Part 1

The Gold Standard.

HOW IT CAME INTO THE WORLD AND WHY IT WILL STAY. A HISTORICAL SKETCH WITH SOME PRACTICAL REFLECTIONS THEREON.

_AN ADDRESS BEFORE THE CONGRESS OF BANKERS AND FINANCIERS AT CHICAGO, JUNE 20, 1893._

BY HORACE WHITE.

The Evening Post Publishing Co.,

NEW YORK CITY.

_Copies of this pamphlet may be obtained at 5 cents a copy, postpaid._ _Address_ THE EVENING POST PUBLISHING COMPANY, _206–210 Broadway, New York City_.

THE GOLD STANDARD.

The most impressive fact in the world of finance is the dominance of the gold standard. A year or two ago Roumania passed under its sway, to-day it is Austria, next year or soon it will be India, by and by it will be Russia, and meanwhile it has lost no ground that it has ever held. Three international conferences have been assembled to stay this conquering march, while none has been called to promote or assist it. Yet the movement has been as little impeded as that of an ocean steamer would be by the action of a debating society in its own cabin. Is all this due to human perversity, or has it a rational cause founded in the needs of mankind?

THE EXPERIENCE OF ENGLAND.

The first nation to adopt the single gold standard by law was England. This was really done in 1798, although the date usually assigned to it is 1816.

The pound sterling was originally a pound weight of silver, divided into twenty parts called shillings, and each of these into twelve parts called pennies, or pennyweights. Gold made its first appearance in the coinage of England in the reign of Edward III. (A. D. 1345). The ratio of gold to silver fixed by royal decree in this coinage was about 12½ to 1.

From this period to the forty-third year of the reign of Elizabeth there were nine debasements of the silver coinage accompanied by changes in the gold coinage, but as these were arbitrary acts of the reigning sovereigns they possess no scientific interest. In the forty-third of Elizabeth (1601) the last debasement was made. The pound weight of silver was then coined into sixty-two shillings, and the pound of gold into thirty-three and one-half sovereigns of seven pennyweights and four grains each, the ratio of gold to silver being 11 to 1. The silver coinage being henceforth unchanged, it becomes possible to trace the commercial variations of the two metals and to observe the ineffectual struggles of society and government to keep both of them in use as legal-tender money.

Queen Elizabeth died two years later. Before her successor, James I., had been on the throne three years, gold had risen in value as compared with silver, and the gold coins were exported to such an extent that it was necessary to diminish their weight about 11 per cent. The ratio now established was a little more than 12 to 1.

In the ninth year of the same reign the gold coin began to be exported again, so that it was necessary to make a new change of ratio. This time the ratio was fixed at 13 to 1. But this was too great an advance in the rating of gold. An exportation of silver set in which caused great inconvenience in the kingdom. Instead of readjusting the ratio the King, in the year 1614, issued a proclamation prohibiting the exportation of the precious metals. The proclamation had no effect. So another one was issued in 1618 reaffirming the first one and forbidding the melting of coin for the purpose of making plate, although a certain amount might be used for repairing old plate and keeping it up to its original standard. As the evil continued a third proclamation was issued in 1622 and a fourth in 1624. None of these had any effect except to make an historical record of the futility of attempts to enforce a legal ratio which is different even in a slight degree from the market ratio. It was customary during this period to pay a premium of two pence for silver change to the amount of 20 shillings.

Soon after Charles I. began his reign he issued a proclamation on the same subject, reciting the previous ones of his father and acknowledging that they had been disregarded. In 1636 seven persons accused of melting and exporting coin were arrested and fined £8,500 and imprisoned till the fines were paid, but even this example did not put a stop to the practice. Silver was worth two or three pence per ounce more than the mint valuation, and this fact dominated society from the King on the throne to the beggar on the dunghill. But what could not be prevented by royal proclamation and star chamber was stopped by an unseen force. The price of gold was slowly rising, so that about the beginning of the Commonwealth the ratio that King James had established was identical, or nearly so, with the market ratio. The exportation of the precious metals ceased until the reign of Charles II.

In 1663 gold had risen in value so that it was necessary to change the ratio to 14½ to 1. This was an advance of about 8 per cent. since James I.

