The Online Library of Liberty

A project of Liberty Fund, Inc.

• Preface to the Fourth Edition
• Preface to the First Edition
• Part I: The United States, 1792-1873
• Part I, Chapter I: The Arguments of Bimetallists and Monometallists
• Part I, Chapter II: The Silver Period, 1792-1834
• Part I, Chapter III: Cause of the Change In the Relative Values of Gold and Silver, 1780-1820
• Part I, Chapter IV: Change of the Legal Ratio By the Act of 1834
• Part I, Chapter V: The Gold Discoveries and the Act of 1853
• Part I, Chapter VI: The Gold Standard, 1853-1873
• Part I, Chapter VII: The Demonetization of Silver
• Part II: The Late Fall In the Value of Silver
• Part Ii, Chapter VIII: The Production of Gold Since 1850
• Part Ii, Chapter IX: India and the East
• Part Ii, Chapter X: Germany Displaces Silver With Gold
• Part Ii, Chapter XI: France and the Latin Union
• Part Ii, Chapter XII: Cause of the Late Fall In the Value of Silver
• Part Ii, Chapter XIII: The Continued Fall In the Value of Silver Since 1885
• Part III: The United States Since 1873
• Part Iii, Chapter XIV: Silver Legislation In 1878
• Part Iii, Chapter XV: Operation of the Act of 1878
• Part Iii, Chapter XVI: Act of 1890
• Part Iii, Chapter XVII: Cessation of Silver Purchases, 1893
• Appendix II: Relative Values of Gold and Silver
• Appendix Iv, Coinage Laws
• Appendix VII: Consumption of the Precious Metals In the Arts.

Part I

THE UNITED STATES, 1792-1873

Part I, Chapter I

The Arguments of Bimetallists and Monometallists

§ 1. The conflicting opinions of the day in regard to the adoption of bimetallism by the United States, and the disregard of the facts within our own experience, make it desirable that these facts should be investigated historically, and the results presented in a simple form for general use. Monetary science, moreover, will gain by any honest attempt to collect accurate data which may serve in the process of verification of economic principles, enabling us either to confirm the truth of previous conclusions, or to demonstrate their divergence from actual facts. In a monetary investigation of this kind induction is our main dependence; here, in truth, as we seek the means for verification, is the proper field for the historical method.

In order, however, to place the present history in its proper light—in order that it may bear to some purpose on the bimetallic discussion—it has seemed fit to give a very brief résumé of the main arguments1 of both parties to the controversy.

§ 2. I. BIMETALLISM has been proposed under two such widely differing conditions that the following general division of arguments may properly be adopted:

• A. National Bimetallism.
• B. International Bimetallism.

(A.) (1) The selection of both gold and silver by an individual state as legal payment of debts to any amount at a ratio fixed without regard to the legal ratios of other states may be defined as national bimetallism. An example is the proposal for free silver coinage in the United States, where, although no other country of importance has the same ratio (and although the legal ratio does not correspond with the market value of the two metals), we have a proportion of 1:16. Such a system is not upheld by any economic writer of repute. Whenever it is advocated in the United States (2) it has been urged from a strong belief that, if we do not use silver, there will not be enough of the precious metals in existence to perform the exchanges; or (3) with the expectation of inducing other countries to adopt bimetallism; (4) or to sustain the price of silver; (5) or to force the cheaper metal into use as an easy means of scaling debts and of relieving debtors of a part of their burdens. The theories of national bimetallism, as thus advocated, are widely different from the tenets of another school of writers, who are also known as bimetallists.

(B.) An agreement between the chief commercial nations of the world on one given ratio (e.g., 15½:1) would, in the opinion of this other school, keep the value of silver relatively to gold invariable, and so cause the concurrent use of both metals in all the countries of such a league. This may be termed international bimetallism, to distinguish it from the other body of theories. (6) The essential part of this theory is that the legal provision for the use of silver in the coinage of each state creates a demand for silver; and that, inasmuch as other states of the league have the same ratio, no reason could exist why either silver or gold should leave one country for another. (7) In close connection with this argument it is urged that the "compensatory action" of a double standard will prevent that extreme fluctuation of the standard of prices which is made possible by a single standard; since, as prices follow the metal which is for the time the cheaper, the latter will feel a demand just in proportion as the other metal loses it. (8) The desire to use gold, it is held, should be discountenanced, as tending not only to lower the value of silver, but to concentrate the monetary demand of the whole civilized world upon gold; and that, as its quantity would be alone insufficient for the needs of commerce, the value of gold must increase, and the prices of all things diminish, to the great discouragement of business enterprise. There would be a "gold famine" the effects of which would be intolerable.2 (9) This same school also present very strongly the opinion that the general demonetization of silver would so increase the value of gold, and the value of the unit in which the enormous public debts of the world must be paid, that it would entail a heavy loss to the taxpayers.

