I

AM asked what will be the effect of the freecoinage of silver by the United States upon the gold price of silver bullion. I reply that the freecoinage of silver by the United States will double the demand for silver bullion and double its price. Under free-coinage our currency will be increased perhaps $100,000,000 a year; but the currency of the gold-using nations of Europe will be increased with equal rapidity even if we retain all our present stock of gold. If we should export of this stock $25,000,000 a year, Europe's supply of currency would increase more rapidly than our own, and her currency become less valuable than ours. lf we export gold at all it will be a slow process. I am ready to grant that our stock of gold is grossly exaggerated in the estimates of the director of the mint. But be it only half as great as that official reckons, it is impossible for any one who believes that the value of currency depends upon its volume to figure out the complete disappearance of our gold, or an appreciable premium upon it for years to

come.

It is not my purpose in this essay to repeat the time honored arguments showing the correctness of the belief that the value of the currency, other things being equal, does depend upon its volume. That principle is not only accepted by the common sense of the unlearned classes, but is taught by every international bimetallist and by every one of the classic political economists. It was never disputed, so far as I know, until the exigencies of the present silver controversy forced the monometallists to dispute it or retire from the field. In the old political economics, it is presented as a self-evident principle rather than as a deduction from experience, but the experience of the world with changes in the supply of currency is just as conclusive. I merely wish to cite two illustrations of its truth. When the Napoleonic wars led to the employment of paper money instead of coin in France and England the value of both gold and silver fell to one half.* In other words, prices measured in gold and silver doubled. When at the end of the wars the two nations retired their paper currencies and demanded coin the value of both metals doubled. When the gold discoveries in California and Australia at the middle of this century greatly increased the supply of gold, though with. out materially affecting the supply of silver, the value of money, whether gold or silver, again fell

* See Jevons' essay in the "Journal Statistical Society" of London, 1865.

with the increased quantity of money. Nothing is clearer historically than that the value of money depends not upon its material, but upon the relation between its supply and the demand of business.*

My own lingering doubts upon this point were removed by the experiences of France immediately after the gold discoveries. It will be recalled that the production of gold within a few years increased tenfold, while the production of silver merely increased at the steady rate it has maintained for the century. The cost of mining gold, measured in days' labor, was reduced to less than one-half. Had

* An illustration of this principle only less striking has been furnished by the recent experiences of the United States. In 1878, when the Bland-Allison bill was passed, requiring the coinage of $2,000,000 of silver bullion a month at the old ratio of 16 to 1, the monometallists with one accord predicted that we would have “an eighty cent dollar." The value of the bullion in the Bland dollar

had been below eighty cents. If the value of money depended upon its material, and not upon its volume, the Bland dollar would certainly have been worth but eighty cents in gold. The cheaper dollar would undoubtedly have driven out the dearer dollar, and the monometallists' prediction that our gold would leave us would have been fulfilled. But these predictions have proven absolutely false. Despite the fact that the Bland dollar was not redeemable in gold, and that the banks for a time assumed a hostile attitude toward it, its value remains the same as gold, because it had the same money privileges and its value was fixed like the value of gold, by the supply and demand for money. About $400,000,000 is silver coin was issued under this act, at the ratio of 16 to 1, and yet the whole of it remained at par. When the Sherman act was passed the power of the government to affect the relative value of gold and silver was again shown. Not only was the price of all coin silver raised to the old level-$1.29 an ounce-but the price of uncoined silver throughout the world was raised from a little over ninety cents an ounce to $1.21. Yet the Sherman act had only increased our governmental demand for silver from $24,000,000 worth a year to a little over $50,000,000 worth. The relative value of silver only declined when Austria and Russia created a new demand for gold proportionately greater than the demand of the United States had created for silver. The recent fall in the value of silver and rise in the value of gold has been entirely due to governmental action, for the supply of gold from the mines has increased with far greater rapidity than the supply of silver. If the limited coinage of silver under the Bland and Sherman acts was sufficient to raise all coined silver to $1.29 an ounce and all uncoined silver to $1.21 an ounce when the relative supply of silver was far greater than to-day, it is evident that unlimited coinage and the doubling of our former demand would raise all silver to the old level.

gold been demonetized, as the monometallists then demanded, its value would doubtless have fallen as rapidly as they predicted. But as the mints remained open and an ounce of gold still retained the same currency privileges as 151⁄2 ounces of silver, its value could not fall any faster than the value of all currency fell. For several years France, with less than half of our present population and hardly more than half of our present currency, received yearly at her mints $100,000,000 of gold. Yet with this expansion of the currency came an expansion of business demanding more currency. Prices rose but one-fifth in fifteen years, and prices in silver rose as rapidly as prices in gold. There was a slight premium upon silver at the bullion dealers, where a little silver was each year sought for export, but this premium did not exist in ordinary transactions. Just what took place is admirably described by Chevalier in a passage that cannot be quoted too often. Writing in 1859-eleven years after the flood of cheap gold had begun to pour into the currency-the great monometallist of his generation said:

One is surprised at first that a production of gold so vast, so colossal, as has been noted, in comparison with what had been seen before, has not yet caused a lower ratio of gold to the other precious metal.