Each time that a change was made in the gold coinage a new name was given to the coin so produced, in order to distinguish it from its predecessors. The coin that Charles II. now introduced was called the guinea. It was ordered that this coin should pass for twenty shillings, but it immediately became current in trade at a higher rate, passing for twenty-one to twenty-two shillings. No attempt was made to enforce the mint valuation or to prevent melting or exporting. Consequently silver became in practice the only legal-tender money. Nobody would offer a guinea to pay a debt of 20 shillings when it was worth 21 shillings. The guineas passed for what they were worth as bullion. That was a time when the clipping of coin was much practiced, but it was no advantage to clip a gold coin, since it was taken only at its bullion value. The silver coins, however, passed by tale. Consequently they alone were subjected to the clipping process. The evil became so great that a recoinage of silver was necessary and was undertaken in the reign of William III. This was a celebrated event in many ways. Both Sir Isaac Newton and John Locke were concerned in it. In the year 1717 the guinea was made current by royal proclamation at 21 shillings in silver, at which figure the ratio was about 15⅐ to 1. This was in the third year of the reign of George I.

It was about this time, says Lord Liverpool, that a marked preference was shown by the people for gold money rather than silver, on account of its convenience in making large payments. This he ascribes to the increase in the commerce of the country. As gold was slightly overrated at the ratio of 15⅐ to 1, there was a tendency to export silver. Only £584,000 of the latter metal was brought to the mint for a period of eighty-three years down to the end of the century, and most of this came from Spanish treasure ships captured in war. The only silver coin retained in circulation was that which had been much worn. As these light-weight pieces varied among themselves, the lightest ones were selected to make payments, a condition which became worse and worse until Parliament in 1774 passed an act limiting the legal tender of silver coins to £25 in tale. For any sum above £25 they could be paid by weight only. This act was to continue in force only two years, the expectation being that some other remedy for the evil would shortly be found. It was re-enacted from time to time till 1798, when another clause was added providing that no more silver should be coined at the mint, nor should any be delivered that had been coined, but that the owners of such silver should be paid for it. In the following year (1799) a brief act was passed making the act of 1774 perpetual. In 1816 the character of the British monetary system was formulated by an act of Parliament on its present basis, the essential part of this act being in the following words:

“XI. And whereas at various times heretofore the coins of this realm of gold and silver have been equally a legal tender for payments to any amount, and _great inconvenience has arisen from both those precious metals being concurrently the standard measure of value and equivalent for property_; and it is expedient that the gold coin made according to the indentures of the Mint should henceforth be the sole standard measure of value and legal tender for payment, without any limitation of amount, and that the silver coin should be a legal tender to a limited amount only, for the facility of exchange and commerce;

“Be it therefore enacted, That from and after the passing of this act, the gold coin of this realm shall be and shall be considered and is hereby declared to be the only legal tender for payments, except as hereinafter provided, * * * and no tender of payment of money made in the silver coin of this realm of any sum exceeding the sum of forty shillings at any one time shall be reputed a tender in law, etc.”

This is a brief résumé of the experience and legislation of Great Britain. It is important as showing that the single gold standard was adopted on account of the “great inconvenience” of the double standard, which had been in vogue previously. Of course, this “inconvenience” had attracted the attention of learned men before 1798. John Locke had shown that a double standard composed of two things of varying value was an impossibility. He favored the single standard of silver, as did the learned men who considered the same question in France a century later.

It appears that the gold standard was adopted without any particular design on the part of those who brought it about. They found, as a matter of fact, that the monetary evils existing in 1774 could be cured most readily by limiting the legal tender of silver. So they did it for two years, and then for two years more, and so on, till 1798–99, when they had become satisfied by the experience of twenty-five years that the single gold standard was the right thing to put an end to the “inconvenience.” Seventeen years later, the experiment having continued to be successful, they passed the law which I have quoted. That law, in substance, remains in force to the present time, and we may be sure that it would not have lasted so long if it were not a good thing _per se_.

THE GOLD STANDARD IN THE UNITED STATES.

We will next consider the experience of the United States. At the beginning of our career as a nation we adopted the double standard of gold and silver. This was in 1792. Our statesmen followed in this matter the example of the older countries of Europe. Alexander Hamilton was the Secretary of the Treasury and the ruling spirit. At his instance the ratio of 15 was adopted, and there is no room to doubt that this was very close to the true market ratio at the time. The English ratio of 15⅐ ceased to be operative, as we have seen, because it was too high. France was at that time under the régime of irredeemable paper. Consequently nothing could be learned from her. The discussions and writings of the period show that there was an honest and earnest effort to adopt the market ratio as the legal ratio, and that the result reached was as nearly true as possible. Nevertheless, gold began to grow scarce in our circulation as early as 1810, and had wholly disappeared in 1817. One ounce of gold had come to be worth as metal something more than fifteen ounces of silver. It was worth while for bullion brokers to collect gold coins and export them. The testimony is emphatic and is not disputed, that after 1817 and until 1834 our metallic money consisted of silver exclusively.