(10))ther writers, still, urge that the two precious metals were designed by a Higher Power as media of exchange, and that it is a mistake arbitrarily to set up one of them as a standard by which other commodities are to be measured, and to discard the other.3

§ 3. II. MONOMETALLISM is not a belief in the sole use of gold. Its advocates regard gold as the least variable of the two metals, as best suited for large payments; and believe that silver, as a heavier and cheaper metal, should also be used for smaller payments, but not as all unlimited legal tender. (1) Monometallists hold that "national bimetallism" is an impossibility for any length of time, since, as soon as one metal in the market falls slightly below the legal ratio, the other metal will be driven out of circulation, and the country will really have only a succession of single standards, alternating between gold and silver. (2) They believe that one country alone can not hold up the value of silver against the tendencies of many countries to disuse it; and if it should try, the holders of silver bullion would gain at the expense of the single country, which is sacrificing itself by buying silver which will depreciate on its hands; (3) that, if it is an object of the United States to induce other countries to join us in a league, we can best force that policy on them by withdrawing from our isolated and unsupported position until the others manifest a disposition to join us; (4) and that the movement to force silver upon the United states at the present ratio of 1:16 is a disguised form of the policy which a few years ago led to the "greenback" heresy, and is intended to favor owners of silver mines, and dishonest debtors who wish a cheaper unit of payment, at the expense of national honor and credit.

It would be hard to say what the monometallists hold in regard to international bimetallism, since it is largely a matter of theory and of future potentiality. Monometallists do not—as is so often said—believe that gold remains absolutely stable in value. They hold that there is no such thing as "a standard of value" for future payments in either gold or silver, which remains absolutely invariable; but that, so long as we must use one of the two, gold is preferable, inasmuch as it has proved in the past more steady in value than silver. (5) They admit that a general agreement of states to coin silver at a ratio higher than the present market value would have an effect to raise its value; but, while it is extremely doubtful whether this league could overcome natural forces, it is denied that such a league is politically possible, and the experience of the conferences of 1878 and 1881 is cited to show it. (6) As regards the "compensatory action" of a double standard, it is denied that this can act without alternately changing the standard from a single standard of gold to a single standard of silver—and this is not regarded as a "double standard." There can be no "compensation " except as one metal drives out the other. While it may prevent extreme fluctuations of the standard of prices, it brings more frequent fluctuations, each of which is sufficient to drive one metal out of circulation. (7) The tendency to disuse silver is, they claim, due to natural causes affecting the demand, and the legislation hostile to silver but registers the wishes of commerce. (8) The fall of prices since 1873 is used to prove an appreciation of gold; but it is denied that prices depend directly on the quantity of money, and that it can not be said that because prices fall money has appreciated. The fall of prices, used to indicate an increase in the value of gold, is found to depend quite as much on a collapse of credit, and lessened cost of production of the commodities against which gold is exchanged, as on any relative scarcity of gold. (9) As regards national debts, it is distinctly averred that neither gold nor silver forms a just measure of deferred payments, and that if justice in long contracts is sought for, we should not seek it by the doubtful and untried expedient of international bimetallism, but by the clear and certain method of a multiple standard, a unit based upon the selling prices of a number of articles of general consumption. A long contract would thereby be paid at its maturity by the same purchasing power as was given in the beginning.

(10) Far from being true that the value4 of any metal is providentially fixed, it depends, on the contrary, on the power of that metal to satisfy the demands of commerce as an artificial medium of exchange to save us from barter; as countries grow in wealth, it is found that, as an historical fact, commercial centers, where transactions are large, prefer gold to silver; consequently, the value of a metal, merely as affected by its demand, can not remain the same. Moreover, the supply of a metal can very seriously disturb its permanent value. No commodity, not even gold, has any sacerdotal qualities which beep its value invariable.

§ 4. In regard to some of the above differences of opinion, the history of bimetallism in the United States will, in my opinion, give such teaching as ought to settle all cavil or dispute. The experience of this country has been unique. No experiment of bimetallism has ever been inaugurated under circumstances more favorable for its success; and no hostility or suspicion attended its progress. No fairer field for its trial could have been found; and its progress under such conditions makes its history peculiarly instructive. We have had in this country a legal and nominal double standard from the establishment of the Mint in 1792 to the present day, with the exception of the years between 1873 and 1878; and in this period of about ninety years we have had almost every possible experience with our system. Has it proved a success in the past? What lessons does it offer for the future?

It will be remembered that the question of bimetallism has been actively discussed only since the great fall of silver in 1876, and that great animation and warmth have been shown both by its friends and foes. An experience of bimetallism, therefore, under no attacks and under friendly auspices, during the years preceding 1876, for more than three quarters of a century, ought to furnish us lessons which we can readily accept, because they are drawn from results caused by normal conditions, and not vitiated by any suspicion of prejudice against silver. A ship which had proved unseaworthy in fair weather would not be a secure refuge in stormy seasons. Has our system proved successful under these fair and normal conditions?

§ 5. In detailing the events of our history in the following pages it will be found convenient to divide the time into certain periods, distinguished by important legislation and by the consequent effects:

• I. Silver period, 1792-1834.
• II. Gold period, 1834-1853.
• III. Gold period, 1853-1873.
• IV. Single gold standard, 1873-1878.
• V. Transition period, 1878-1893.

Part I will include the first three periods, from 1792 to 1873; Part II will offer a statement of the antecedent facts, and an explanation, of the late extraordinary fall in the valve of silver, which was most marked in 1876; and Part III will include the history of the periods in the United States from 1873 to the present day, with a statement of the present situation.