But

there is intervening a powerful cause which temporarily holds back gold in its fall. France offers thus far an indefinitely great market upon the basis of 1 kilogram of gold for 15% of silver. For the stranger who owes a Frenchman a certain number of francs-that is, a certain number of times 4% grams of silver-acquits himself legally by giving him a quantity of gold 15% times as small. Whenever the merchant in precious metals wishes to exchange his gold for silver, he obtains almost the same terms; for, in addition to the quantity indicated by the ratio of 15% to 1, he has only to pay the premium, and by force up to this present that has been slight, and must remain so for some time yet, for a reason easy to perceive. So long as there remains much silver in France, people residing there, to whom the pieces of metal come, ought to esteem themselves happy to exchange it for gold at a premium very small over the ratio established by the law of 1803, since for the payments they have to make they cannot make their creditors take it for more than the proportion of gold indicated by the law 1 to 15%. For the same reason it will be impossible at London, at Brussels, and Hamburg, at New York, or any place, on the general market for gold to be worth much less than 15% its weight in silver.

What took place in France in the fifties when the free-coinage of gold was continued despite the protests of the classes favoring a scarce currency is likely to take place in the United States when the free-coinage of silver is resumed, despite the protests of the same classes. The increase in our currency will be relatively less and the rise in prices probably less. To-day the entire annual product of the silver mines of the world (reckoned at its old price) is but a little more than $200,000,000. Nearly one-half of this product, as Mr. Giffen said in his "Case Against Bimetallism," is taken for non-monetary

purposes (including the consumption of India.) Further millions are taken for the subsidiary currency of gold standard countries, and the entire currency of silver standard countries. These demands are not lessened when silver rises in price. The amount of silver that can be brought to our mints is not likely to exceed $100,000,000, even if the cause of bimetallism is too weak abroad to lead any other nation to follow our example. The relaxing of our demand for gold is likely to lower the value of that metal to where it stood prior to the adoption of international monometallism in 1893. With prices restored to the level of four or five years ago, $100,000,000 a year is hardly more than sufficient to maintain prices upon that level. During the decade between 1880 and 1890 our currency, according to the official estimate, increased nearly 5 per cent. a year. The estimate was somewhat exaggerated, but the real increase was about 4 per cent., and this was insufficient to prevent slowly falling prices. One hundred million dollars a year added to our currency would increase its volume but 7 per cent. a year, and would hardly keep pace with the demands of expanding business.

Meanwhile the gold currencies of Europe would expand with equal rapidity. The annual product of gold is now estimated at a little over $200,000,000. For the years 1881-1885 Soetbeer estimated the non It is monetary consumption at $80,000,000 a year. now probably a third more, but about $100,000,000 remain to be added to the currency of gold-using countries. The nations of Europe using gold-and not paper-have increased their population and business during the past decade barely as much as this country alone has increased it, and the rate of increase has been far less. Europe's supply of currency will increase as rapidly in proportion to the expansion of her industries as our supply of currency will increase in proportion to the expansion of our industries. It is hardly necessary to anticipate any exportation of gold whatever. This nation, together with the silver-using nations of Spanish America and the Orient, constitutes half of the commercial world. There is no more danger of inflating the currency of half the world with silver than there is of inflating the currency of the whole world with gold and silver. The currency of the world will increase no more rapidly under national bimetallism than under international bimetallism. Each will give to silver and gold at the old ratio approximately the same currency demand. When the currency demands for the two metals were approximately the same, silver and gold remained at the old ratio during the first part of the century, though three times as much silver was produced as gold; they remained at this ratio at the middle of this century when three times as much gold was produced as silver. Much more, therefore, will equal currency demands maintain this ratio at the end of the century when the two metals are produced in equal amounts.

with gold coins (as is the case now), the silver is kept up in value by being exchanged readily for gold in all dealings. But with the unlimited free coinage of silver, when its market value is one-half its coin value, the silver dollar will inevitably be valued at one half its present purchasing power. About this there cannot be a shadow of a doubt. Such results have happened again and again in monetary history.