THE LAW OF 1834.

In 1834 people had become tired of lugging silver around. They had by this time found out what was the matter. They determined to have some gold in their pockets, but it cannot be affirmed that Congress had reached a scientific conclusion in favor of the single gold standard. What is certain is that Congress adopted the ratio of 16 to 1 in 1834 by very large majorities in spite of proofs urgently presented that this ratio would drive silver out of circulation altogether, as it did. This bill was called the “Gold Bill” in the discussions of the time. As reported by the special committee, it provided for a ratio of 15.60 to 1, but when it came up for discussion, Mr. Campbell P. White, the Chairman of the Committee, who was himself in favor of the single gold standard, moved to amend by making the ratio 16 to 1, and his amendment was adopted without a division. On the main question the debate was long and animated. An amendment to the amendment was offered, making the ratio 15.625 to 1, and it was supported on the ground that this was the true market ratio, and that it would enable the country to keep both silver and gold in concurrent circulation. This amendment was voted down--yeas 52, nays 127. The bill was then passed in the House by 145 to 36, and in the Senate by 35 to 7.

There was a variety of motives leading to the passage of the Gold Bill, but among these the desire of having gold in place of silver was the most influential. Thomas H. Benton, one of the strongest advocates of the measure, declared that the object of his endeavors was:

“To enable the friends of gold to go to work at the right place to effect the recovery of that precious metal which their fathers once possessed, which the subjects of European kings now possess, which the citizens of the young republics to the south all possess, which even the free negroes of San Domingo possess, but which the yeomanry of this America have been deprived for more than twenty years, and will be deprived forever unless they discover the cause of the evil and apply the remedy to its root.--[Speech of Senator Benton of Missouri, quoted by Louis R. Ehrich in his ‘Question of Silver.’]”

The effect that was predicted was abundantly realized. Silver did go out of circulation. The minor coins, being of proportional weight and fineness with the dollar, were melted and exported, and their place in the circulation was taken by light-weight foreign coins, principally Spanish and Mexican six-pences, shillings, quarters, and halves. Those coins, when of full weight, were almost identical with our own fractional coins. If our own would not circulate the foreign ones of course would not. But if there was a certain proportion of these coins, whether foreign or domestic, that had been worn down by long use so that they really represented the market ratio or something less, such coins would circulate concurrently with gold. To illustrate: two halves, four quarters, or ten dimes, if new and of full weight, were worth about one cent and a half more than a gold dollar. Consequently they would be collected by brokers, melted and exported. But two halves, four quarters, or ten dimes, that had lost one and a half cents’ worth of silver by abrasion, would circulate, because there would be no motive to melt or export them. There would be no profit in it. When I was a boy the silver money of this country consisted exclusively of foreign coins, mostly Spanish and Mexican, but with a considerable sprinkling of English, French, German and Scandinavian pieces. Every merchant kept a coin chart manual for handy reference to determine the value of these pieces as they were offered in trade. I have also seen Spanish quarters cut in half, each piece circulating as a shilling. There was nothing remarkable about this, since all these foreign coins were circulating at their bullion value. The two halves of a Spanish quarter were therefore worth as much as they would have been if joined in a single piece.

It became apparent to everybody that if full-weight silver coins would not circulate on the ratio of 16 to 1, while those of light weight would circulate, then it would be safe to _make_ minor coins (halves, quarters, etc.), designedly of light weight on Government account, of limited legal tender. There would be no profit in exporting such coins, because they would not sell as bullion for as much as it would cost to collect them. In 1853 an act of this kind was passed.

From 1837 onward the country had gold money and the gold basis. Silver dollars were hardly ever seen. There was not an hour in the whole period of forty years to 1873 when the silver dollar was not worth more than the gold dollar. With the exception of a very few years it was worth fully three cents more. Did any of you ever see a silver dollar in circulation prior to 1878? I never did.

THE LAW OF 1873.

