Chapter 6
In a former paper read in 1879 he had predicted the rise in the purchasing power of gold, and in his paper of 1888 he said: "If the test of prophecy be the effect, there was never surely a better forecast. The fall of prices in such a general way as to amount to what is known as rise in purchasing power of gold is, I might almost say, universally admitted. Measured by any commodity or group of commodities usually taken as the measure for such a purpose, gold is undoubtedly possessed of more purchasing power than was the case fifteen or twenty years ago, and this high purchasing power has been continued over a long enough period to allow for all minor oscillations."
In 1871, when the discussion may be said to have begun, the French economist Ernest Seyd pointed out very plainly that the adoption of the gold standard by Europe and the United States would lead to the destruction of the monetary equilibrium hitherto existing, and then added this singular prophecy: "The strong doctrinarianism existing in England as regards the gold valuation is so blind that when the time of depression sets in the economic authorities of that country will refuse to listen to the cause here foreshadowed. Every possible attempt will be made to prove that the decline of commerce is due to all sorts of causes and irreconcilable matters. The workman and his strikes will be the first convenient target; then speculating and over-trading will have their turn; many other allegations will be made, totally irrelevant to the real issue, but satisfactory to the moralizing tendency of financial writers."
How literally has that been fulfilled in our sight. At this very time, the monometallists of the United States are pointing to all sorts of causes and irreconcilable matters to explain the ruinous fall in prices. They not only allege all the causes here assigned, but many more peculiar to this country; and, after the fashion of all who oppose any reform in the interests of producing labor, they particularly and even savagely deprecate agitation.
By the way, does not every clear-headed American, know that any system that cannot stand agitation is totally unfitted to this country? Agitation, investigation, public discussion in the papers and on the stump, are the very life-blood of our institutions. And if our finances were as they should be, the more thoroughly they were discussed, the more warmly would the system be approved, and the more would investigation be invited.
Hon. G. J. Goschen, former Chancellor of the Exchequer, pointed out as early as 1883 that the enormous increase in the demand for gold consequent upon the demonetization of silver was liable to create great evil. After elaborating this subject, and saying that the fall in prices had already produced serious evils, he added: "Some writers have appeared to show something approaching to irritation at the view of the situation that gold should have largely influenced prices. I scarcely know why, unless through the apprehension that the bimetallists may utilize the argument." A little later he said: "I must repeat that to my mind the connection between the additional demand for gold and the fall of prices seems as sound in principle as I believe it to be sustained by facts."
We might multiply at length quotations to show that opinion is unanimous in England, regardless of party, to the effect that there has been a great increase in the purchasing power of gold. As to the effect of this Mr. Giffen says: "The weight of all permanent burdens is increased.... Our people, in paying annuities or old debts, have to give sovereigns, which each represent a greater quantity of the results of human energy. The debtors pay more than they would otherwise, and the creditors receive more. It is a most serious matter to those who have debts to pay."
Mr. S. Dana Horton says that on the basis of prices "The national debt, regarded as a principal sum, has increased its weight upon the shoulders of the British taxpayer between 1875 and 1885 by nearly two hundred millions sterling, an amount nearly equal to the Franco-German war fine."
This gives us the explanation of the fact that the consols on which the interest was reduced by Mr. Goschen, when Chancellor of the Exchequer, to 2-3/4 per cent., are now selling at a much higher premium than formerly; the smaller amount of money paid in interest will purchase a very much larger amount of commodities than the former larger interest did.
The matter is very clearly set forth by Hon. Samuel Smith, M. P.: "If the question of protection is to be introduced into the discussion, then it will be found to tell more forcibly against our opponents. What do they seek for, but the protection of gold as against silver? They wish, as far as lies in their power, to boycott silver and throw the world upon gold alone, even though such a course should change the value of gold. In trying to boycott silver, they are giving protection to the wealthy capital class, just as truly as the old corn laws did to the landed owners of this country. The only difference is that the amounts involved are much larger and the protected class much richer and the confiscation of the fruits of the toiler much greater than under the old system of the corn laws. When the masses of this country awake as those of America have awakened to the magnitude of this question, they will brush away this idle talk that we are trying to restore protection." If Mr. Smith were in Congress instead of Parliament, what a howl there would be about him as an anarchist!
It being now the unanimous opinion of English statesmen and financiers that gold has greatly appreciated, and that such enhancement has already wrought great evil, the important question arises, Will this process continue? In the speech already quoted Mr. Giffen says: "I am bound to say that all the evidence seems to me to point to a continuance of the appreciation. It is impossible to suppose that the movement will not extend to other countries. All these facts point to a continued pressure on gold. The better probability seems to be, that the increase of the purchasing power of gold will continue from the present time."