Part I, Chapter II

The Silver Period, 1792-1834

§1. In the time before the adoption of the Constitution the circulating medium of the colonies was made up virtually of foreign coins. During the war of the Revolution the "Spanish milled dollar" was the unit of common account.5 The paper money, it was at first expected, was to be redeemed in this medium. But as regards coins of a denomination other than the Spanish dollar, there were a variety of them in circulation. In keeping accounts, next in order of common usage to the dollar came the pound and shilling, which was the natural consequence of our English origin; but the shilling stamped by some of the colonies, although forming a considerable part of the money in circulation, varied widely in value.6 Besides these kinds of money there were also English, French, Spanish, and Portuguese coins, which in 1776 were assigned7 the following relative values:

From 1782 to 1786 the colonies began seriously to consider the difficulties arising from the variety of different coins in circulation, and their deleterious effects on business and methods of accounts, to the extent that they proposed a special American coinage with the dollar as the basis. In 1782 Robert Morris, Superintendent of Finance, made proposals8 for the establishment of an American Mint, which were approved by the Congress of the Confederation. He faced the question at once, Of what metal should the dollar be made? He urged the use of silver alone,9 for, he said, both gold and silver could not be used, because the ratio between the two metals was not constant.

Jefferson advocated the decimal denominations in the system of coins, and urged the dollar10 as a unit. He adds in regard to the ratio:

Morris had stated the ratio in America to be about 1:14½, at this time. The proposals of Morris and Jefferson were, however, not carried into effect.

In 1785 the strong desire for a metallic currency, coupled with the belief that silver could be most easily obtained, was evident in a "Report11 of a Grand Committee of the Continental Congress":

Congress again accepted the dollar as a unit, and other coins of decimal proportions to the dollar, but nothing was done.

April 8,1756, the Board of Treasury,12 although they mention that the ratio then prevailing in America was 1:15.60, made three reports, showing the following adjustment of the coins:

The first report was followed, and the board ordered to draft an ordinance for the establishment of a Mint, which was accepted October 10, 1786. Nothing, however, was carried into effect before the adoption of the Constitution. The colonies remained, consequently, until 1792, with a circulating medium of foreign coins, composed almost entirely of silver, and subject to the regulations of the foreign governments which issued them.

§ 2. The establishment of a double standard13 in the United States is due to Alexander Hamilton. His "Report14 on the Establishment of a Mint" remains the best source of information as to the reasons for adopting the system which has continued, with a slight break, from that day to this. As was to be expected, the arguments urged at the present time in favor of bimetallism had not occurred to Hamilton. He did not enter into a general discussion of the effects of a double standard, such as we might expect from a modern bimetallist. In speaking of gold and silver, he was emphatic in stating his belief that if we must adopt one metal alone, that metal should be gold, and not silver (at variance, as we have seen, with the views of Robert Morris in 1782); because, said Hamilton,15 gold was the metal least liable to variation. In fact, we find in his report thus early in our history an expression of that preference for gold over silver, whenever the former can be had, which has since then played no little part among the influences acting on the relative values of the two metals.

This prophecy of Hamilton's was fulfilled to the letter within a few years after the words were uttered.

But in these words also we find the excuse for the adoption of a system of bimetallism which, after the expression of a preference for gold, might have seemed undesirable. If a farmer is seeking for one of two pieces of land, he will be obliged to select that which is within his means. The United States was in the same position as the farmer. There was a general scarcity of specie in the new country, and it was a difficult matter to perform the exchanges with ease. Not only was there no prejudice against silver, but it was the metal most in common use. The whole object of the Secretary was to secure a metallic medium in abundance; silver, being in use, must, of course, be retained, and gold brought in also, if possible. The double standard was preferred, therefore, because it afforded a moral certainty of the retention of silver and a possibility also of adding gold to the money of the land. It would not do, says Hamilton, to adopt a single silver standard, for that would act "to abridge the quantity of the circulating medium." It was hoped to utilize the existing quantity of silver, and yet keep the gold also. Although he preferred a single standard of gold, he must be content to take what he could get; and silver was most easily secured for the new currency. There is, he adds, an extraordinary supply of silver in the west Indies,16 and this will render it easier for the United States to obtain a supply of that metal. He had little conception of the coming effect on his system of this "extraordinary supply" of silver from the South American mines. The scarcity of metallic money was the fact which influenced him in his recommendation of a double standard—a natural scarcity, too, for the country yet felt the effects of the havoc caused by the worthless continental paper which had driven specie out of use. Like the farmer of limited means, who preferred the better although more expensive land, but took the cheaper piece because it was within his reach, Hamilton naturally adopted the poor-country plan,17 and, in order to secure a metallic currency, took measures to retain silver, the best he could get (with the hope of keeping gold also).

§ 3. Having, for these reasons, fully decided to adopt a double standard, the Secretary was obliged to face the chief difficulty in the problem—the selection of a legal ratio between gold and silver. Here was the rock on which, as we shall see hereafter, his system was inevitably bound to go to pieces.

In selecting a ratio between gold and silver in our coinage there is not a reasonable doubt but that, in spite of later charges, Hamilton fully intended to keep as closely as possible to the market ratio in the United States.