3. But this change of standard cannot take place without disastrous results and a panic. Why should we expect a commercial panic to follow? The withdrawal of gold means a change of standard. Before silver could be raised to par, according to Mr. Bryan, a new demand must arise for silver, and a demand be taken away from gold. That is only another way of stating that we must go to a silver basis in order to create the demand which will raise the value of silver to par. In short, we must have the fearful cataclysm following a change of standard before Mr. Bryan can prove his theory right or wrong.

The reasons why a panic must follow a change of standard are clear. Business men are selling goods on time, and discount their bills at banks. To pay wages in his factory to-day he gets the present worth from the banks of the debts due him for goods sold. These sales and discounts are made at prices determined by the existing gold standard. Suggest a lowering of 47 per cent. in the standard,—and imagine if you can the ensuing confusion. How can any kind of a business contract be made if it is not known within 47 per cent. what the value of the payment will be? No bank will loan the deposits left in their hands, or renew old loans, if there is fear that the repayment may vary by 47 per cent. And even before the change of standard could be enacted men would all wish to sell their securities and property for gold before the change to silver came about. If, then, every one is selling, and if the banks refuse to loan because of the uncertainty,-picture but faintly the consequent distress and failures. One house, unable to get loans to meet its maturing notes, fails; that brings down another house,-then all come crashing down in ruin.

The horror passes all description: the hopes of a lifetime gone, homes sold, and beggary for wife and children. This would be the first effect of free coinage of silver; and already the faint possibility of it has forced down the prices of securities, in many cases, to a point as low as in the panic of 1893.

The results of a panic will be reduced production, lessened demand, rigorous economy, diminished transactions, idle capital, idle labor, general prostration, and the heaping up in banks of unemployed money. Less money will be needed for the lessened business. The demand for silver will be less than the present demand for gold, as a first result of free coinage of silver.

4. The only possible means by which silver can be raised to par must then be the demand created solely

by the United States. And this demand must be sufficient to raise the value of all silver in the world to par, not only in the United States. but in India, China, Russia or France. And yet one of the first results of free coinage of silver will be to withdraw the support from under the $625,000,000 of silver in the United States now kept at par in gold. With our present gold system, from 1878 to 1893 our government purchased silver outright and withdrew it from the market, but kept it at par with gold. Our present legislation requires the Executive to main tain this silver at parity with gold, and so far this has been done. It has been a great help to the silver market that $625,000,000 have been bought and kept at a value far beyond its bullion value. Now give us free coinage of silver, drive out gold, and it will be impossible to maintain the silver at par. Why? Because silver cannot be exchanged for gold money in any daily dealings; only silver will be paid in for duties; the Treasury will pay in silver; and all government money and obligations will be valued by the kind of money in which they are payable. Our money, based only on silver, will have only the value of silver. This $625,000,000 of silver will fall to its market value, just as the Mexican dollars, now used in commerce all over the world, although containing more pure silver than our own dollars, pass for about 50 cents in gold. Free coinage of silver, therefore, will deprive $625,000,000 of silver of its supporting gold prop, and it must henceforth stand on its own legs. The effect of this will be to depress rather than raise the value of silver.

5. Under the acts of 1878 and 1890 it should be recalled that the United States was a direct purchaser of silver. It took taxes from us and bought silver with them. With free coinage of silver the government would not buy a dollar of silver. Free coinage of silver means the right of any owner of bullion to have it coined into dollars. When the mint merely stamps this bullion into coins it is not a purchaser. It receives the bullion, and returns it to the owner in form of coins. A great many people have been wrongly led to believe that the government would create a demand for silver by buying it at the mints at a fixed price. Indeed, Mr. Bryan seems to hold this very mistaken view: Any purchaser who stands ready to take the entire supply of any given article at a certain price can prevent that article from falling below that price. So the government can fix a price for gold and silver by creating a demand greater than the supply." That any one could believe this seems incredible. The government creates no demand. That depends solely upon the monetary needs of trade.

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6. The only way in which the whole quantity of silver in the entire world can be raised to par with gold by the action of the United States alone is by its demand for silver in its circulation. On the supposition furnished by Mr. Bryan that silver will be kept at par with gold, the new demand for silver will, at the most, be for $600,000,000 to replace that

amount of gold, which in 1896 constitutes our stock of gold, and which would leave the country. Would a demand of this amount raise the total supply of silver in the world to par with gold, and keep it there? Such a hope, in my opinion, is quite preposterous. Why? The silver party in 1878, and again in 1890, prophesied that these purchases of silver by the United States would raise silver to par; but, instead of that, it obstinately fell in value. And for the very good reason that we did not control the actions of other countries, which were getting rid of silver and taking on gold. That is, we took about $600,000,000 of silver off the market without raising silver to par. Being mistaken once, why should we trust these theoristic prophets again?