The Right Hon. A. J. Balfour, now the head of the British Cabinet, in a speech delivered at Manchester, October 27, 1892, said: "We want two things of our currency. We require that it shall be a convenient medium of exchange between different countries, and we require of it that it shall be a fair and permanent record of obligation over long periods of time. In both of these great and fundamental requirements of a currency, our existing currency totally and lamentably fails." After showing that within fifteen years the money of Great Britain and Ireland had advanced in purchasing power no less than 30 or 35 per cent., he went on to say that of its further progressive appreciation "No living man can prophesy the limit." A little later he spoke of it as progressing "steadily, continuously, indefinitely," and closed his remarks on that subject in these words: "If you will show me a system which gives absolute permanence, I will take it in preference to any other. But of all conceivable systems of currency, that system is assuredly the worst which gives you a standard steadily, continuously, indefinitely appreciating, and which by that very fact throws a burden on every man of enterprise, upon every man who desires to promote the agricultural or industrial resources of the country, and benefits no human being whatever but the owner of fixed debts in gold."
In his work "The Bimetallic Question" Hon. Samuel Smith, M. P., presents as an evidence of the hardships due to the increasing purchasing power of money these facts: "The English landlords who borrowed £400,000,000 on their property, agreeing to pay, let us say, £16,000,000 a year, interest at 4 per cent., supposing that it represented one-quarter of their rents, now find, owing to the fall of prices, that it represents one-third, or even in some cases one-half of their rent.... The factory owner, the mine owner, the ship owner, who thought it safe twenty years ago to borrow half the value of his plant in order to find capital for his business, now finds that the mortgagee is the virtual owner. Nearly all the profits go to pay the mortgagee's claim, and in many cases he has foreclosed, and sold out the unhappy borrower, ruined through no fault of his own, but through the extraordinary sinking of prices. As a matter of fact, I believe that if all the fixed capital engaged in trade in England could be valued to-day at its real selling price, it would be found that it would do little more than pay the mortgages and debts upon it. Trade is very greatly and injuriously affected by sudden alterations in the standard of value, especially when the alteration is, as now, towards increased values. It arises in this way: trade is largely carried on by borrowed capital, or, in other words, by the use of credit in some shape or other; the vast banking deposits are mainly loaned to traders; a very great deal of the invested capital of this country is lent upon mortgages upon trading property such as ships, factories, and warehouses. A prudent trader usually considers it safe to draw considerably beyond his floating capital, and to borrow say 50 per cent. upon his plant or a fixed capital. Now, the constant decline in prices within the last few years has virtually swept away his own portion of the capital, and only left him enough to pay the loans and mortgages. For instance, a ship or a factory built at a cost of twenty thousand pounds, of which ten thousand were borrowed, is now worth only twelve thousand pounds, or 40 per cent. less; and so the mortgage represents five-sixths of the value instead of one-half, the trader's interest having sunk to two thousand pounds in place of ten thousand. Probably, if trade is unprofitable, he fails to pay the interest and the mortgage is foreclosed; the property is forced off at just sufficient to cover the loan and he is ruined. I have no doubt that this exactly describes the condition that confronts numbers of traders in this country and other countries having the gold standard. A great portion of the commercial capital of the country has passed into the hands of the mortgagees and bondholders who have neither toiled or spun. The discouragement this state of things produces is intense. After it has gone on for several years, a kind of hopelessness oppresses the commercial community, all enterprise comes to a standstill, many works are closed, labor is thrown out of employment, and great distress is felt, both among laborers and the humbler middle class. Indeed, it strikes higher than this; for multitudes of people who were once prosperous traders have now become dependent on charity. I know many such myself."
How fitly that describes the condition of the United States to-day. This was written some years ago, and so rapid has been the subsequent decline in prices that it almost equals the decline he had estimated for the fifteen or twenty years preceding the date of his work. And the end is not yet.
In his comments upon Mr. Goschen's address, delivered in 1883, wherein he pointed out that in the decade from 1873 to 1883 the annual supply of gold had decreased in a marked degree, and concurrent with this there was a marked increase in the demands upon the world's stock of gold, which was intensified by the substitution of gold for silver as money in Germany and other countries, Mr. Smith makes the following observations:
"The gold production, which for some years exceeded £30,000,000 annually, has fallen to 19,000,000 a year; and the best continental authorities, such as Soetbeer and Laveleye, reckon that more than half that amount is consumed in the arts.