Having decided to adopt the market ratio, he found an alternative between (1) the market ratio of "the commercial world" and (2) the market ratio solely of the United States. He frankly admitted his inability to discover the former. "To ascertain the first with precision would require better materials than are possessed, or than could be obtained, without an inconvenient delay."18 Here he committed a grave financial error. No system of bimetallism has been able to exist for any length of time in a country trading with foreign states, if the Mint ratio was not in agreement with the market ratio of the chief commercial nations. Hamilton certainly did not then foresee this difficulty. On a matter of monetary principles he was wholly wrong. He should have made the inquiry in regard to the relative values current in "the commercial world" with great care; for, if he had no time to conduct such an investigation, it was certain that his bimetallic system would soon be disturbed. But, as we shall soon learn, he was led to that which was right in fact, although, on a matter of principles, he was wholly in error.

The object he set before him, then, was the ascertainment of the current ratio between gold and silver in the United States, irrespective of the relative values of the two metals in foreign lands. This, however, was no easy matter. Morris had stated the ratio to be 1:14¾, and Jefferson 1:14½; but Hamilton found that there was a customary ratio19 between gold and silver coins in the United States of 1:15.6, although this ratio was not based on the weight of Spanish dollars coined at this time.20 The weight of the Spanish dollars varied, in truth, within very wide limits, and yet had the same nominal value. As early as 1717 the assays of Sir Isaac Newton, at the English Mint, gave the following results:

The Spanish government issued its later coins of less weight than its older ones.21 Then, also, worn coins contained less silver than fresh ones, so that for many reasons the dollar did not represent any definite weight of silver. In speaking of these coins, Hamilton remarks:

It seemed, therefore, to be definitely understood that 24¾ grains of fine gold stood as the recognized equivalent of a silver dollar; and with this starting-point Hamilton, having already selected the ratio of 1:15 between the coins, would be led a priori to determine that the silver dollar ought to contain 15 × 24¾ grains of fine silver, or 371¼ grains. And, in all probability, this was the process by which he arrived at his conclusion. He announced that the later issues of dollars from the Spanish mint had contained 374 grains of fine silver, and the latest issues only 368 grains, which implied a current market ratio in the United States (if these dollars exchanged for 24¾ grains of fine gold) of from 1:15.11 to 1:14.87, or a mean ratio of about 1:15. Of this ratio Hamilton says it is "somewhat more than the actual or market proportion, which is not quite 1:15." But, throughout his inquiry, no one can doubt but that he was honestly seeking for a ratio as near as possible to that existing in the markets of the United States. He certainly can not be charged with an intention of underrating gold.

In later years, however, Hamilton was vehemently attacked by Benton23 (during the controversy on the second United States Bank) because of an alleged intention to favor silver in preference to gold by his ratio, in order to drive out gold and encourage the use of paper substitutes for the less portable and heavier metal, silver. There seem to be no just grounds for this reflection on Hamilton's purposes. Benton, in his day, saw gold disappearing; but the cause of it was as unknown to him as it was to Hamilton, although it was in operation in 1791, when bimetallism was adopted. To learn what this cause was, it will be suitable first to give a statement from sources now accessible to us of the actual ratios of gold to silver during this time, when a coinage system was being established.

The relative values between gold and silver, computed by Dr. Soetbeer from absolutely credible sources in the official quotations twice a week of the prices of silver at Hamburg, are the most reliable. About 1780, Hamburg was a much more important silver market than was London, although in later years the English city has easily taken the lead of all other markets. Another table of ratios was compiled in 1829 by John White, cashier of the United States Bank, covering the years from 1760 to 1829. It is unquestionably full of errors, and quite untrustworthy, but has been quoted by various American writers and officials as if it were trustworthy. For this reason, in the discussion of the years from 1780 to 1800, both tables24 will be quoted, and the reader can make his own comparisons:

The movement of silver relatively to gold, as shown by these tables, may be best seen in Chart I. A downward tendency in the value of silver relatively to gold, beginning soon after 1780, is the marked characteristic of this period. The horizontal line drawn across the chart indicates the place of the ratio of 15:1 proposed by Hamilton, and it can be seen by comparison with this line whether the market ratios corresponded with 1:15. The line based on the Hamburg quotations shows that the market ratios remained at about the line of 1:15 in the years from 1790 to 1793, the very time during which our system was established; but it will be noticed at once that, after 1793, silver began a steady fall relatively to gold, and never thereafter in this period did it return to the ratio of 1:15. It was a very short time, indeed, that the ratio of "the commercial world" remained near Hamilton's choice. Of this gradual tendency of silver to change its value relatively to gold Hamilton, of course, did not know. Had he known of it, he must have foreseen the subsequent action of Gresham's law (by which the cheaper metal drives out the dearer), and the establishment of a single silver standard, instead of the single gold standard which he preferred. Without knowing it, he was dealing with a metal even then shifting in value; and, without intending it, he established a ratio which could accord with the market rate for only a very inconsiderable time. Hamilton's attempt was like that of a man who should try to build a house on the banks of the great glaciers in the Alps, which slowly but constantly move onward within their mountain channels, and who should yet expect to maintain fixed and unchanged relations in his house with the surface of the moving ice.