Under these circumstances, the gold standard existing _de facto_, and there being no silver except light-weight subsidiary coins, our mint authorities, the only people who took any interest in the subject, began even before the war to recommend that the single gold standard should be adopted in law as it had been adopted in fact. Ex-Gov. Pollock, Director of the Mint, in his report for 1861 called attention to the incongruity of a silver dollar that was worth 3.10 cents more than the gold dollar and 8 cents more than two half dollars. He recommended that it should either be dropped from the list of coins or reduced in weight so as to correspond with the subsidiary coins. He considered that gold was _de facto_ the standard of value, and he recommended that the law should conform to the fact. But the nation had more exciting topics to discuss in 1861 than those relating to coinage. In 1866, after the war, Mr. John J. Knox, who then had charge of the Mint and coinage matters in the Treasury Department, recommended a revision of all the laws relating to the Mint. Secretary Boutwell approved of the suggestion. Mr. Knox and Dr. Linderman were appointed in 1869 a committee to make such revision. They presented their report with a draft of a bill in 1870. The report recommended the discontinuance of the silver dollar, this coin being obsolete.

The bill and report were transmitted to the Finance Committee of the Senate on the 25th of April, 1870. The bill passed the Senate on the 10th of January, 1871. It made the gold dollar the unit of value and it dropped the silver dollar from the list of coins. The bill failed in the House for want of time. The Forty-first Congress having expired without final action it came up again in the Forty-second. It passed the House May 27, 1872, by yeas 110, nays 13. It passed the Senate January 17, 1873, without a dissenting vote. The metal in the silver dollar at that time was worth two cents more than the gold dollar. No objection to the bill was heard until the price of silver had fallen so that the silver dollar, if there had been any, would have been worth less than the gold dollar. Then it became fashionable to say that the bill was passed surreptitiously. The truth is, that the bill was before Congress two years and ten months, that it was printed thirteen times by order of Congress, that the debates on it occupy sixty-six columns in the Senate proceedings, and seventy-eight columns in the House proceedings, and that the discontinuance of the silver dollar was specially discussed in the House. Any candid person must see that the reason why the discontinuance of the silver dollar attracted so little notice was that this coin had been discontinued _de facto_ in 1834, when the ratio of 16 to 1 was adopted. I have given reasons for thinking that this ratio was adopted designedly to expel the silver dollar from circulation. At all events, it did so, to the satisfaction of the people. It is a great pity that our ancestors in 1834 did not put their intentions into the form of law at that time. If they had done so they would have spared us a Pandora’s box, to be opened forty years later.

Bimetallism was abolished in the United States by the Act of 1873. It has not been re-established by any subsequent act. The purchase and coinage of a limited amount of silver by the Government is not bimetallism. Still less so is the purchase of bullion which is not coined. Any other metal would answer as well as silver as a backing for the issue of Treasury notes. Let us imagine for a moment that silver had not fallen in price after 1873. Would anybody ever have missed the silver dollar? Would anybody have doubted that the gold standard was brought about in this country by natural causes operating upon men’s minds in the same way as it was in England, the action of Congress in 1873 merely giving the form of law to what had been done practically at an earlier period?

THE EXPERIENCE OF GERMANY.

Prior to 1871 Germany had the single silver standard, but as she could not transact business with silver alone, she used for her international and wholesale trade a heterogeneous assortment of gold coins, partly domestic and partly foreign, including napoleons, pistoles, guineas, eagles, Russian imperials, Friedrichs d’or, ducats, crowns, &c., passing as commercial money. The question of a reform of the currency had been under discussion by the economists and publicists of Germany for nearly ten years, but until 1868 the question under debate was a question of _uniformity_ of money rather than of the metallic standard. Dr. Soëtbeer had indeed published two articles in 1863 and 1864 in the _Vierteljahrschrift für Volkswirthschaft_ on the gold standard, but it was not until after the Paris Monetary Conference of 1867 that the commercial classes began to take an active interest in the question. This Conference was held, at the invitation of the French Government, to consider the question of uniformity of coinage. Nearly all the governments of Europe were represented. The United States were represented also. One of the earliest questions to be decided was that of a standard. The first vote was on the question of adopting the single standard of silver. This was rejected unanimously. Then the single standard of gold was adopted with only one dissenting vote--that of Holland. Nobody proposed bimetallism. The action of this Conference shows that even at a time when the two metals were at an equilibrium according to the French ratio, France and all her allies of the Latin Union were inclined to adopt the single gold standard, and also that Germany, Austria, Russia and the Scandinavian countries, all of which at the time had the single silver standard, were of the same mind.

After this event a great many publications appeared in Germany showing an unmistakable tendency in the public mind to the gold standard. The most important of these is the report which Soëtbeer made at the Ninth Congress of German Economists in the year 1868. This Congress met in Hamburg and pronounced in favor of the unification of German money, and of the gold standard. Its action was ratified soon afterward by the united commercial bodies of the North German Confederation, and would have been carried into effect at once but for the war with France. This event postponed the reform one year.

GERMAN MONETARY LAW OF 1871.