"It may, therefore, be reckoned that since 1873 only some 10,000,000 on the average has been available for currency purposes.
"But Germany during that period has introduced a gold currency of 80,000,000, the United States has used up 100,000,000, and Italy has drawn some 20,000,000 for a similar purpose.
"So that 200,000,000 have been drawn for these special purposes, whereas the whole supply of new gold for coinage has not exceeded in that time 130,000,000.
"The balance must have been drawn out of existing stocks. Besides, a steady drain of some 4,000,000 a year has gone to India, further depleting stock in Europe.
"While trade and population constantly grow and demand more metallic currency, there is a steadily diminishing quantity to meet it. If you put the present product of gold at £19,000,000 a year, and the requirements of the arts at 8,000,000 or 10,000,000 a year, while the India demand is 4,000,000, there is only left 5,000,000 to 7,000,000 a year for Europe, America, and the British Colonies.
"It will seem to subsequent ages the height of folly that just at this period, when gold was running short, the chief states of the world decided to close their mints against silver, and cut off, so to speak, one-half the money supply of the world from performing its proper functions.
"Had the world continued to use both metals as freely as before, the painful crisis we have passed through would have been much mitigated. But by a suicidal policy silver was cut off at the very time it was most needed, and a double burden thrown upon gold just when it was able to bear only half of its former burden.
"As Bismarck has well said, two men were struggling to lie under a blanket only big enough for one."
Bad as have been the effects of monometallism in England, they have been far worse in Ireland; and dark as is the future of the former, it is light itself compared with that evidently in store for the latter. Those familiar with Irish affairs know that after a long agitation several acts have been passed to enlarge the rights of tenants and to secure them a larger share of what they produce. The Act of 1881 reduced the rents and fixed the amount to be paid at a specific annual sum in money for a long term of years; and the subsequent Ashbourne Act (so called from Lord Ashbourne, who introduced it) gave tenants a chance to buy and pay for lands in fixed yearly installments for forty-nine years. The intent was to create a peasant ownership somewhat like that of France. It was the end of a long fight, and was supposed to be a great victory and the inauguration of a very great reform.
Scarcely, however, was the great victory won and the great reform inaugurated when it became evident that, owing to the demonetization of silver and increased purchasing power of gold, the tenants were, in reality, bound to much heavier payments than before. Whatever may have been the intent, the tenant, who bound himself to pay a fixed annual sum as rent for a long term of years, found himself bound to deliver a much larger share of produce; and the purchaser under the Ashbourne Act found that what looked so easy in figures soon became impossible in fact, as the prices of his produce fell so rapidly that each successive payment became more oppressive until it finally became impossible. Thus it looks now as if by the appreciation of gold all that was gained for the tenant is more than lost, and that in the future his condition may be worse than in the worst days of rack-renting. In recent years this has become plain to those who have the good of Ireland at heart; they have taken the alarm, and are outspoken on the threatening evils. Among these is the Most Reverend Dr. Walsh, Archbishop of Dublin. In a recent interview he says, referring to the rise in the value of gold:
"All this is indisputable; it is now fully in the public view; yet not even an attempt is being made in Parliament, or even out of it, to bring about an equitable readjustment of the conditions which are proving so disastrous in other nations, conditions too that are imposed under the provisions of statutes enacted as measures of protection for the tenants. The Irish Land Acts of 1881, 1885, and 1891 have, nevertheless--as a result of the increased and increasing value of our present unbalanced and consequently untrustworthy monetary standard of value--become fruitful sources of difficulty, and may very soon become fruitful sources of disaster, to those for whose benefit they were intended."
Again, referring to the importance of some remedy, possibly that which bimetallism might provide, he says:
"The adoption of bimetallism or of some equivalent remedy, if there be any equivalent remedy, is, I am convinced, a matter of imperative necessity; that is, if the agricultural tenants of Ireland--and I do not limit this to Ireland--are to be saved from otherwise irretrievable ruin. If things go on as they are, even the excellent land purchase scheme, which is associated with the name of Lord Ashbourne, may become, before many years are over, a source of widespread disaster to the tenants who have purchased under it."
Again, in view of the steady and dangerous increase in the burdens of the obligations entered into under either of the acts referred to, by reason of the continued enhancement in the price of gold, he says:
"The bimetallists may be right or they may be wrong; but, at all events, if they are right, then it is noticeably plain that the Irish tenants who have the misfortune to have their rents fixed for terms of ten or fifteen years under the Act of 1881, and in much the same way the Irish tenant purchasers who have the misfortune to have found themselves saddled with the obligation of making annual payments fixed for forty-nine years, are simply sliding down an inclined plane with bankruptcy awaiting them at the bottom of it."