§ 4. Having supplied ourselves with a knowledge of the actual condition of things on which Hamilton was erecting his bimetallic system, we can now look closer into the plan which was adopted by Congress and put into operation in 1792. His report26 draws the following conclusions, on which the act was based:

In carrying out this plan in the act of April 2, 1792, Congress29 deviated slightly from the recommendations. The alloy in the silver dollar was not made one twelfth, but about one ninth, by fixing the standard weight at 416 grains. The original silver dollar, therefore, weighed 416 grains (not 412½, and contained 371¼ grains of pure silver. No gold dollar pieces were authorized; but the eagle, or ten-dollar piece, was made the basis of our gold coins. The eagle was to contain 270 grains of standard coin and 247.5 grains of pure gold; so that one gold dollar would have weighed 27 grains, and contained 24.75 grains of pure gold. Fifteen times 24.75 grains gives 371¼ grains, the weight of pure metal in the silver dollar, making the ratio between the pure metals in our coins 1:15; as intended by Hamilton. The ratio, of course, is never estimated on the standard weights in the coins.

The subsidiary silver coins, or those of denominations below one dollar, were established of a weight and fineness corresponding to that of the dollar piece. That is, two halves, four quarters, ten dimes, or twenty half-dimes, contained as many grains (371¼) of pure silver as did the one-dollar piece. Therefore, as we shall see later, whenever anything happened to affect the circulation of the dollar piece, it equally affected the subsidiary coinage. This, as is now well known, was an error, and subsequently resulted in the disappearance of all coins used for "small change."

It was also enacted (Sec. 14) that "it shall be lawful for any person or persons to bring to the said Mint gold and silver bullion, in order to their being coined." These words contain the important privilege known as "Free Coinage," by which is meant the right of any private person to have bullion coined at the legal rates. If the Government reserves to itself this right, there would not be free coinage. This is a matter of importance, because through it alone can Gresham's law have an immediate effect. If there is a profit in sending one of two legal metals to the Mint, and in withdrawing the other, with the result of displacing one of the metals in circulation with another, it is necessary, of course, that access to the Mint should be free to any one who sees this chance of profit.

Free coinage, however, is to be distinguished from the absence in the act of any charge for "seigniorage," as expressed in the words: "And that the bullion so brought shall be there assayed and coined as speedily as may be after the receipt thereof, and that free of expense to the person or persons by whom the same shall have been brought." Seigniorage is a charge exacted from persons for coining their bullion into coins at the Mint; but no such charge was exacted in this act of 1792.

The legal-tender power was granted to both gold and silver coins, and subsidiary coinage as well, to an unlimited extent, in these words (Sec. 16): "All the gold and silver coins, which shall have been struck at, and issued from, the said Mint shall be a lawful tender in all payments whatsoever, according to the respective values hereinbefore declared, and those of less than full weight at values proportional to their respective weights." As regards the subsidiary coins this was an error, from the point of view of all later experience. That subsidiary coins should be an unlimited tender to any amount, however, when of equal value with the dollar piece, could not create much annoyance.

Such was the bimetallic system established, soon after the foundation of our Government, in 1792. There probably never was a better example of the double standard, one more simple, or one for whose successful trial the conditions could have been more favorable. There was no prejudice among the people against the use of either gold or silver. The relative values of the two metals had been fairly steady for a long time in the past. At the start everything seemed fair. The real difficulty which the future disclosed was one inherent in a system based upon the concurrent use of two metals, each of which is affected by causes independent of the other. The difficulty was certainly not, as some would have us believe, in the selection of a wrong ratio. Knowing, as we now do, that the ratio between gold and silver began to change, as if for a long-continued alteration of their relations, at the very time when Hamilton was setting up a double standard, and learning, as we have, that he declined, from lack of time, to ascertain the market ratio for "the commercial world," we are prepared to find that, as he was wrong in theory, he was also wrong in the ratio he selected with so narrow a view. This, however, is not true. It happened that the ratio he adopted, on the sole ground that it was near to the current relation30 in the United States, was also, by a piece of good fortune, as near as could be expected to the ratio of "the commercial world." By reference to the Hamburg tables it will be seen that European prices during the four years from 1790 to 1793 (inclusive) gave a market ratio of almost exactly 1:15. Indeed, if Hamilton had taken the European market into account, it is difficult to understand what other ratio he could properly have adopted.31 As a matter of fact, his legal ratio corresponded with the market ratio when his plan went into operation. As a matter of Hamilton's own monetary skill, it was surely but a hand-to-mouth policy; for a ratio different from that of the commercial world would have been wholly unjustified by correct monetary rules.

§ 5. We must now accompany the new coinage system in the course of its experience during the first period of its history. The young and promising offspring of Hamilton started well, but soon began to limp, and then to walk on only one leg. We must therefore investigate the cause of this trouble. In calling attention to Chart I it was noticed that the relative values of gold and silver began to change soon after 1780; that relatively to gold the value of silver fell (or, not to prejudge the case, the value of gold rose relatively to silver) until in the last five years of the century the ratio remained in the vicinity of 1:15.5. By continuing the table of figures from 1800 to 1833, the period represented by the chart, it will be possible to see the extent and direction of further changes in this season of trial for the new system. As already observed, the market value, according to Hamburg prices of silver, never rose after 1793 to the ratio of 1:15 (indicated by the horizontal line), within this period which extends to 1833 (although it came nearest to it in 1814 and 1817). After 1820 there was a lower level in the relative value of silver to gold, indicating a more or less permanent change in the relations of the two metals, at a rate between 1:15½ and 1:16. The decline after 1793 was steady, broken by a rally in 1803-1805, and followed by a fall below 1:16 in 1813. These are the simple facts, taken from the most trustworthy sources, concerning the relative values of gold and silver in the first period after Hamilton established his system in 1782. Thus was fulfilled his prophecy: "The revolution, therefore, which may take place in the comparative value of gold and silver will be changes in the state of the latter rather than in that of the former."