Opening our mints to the free coinage of silver would undoubtedly tend to raise the bullion price of silver somewhat; but the continuing large production of silver, with no new demand for silver in Europe, would soon cause a decline in its value again. In 1890 the greatest silver combination ever known, ramifying from the London bullion dealers all over the world from the United States to India, with enormous capital behind it, following upon their successful passage of the Sherman act of July 14, 1890, in this country, succeeded once in raising silver to $1.21 per ounce. And then what happened? The greatest collapse and fall in value of silver ever known. From August, 1890 (the ratio being 17.26 : 1) silver fell exactly to one-half its value in March, 1894 (the ratio being 34.36).

In short, the action of several countries, each alone trying to do, what Mr. Bryan thinks the United States alone can do, has signally failed to raise the value of silver. One country can no more stem the tide which caused the fall in value of silver than a man can swim up against the Niagara rapids. India alone has taken more than $600,000,000 of silver since 1878, and yet that has not sufficed to keep silver at par with gold,-even when the United States was also taking a similar amount in the same period. If India and the United States together could not keep silver at par by creating double the demand now possible under free coinage by the United States alone, how can it be done by one of them?

No one country can stand against the current of events which has at last practically deposed silver from any position as an independent monetary metal. The United States, by the act of 1853, in effect acquiesced in the gold standard, and used no silver dollars until 1878; to 1864 France absorbed over $1,100,000,000 of gold and let her silver go; in 1873 Germany exchanged her silver for gold; in 1878 the Latin Union (including France, Italy, Belgium, Switzerland and Greece) closed their mints to silver, in order to retain their gold; Holland, in 1875, discontinued silver coinage and opened her mints to gold; Austria stopped the coinage of silver in 1879, and began collecting gold in 1892; Italy, in 1882, resumed specie payments in gold; India, in

1893, closed its mints to silver; after a trial of silver coinage under the Sherman act (1890), giving us too great an amount for us to carry, we were on the eve of the silver standard, so that a panic came upon us with sweeping losses and ruin, the country rose en masse and repealed the silver legislation November 1, 1893, which caused the destruction; and this year Russia has practically placed herself on the gold standard. Just when all Europe was discarding silver, to drive out our gold by free coinage of silver would only assist them in this movement, and not perceptibly aid in the rehabilitation of silver. Just how it would operate can be seen from the course of events when the fear of the silver standard in 1893 sent gold abroad. Austria was collecting gold under her act of August, 1892, when Professor von Wieser wrote: "That which worked for our good still more, and beyond all expectation, was the fact that an unusually abundant supply of gold flowed out from the United States just at the moment when Austria applied herself to procuring a stock of that metal. All the great European banks of issue profited by this opportunity, and we, too, made the most of it. It is in great part your Republican eagles, stamped with the imperial eagle of Austria, or the royal crown of St. Stephen of Hungary, that just now are furnishing the basis of our gold standard."

6. If, then, it would be wholly inadequate to the purpose of raising silver to par with gold, to rely only on the demand for an amount of silver that would be created in exchanging goods in the United States, the only other ground of thinking that silver can be raised to par is that of the unlimited legal tender quality. To keep 53 cents of silver at par with gold by giving the silver unlimited legal tender has no precedent in history to warrant its success. If the legal tender quality will keep silver at par, why does the Mexican dollar, which is full legal tender in Mexico, not stay at par with gold? In fact, it is in Mexico worth only about fifty cents in gold. In our Civil War we made the greenbacks full legal tender; but they depreciated to 35 cents on the dollar. Making money legal tender, moreover, does not insure its circulation and a demand for it. Gold coin was a legal tender before 1834, and yet it was not in use. From 1834 to 1873 silver dollars were a full legal tender (and we had free coinage of both gold and silver), but they were not in use. From 1862 1879 gold was legal tender, but gold was not in circulation. So that not even by making money legal tender can you force a demand for it. And as we have seen, the legal tender power alone cannot keep money at par.

It cannot, then, be admitted that free coinage of silver by the United States alone will raise silver to $1.29 per ounce—that is, raise the 53-cent dollar to 100 cents in gold. But, if it could, the favorite argu ment in favor of silver on the ground that it would raise prices, is ruined.