And again:
"The point, as I have already stated it, is that so long as our monetary system remains what it is, every one who is placed under an obligation to make yearly payments of a fixed amount of money is thereby placed under a burden which is growing heavier from year to year."
In discussing the question of variability in the purchasing power of gold, he says:
"The reason of the liability to fluctuation in the purchasing power of the sovereign is plain: When gold rises in value a larger quantity of any other commodity, say of corn, of meat, of butter, or of cloth, will have to be given in exchange for any given quantity of gold, such, for example, as the quantity contained in a sovereign. On the other hand, when gold falls in value a smaller quantity of any other commodity, say of corn, of meat, of butter, or of cloth, will suffice to obtain in exchange any given quantity of gold, such as that which is contained in the sovereign. It is an obvious inference that our gold coinage, however useful as a medium of exchange, does not furnish us with a standard of value fixed and unalterable. It does not furnish us, for example, with such a standard as the yard is of length or as the pound troy is of weight. The popular notion that the pound sterling constitutes a fixed standard of value is merely a popular delusion. The sole foundation for that delusion manifestly is that in these countries the values of all commodities are commonly stated in terms of a pound sterling; in other words, in pounds, shillings, and pence; a shilling being a twentieth part of the pound, and a penny the twelfth part of that again.
"The natural result of this method of enhancing the value of commodities other than gold is that when prices rise or fall the impression is conveyed to a superficial observer that it is the value of other things that changes, the value of the sovereign remaining fixed."
Under this head he says again:
"The price of things estimated in gold--their gold price--may change, whilst their price estimated in silver--their silver price--remains unaltered. This will occur if the value or purchasing power of gold goes up or down, while the value or purchasing power of silver remains unaltered. Suppose, for instance, that gold is in any way scarce in relation to the demands upon it. Then, in any country where gold is the standard metal of the currency, those who wish to obtain, a certain quantity of gold, whether in coin or in bullion, will have to give a larger quantity of other commodities in exchange for it; or, to put the matter in another light, those who have only a definite commodity to part with will receive less gold in return for that; in other words, there is a fall in gold prices. Suppose, on the contrary, that gold is abundant in relation to the demands upon it, then those who wish to obtain a certain quantity of gold, whether in currency or in bullion, will not have to give so large a quantity of other commodities to obtain the quantity of gold they require; or, to put the matter as before in another light, those who have a definite quantity of other commodities to dispose of will obtain more gold in return for them; in other words, there is a rise in gold prices. If in either case there is no change in the value of silver, then the price of commodities stated in silver, that is, their silver price, will remain unchanged."
In referring to the very prevalent notion, especially among the uneducated classes, that the gold unit of measure of value does not vary, he says:
"As for the tenant purchaser, he probably thinks that after the extra pressure of the first few years he may look forward to easy times for the rest of his life. He little knows what is before him. If things go on as they are, it will be harder for him, ten or fifteen years hence, to pay forty pounds a year than it would be to pay fifty pounds a year now; but of all this he knows nothing--how could he? His only idea is that a pound is always a pound, and a sovereign is always a sovereign; so, in the belief that the yearly payment, when it is reduced to forty pounds, will be well within his reach, he puts his head into the halter."
THE "DUMP" OF SILVER.
All the world will dump its silver on us if we adopt free coinage, says the monometallist. How much, and where will it come from? asks the bimetallist. Oh, the world has billions of it ready for us, is the vague general reply; but when we ask for a bill of particulars we get instead a fine confusion of prophecy.
One answers that it will come from Spanish America. But we have already shown that all nations from the Rio Grande to Cape Horn have but $100,000,000 for their 60,000,000 people. The South Americans have but 83 cents apiece. The Mexicans have $4.54. The Central Americans have $2.14. And the South Americans have $550,000,000 in paper money, to bring which to par and maintain it there will require at least $300,000,000 more in silver than they now have. No "dump" from there.
From France, says another. Well, France has $487,000,000 in silver coin, and some bullion; only $12.94 per capita in coin, and valued at 15-1/2 to 1 of gold. At her ratio an ounce is worth $1.3336; at ours $1.2929. Will she rob herself of coin, when she has none too much for business, and sell it to us at a loss of 4 cents on the dollar and freight charges? Germany has but $215,000,000 in silver coin, less than half as much as France, though having 13,000,000 more people, and Great Britain has but half as much as Germany. All the other Europeans together have much less than these three nations, and used at a higher valuation than ours. How then can they "dump" any on us?