Without stopping now to consider the cause of this change in the relations of gold and silver, it will be best to explain the effects of this change—no matter what its cause—upon the coinage of the United States. The situation now resembles that of a man who, having balanced a lever on a fulcrum, and then, after leaving lengthened one arm and shortened the other, should expect the lever to balance on the fulcrum in the same manner as before. We now have an illustration of Gresham's law—that when two metals are both legal tender, the cheaper one will drive the dearer out of circulation. This can not operate, however, unless there is "free coinage," and unless there is such a divergence between the mint and the market ratios of gold and silver as will secure to the money-brokers a profit by exchanging one kind of coins for the other. But, as we have already seen, "free coinage" existed, and a profitable difference32 between the mint and the market ratios in the United States appeared about as early as 1810.

The operation of Gresham's law is in reality a very simple matter. If farmers found that in the same village eggs were purchased at a higher price in one of two shops than in the other, it would not be long before they all carried their baskets to the first shop. Likewise, in regard to gold or silver, the possessor of either metal has two places where he can dispose of it—the United States Mint, and the bullion market; he can either have it coined and receive in new coins the legal equivalent for it, or sell it as a commodity at a given price per ounce. If he finds that silver in the form of United States coins buys more gold than he could purchase with the same amount of silver in the bullion market, he sends his silver to the Mint rather than to the bullion market. By reference to Chart I, it will be seen that the market value of silver relatively to gold had fallen to 1:16, while at the Mint the ratio was 1:15. That is, in the market it required sixteen ounces of silver to buy one ounce of gold bullion; but at the Mint the Government received fifteen ounces of silver, and coined it into silver coins which were legally equivalent to one ounce of gold. The possessor of silver thus found an inducement of one ounce of silver to sell his silver to the Mint for coins, rather than in the market for bullion. But as yet the possessor of silver had only got silver coins from the Mint. How was he to realize his gain? Will people give the more valuable gold for his less valuable silver coins? To some minds there is a difficulty in understanding how a cheaper dollar is actually exchanged for a dearer dollar. This also is simple. The mass of people do not follow the market values of gold and silver bullion, nor calculate arithmetically when a profit can be made by buying up this or that coin. The general public know little about such things, and if they did, a little arithmetic would deter them. These matters are relegated by common consent to the money-brokers, a class of men who, above all others, know the value of a small fraction and the gain to be derived from it. Ordinary persons hand out gold or silver, when they are in concurrent circulation, under the supposition that the intrinsic value of gold is just equal to the intrinsic value of silver in the coins, according to the legal ratio expressed in the coins. If, under such conditions, silver falls as above described, the money-broker will continue to present silver bullion at the Mint, and the silver coins he receives he can exchange for gold coins as long as gold coins remain in common circulation—that is, as long as gold coins are not withdrawn by every one from circulation. Having now received an ounce of gold in coin for his fifteen ounces of silver coin, he can at once sell the gold as bullion (most probably melting it, or selling it to exporters) for sixteen ounces of silver bullion. He retains one ounce of silver as profit, and with the remaining fifteen ounces of silver goes to the Mint for more silver coins, exchanges these for more gold coins, sells the gold as bullion again for silver, and continues this round until gold coins have disappeared from circulation. When every one begins to find out that a gold eagle will buy more of silver bullion than it will of silver dollars in current exchanges, then the gold eagle will be converted into bullion and cease to pass from hand to hand as coin. The existence of a profit in selling gold coins as bullion, and presenting silver to be coined at the Mint, is due to the divergence of the market from the legal ratio, and no power33 of the Government can prevent one metal from going out of circulation. Like the farmers with their eggs, under the operation of Gresham's law silver will be taken where it is of the most value (the United States Mint), and gold will be sold34 where it brings a greater value than as coin (the bullion market).

In the preceding explanation of Gresham's law I have described the process which began to make itself felt as early as about 1810. The date itself is of importance, because some writers have explained the operation of Gresham's law and the disappearance of gold by causes35 which can be admitted as the true ones only if the date were as late as 1819, the year when the English Resumption Act was passed. There are, however, indisputable proofs that the change in the relations of the two metals was apparent long before 1819, and, consequently, long before the English demand could have been felt. Mr. Lowndes introduced the question of the disappearance of gold from the currency by a resolution36 in the lower house of Congress as early as November 27, 1818. Benton37 distinctly sets an earlier date by stating that "it was not until the lapse of near twenty years after the adoption of the erroneous standard of 1792 that the circulation of that metal [gold], both foreign and domestic, became completely and totally extinguished in the United States." This would fix the time at about 1812. This is corroborated by Crawford,38 Secretary of the Treasury, who asserts that a change in the relative values had taken place many years before 1820. When we recall that such a process as the substitution of one metal by another must be comparatively slow, especially in a new and sparsely settled country, the causes must have been at work some time before, if we read in a report to Congress in 1821: "On inquiry, they find that gold coins, both foreign and of the United States, have, in a great measure, disappeared."39 It seems, therefore, to be clear that gold began to disappear as early as 1810, if not before, and that little of it was in circulation by 1818.40 Indeed, since 1793 there existed in the relative values of gold and silver a strong reason why gold should not circulate in the United States, and why Mr. Lowndes should have said41 in 1819: "It can scarcely be considered as having formed a material part of our money circulation for the last twenty-six years. In fact, the situation has been thus distinctly described:42

