; there are in the world over 400,000 miles of railway and a very much greater mileage of magnetic telegraph, including 14 intercontinental cables; the ocean tonnage of Great Britain alone is very much greater than was that of the whole world in 1840; and tremendous as this increase of international trade has been, it is the merest trifle compared with the increase of the internal trade in several of the greater nations.
What then has caused the "great depreciation"? Nothing has caused it. There has been but a trifling depreciation indeed. It is as clearly proved as anything unseen can be that if the nations had left silver and gold as they were in 1870, both would have gained materially in value, that is, in the power to command commodities, because of the vastly greater relative increase of the latter; but by demonetization all the increase has been concentrated in gold, leaving silver almost exactly as it was. At present, however, I devote myself to the question whether there has been such an increase in the production as would normally cheapen it. On this point we have evidence to convince any unbiased mind, for the relative production of silver and gold has in former ages varied very much more than in the last twenty-three years, and the variation has extended over much longer periods, without causing more than the most trifling divergences in value. And the explanation is simple: the two metals received equal recognition at the mint and in legal tender laws; the greatly increased use of the cheaper maintained its value in coinage, while disuse of the dearer tended equally to check its appreciation. In this sense government can "create value" by creating a use.
From 1660 to 1700, for instance, the production of silver averaged in value much more than twice that of gold, and in quantity some thirty-three times as much; yet all those years, the highest mint ratio was 15.20 to 1 and the lowest 14.81--a variation in money value of but .39 or 2.6 per cent. From 1701 to 1760 inclusive, the proportion of gold produced gradually rose from a little over a third to 40 per cent. in values, yet the money ratio remained remarkably constant, the highest being 15.52 of silver to 1 of gold and the lowest 14.14. In other words, for sixty years there were produced on an average about 28 ounces of silver to 1 of gold, yet the widest variation of their money values in all those years was less than 9 per cent. In the face of such facts as these, we are asked to believe that while an average of over 30 ounces to 1 created an average variation of less than 6 per cent., and a greatest variation of less than 9 per cent., a production of some 20 ounces to 1 since 1882 has created a variation of 100 per cent. And that the variation began nine years before the value production of silver exceeded that of gold! It is an affront to our common sense.
I should say, at this point, that my figures are taken from the latest, and in my opinion the most scholarly work in favor of monometallism, "The History of Currency," by Prof. W. A. Shaw, Fellow of the Royal Historical and Royal Statistical Societies. As the ratio between silver and gold varied considerably in the different marts of Europe, I follow his plan (which is Soetbeer's) of taking it as it stood at any particular time in the city which might then be called the greatest commercial centre, whether Venice, Hamburg, Antwerp, or London. His history comprises the entire period from 1252 to 1894. It is only fair that I should also give his explanation of the stability of the metals, which is extremely interesting.
He begins his second chapter with the statement that the discovery of America was "the monetary salvation and resurrection of the Old World"; that it was a time of unexampled increase in the precious metals and equally unexampled rise of prices, but there was also "feverish instability and want of equilibrium in the monetary systems of Europe." He shows how the first great import was of gold, which began to affect prices in 1520; how this was followed by a very much greater increase in silver, and how, while prices were rising so rapidly as to stimulate trade and incidentally do damage by causing great fluctuations, yet there must have been some great regulator preventing the evil which we should _a priori_ have expected. He finds it in the fact that Antwerp had taken the place of Venice and Florence, and conducted a great trade with the far East. His language is: "The centre of European exchanges--Antwerp in the sixteenth century as London to-day--has always performed one supremest function, that of regulating the flow of metals from the New World by means of exporting the overplus to the East. The drain of silver to the East, discernible from the very birth of European commerce, has been the salvation of Europe, and in providing for it Antwerp acted as the safety-valve of the sixteenth century system as London has done since. The importance of the change of the centre of gravity and exchange from Venice to Antwerp, therefore, lies in this fact. Under the old system of overland and limited trade, Venice could only provide for such puny exchange and flow as the mediæval system of Europe demanded; she would have been unable to cope with such a flood of inflowing metal as the sixteenth century witnessed, and Europe would have been overwhelmed."
Professor Shaw argues that without the Eastern safety-valve Europe would have been ruined by an excess of the precious metals, that India furnished the needed reservoir--did she not take gold as well as silver?--and that Venice was so far limited to an overland trade that she could not have performed the function Antwerp did. Later he sets forth the current monometallist position that the nations are now as one in trade and the interchange of the precious metals, and therefore even the partial equilibrium of the sixteenth and seventeenth centuries could not be maintained. Let us, then, bring the figures down to the present, and it will be found, I think, that the farther down we come the weaker does the monometallist contention appear.
The improved, more extended, and more intimate intercourse of the nations brought about by the introduction of steam, electricity, and other agencies tends to minimize the fluctuations of the two metals, and indicates that the divergences of the metals in mediæval times was due rather to the want of speedy, easy, and certain intercourse and communication of the nations than to an innate commercial tendency of the two metals to diverge. Had the same intimate and speedy commercial relation existed between the nations of the world in those times as now exists, the equalizing tendencies of trade would evidently have prevented not only the ratio of divergence to which the metals attained at different periods, but would have prevented a difference of ratio existing between the different nations at the same period of time.
From 1761 to 1800, inclusive, the relative production of gold decreased steadily, until it was but 23.4 per cent. of the total value, to 76.6 per cent. of silver. In other words, there were for many of the later years over 50 ounces of silver produced to 1 of gold, and yet the ratio stood long at 15.68 to 1. This is almost exactly the ratio fixed by Hamilton and Jefferson, fixed because of its long-continued maintenance in European markets. During these forty years the production of silver in proportion to gold was never for even one year as low as the highest proportion of any year since 1873, and yet the money value only varied from 14.42 to 15.72, or a fraction over 8 per cent. In the face of such figures as these, the change in relative production since 1873 seems too trifling to be taken into account, especially since in that year and some time after the value production of gold at 16 to 1 was much the greater, nor was it till 1883 that the world's silver product exceeded that of gold.