In fact, the result of careful inquiry reveals to us that gold coins were seldom seen during the largest part of this period from 1792 to 1834. Even when bank-paper was used, the reserves of the banks were generally in silver, not in gold.43 Whatever the cause of the change in the relative values, certain it is that gold disappeared, and that the United States had but a single silver currency as early as 1817, and probably earlier.

These conclusions are fortified by the returns of gold and silver coinage at the United States Mint. In the exposition of Gresham's law it was explained that the metal which had fallen in value would be presented at the Mint to be coined, while the dearer metal would go into the melting-pot, or be exported. Inasmuch as silver had fallen in value relatively to gold, it was to be expected that, to some extent, even in a new community where specie was scarce, silver would be brought to the Mint in preference to gold. And this is what we find to be the fact. After 1805 the coinage of silver distinctly increased, without an increase of gold coinage, while soon after the war of 1812 the coinage of gold almost entirely ceased, but the issue of silver coins steadily multiplied during the remainder of this period. This can be most easily seen in Chart II. The length of the dark lines away from the perpendicular line shows the value of gold coined (estimated in dollars) each year,44 while the open lines, extending in an opposite direction, show the same for silver.45 So distinct a change in the relative amounts of gold and silver coinage since 1805 is in itself cumulative proof that there was such a variation of the market from the Mint ratio as to send silver to the Mint for coinage in preference to gold as early as 1806. And this, too, although American dollar pieces ceased to be sent out from the Mint after 1805, and were not coined from that time to 1836. The mass of silver coins issued were in the form of half-dollars, which contained proportionally the same weight of silver as the dollar piece.

In summing up, we find that, in fact, the ratio of 1:15 was in accordance with the market ratio at the time of the establishment of the Mint in 1792, but that Hamilton was attempting to set up the new system on the slope of a declining value of silver relatively to gold; and that this downward movement was unknown to the statesmen of that day. The divergence of the market from the Mint ratio brought Gresham's law into operation as early as the period from 1805 to 1810, and before 1820 it had virtually driven gold out of use as a medium of exchange.

Part I, Chapter III

Cause of the Change in the Relative Values of Gold and Silver, 1780-1820

§ 1. The problem before us in this chapter is economic as well as historical. Having seen in the preceding chapter the effects of a change in the relative values of gold and silver upon our monetary system, it will now be necessary to find an explanation of the causes which produced this change.

The position has been taken by some writers that the divergence of the market from the Mint ratio, in the period we are speaking of, was, in fact, a rise in the value of gold relatively to silver, not a fall in the value of silver relatively to gold. The cause of this increased value of gold, they assert, was due to the demand of England for gold with which to resume specie payments in accordance with the act of 1819. In the well-known and elaborate reports46 of Mr. Campbell P. White to Congress in 1832 we find the theory well developed:

Condy Raguet47 believed that the change of the market ratio had at least been brought to general notice by the English demand for gold. The theory of Mr. C. P. White has been revived of late by Mr. S. Dana Horton,48 who says: "The concurrent circulation of the metals at 15:1 (with that vis inertiæ which is one of the unsettled problems of money) did not succumb to the influences of foreign demand until the drain began for the resumption of gold payment in England." He substantiates his position by quoting49 the following table of average prices, computed by Professor Jevons, to show that the English demand for gold caused a shrinkage in gold prices of commodities. The effect of this English demand is traced in Mr. Horton's argument by giving estimates of the supply of gold and silver then existing, and then comparing with the existing supply the amount of gold collected by England, in order to show how large the demand was in proportion to the supply. It is estimated50 by him that the amount of gold used as a medium of exchange in western Europe in 1810 was $665,000,000, and that the accumulations of England for resumption purposes created a new demand for from $125,000,000 to $150,000,000 of gold, while the annual production at that time was only $7,500,000. "When, however, the process of obtaining gold [for England] from abroad had had time to exert its full effect on prices, and gold was actually substituted for paper, the fall took place, as depicted in the table of prices, giving for 1821-1824 an average of 90 in the place of 116—a difference of level of nearly 23 per cent."

While every one must admit the effect of a new demand upon an unaltered world's supply of gold to increase its value, it does not seem to me safe to believe that gold rose in value relatively to silver because of the English demand. To begin with, I must deny the worth of any guesses as to the existing supply of gold at any time; they are at most guesses, and, in the nature of things, can not be more than the most vague approximations. No statistics of this kind will do to build a theory upon. It is a different thing with the annual supply, since it is comparatively easy to ascertain the sums produced by the mines.

I am inclined to think, moreover, that in this case too much is made of a demand such as that of England at this time, which, in truth, only shifted a part of the existing stock of the metals from one part of the commercial world to another. England was only reclaiming that share of gold which the proportion of her transactions to the total transactions of the Western world warranted. She could have had no more before the restriction act in 1797, and she could retain no more permanently in her circulation in 1822. During the continuance of the Restriction Act England let her gold go, and other countries obtained a greater amount than before in proportion to their transactions. About 1820-1822 the old relation was resumed—except so far as transactions (or a general demand for money) throughout the commercial world had increased or changed. Was the accumulation of gold by England then, in its essence, a new demand on the existing stock of the world, taking into account the total demand of the world as well as the total supply? If it was not, then the perturbations of prices which may have been caused by the refluent tide of gold into England would soon settle themselves in accordance with the new and permanent distribution of gold. If Mr. Horton had shown that transactions, or general demand for gold as a medium of exchange, had increased by 1820 as compared with 1797, without a corresponding change in the supply of gold, or in economizing expedients or substitutes for gold, then he might have had ground for asserting that gold had risen in value. This he has not done.

Granting, however, all the influence which Mr. Horton ascribes to the English demand, it will be observed that he locates51 the effect on prices of the increased value of gold in the years 1821-1824. But, from the evidence we have already collected, there is not a shadow of a doubt but that the change in the value of silver relatively to gold was felt in the United States before the war of 1812, and that, as Raguet says, gold had disappeared from circulation by 1818. Therefore, even without questioning all that Mr. Horton claims in regard to the effect on prices of the English demand for gold, it applies to a period (1820-1830) which lies outside of the time (1810-1820) when the disturbing causes we are now discussing were operating to drive gold out of circulation in the United States. Inasmuch as the change in the ratio between gold and silver was apparent in the period from 1810-1820, the cause of the change must therefore have been one which could have had nothing to do with the English demand for gold which took effect later, in 1820-1830. In short, some other cause52 than is assigned by Mr. Horton was at work to produce a divergence in the values of gold and silver, which certainly had a marked effect before 1816, the year when silver was made a subsidiary metal in the English coinage, and long before England began to collect any gold whatever for her resumption of specie payments in 1819-1822.53 A glance at Chart I will show, even if we take the untrustworthy figures of White, that the change in the relative values of gold and silver had occurred so long before the English demand could have produced an effect that Mr. Horton's position seems to me entirely untenable.

Mr. Horton, however, goes still further, and asserts54 that there was a rise in the value of gold, "because," he says, "as far as I can ascertain, the change of ratio was really a rise of gold, not a fall of silver. I am aware of no evidence that the general value of money as shown by averages of prices was less in 1820-1830 than it was in 1770-1780. Whatever scanty researches on this subject have come to my knowledge indicate a lower range of prices in the former than in the latter period." So far as the periods concern us, the comparison should be made between 1780-1790 and 1810-1820, since the ratio between gold and silver had distinctly changed in the latter period; and the former period gives a just means of comparison because it includes the fairly quiet years before the great continental wars with France. It will be our part, then, to discover, so far as possible, what change prices underwent in this period; but before doing so it will be best to explain briefly the economic principles on which relations of prices and money depend.

§ 2. Value, we know, is a ratio. The value of an ox, estimated in sheep, is the number of sheep for which the ox will exchange. If one ox exchanges for twenty sheep, an ox is twenty times as valuable as one sheep, or a sheep is one-twentieth as valuable as an ox. So with gold or silver. When the number of grains of silver in a dollar is exchanged for goods, value of the silver is expressed in the quantity of other things for which it will exchange, as, for example, two bushels of oats. On the other hand, the value of the oats is the quantity of silver they will purchase. Value, it is thus seen, is a relation. There must always be some other thing with which to compare the given commodity. For instance, in comparing silver with gold, the value of silver relatively to gold is the number of grains of gold for which a fixed amount of silver will freely exchange. If at any time more silver than before is needed to buy the same quantity of gold, this means that either silver has fallen in value relatively to gold, or that gold has risen in value relatively to silver. Now, however, if gold had remained nearly stable in its power of purchasing other commodities in general—that is, bought about the same amounts as before of various things other than silver; and if more grains of silver were needed than before to buy a given number of grains of gold—then, of course, it would be said that silver had fallen not merely with regard to gold, but to commodities in general. But, on the other hand, if silver fell in its value relatively to gold, and all other commodities likewise fell in relation to gold, then, of course, it will be said that gold has risen in value not merely with regard to silver, but to commodities in general. The amount of money, such as gold and silver given for an article, is its price. If gold rises in value, less of it is needed to buy other goods, therefore prices fall. In other words, if gold prices fall, the value of gold, provided we leave credit out of question, has increased relatively to commodities in general. With this brief exposition we may now go on to the study of our facts.

§ 3. It is incumbent on us, first, to discover whether, in the period from 1780 to 1820, gold gained or lost in its general purchasing power over ordinary goods. That is, whether gold prices rose or fell in 1810-1820, as compared with 1780-1730. But we must keep in view that prices are the result of two factors—(1) the amount of money taken in connection with its rapidity of circulation, and (2) the extent of credit and speculation. Every one knows that credit is purchasing power, and that prices rise and fall wholly through the use of credit in seasons of an expansion or depression of confidence. The fall of prices which takes place after a commercial crisis is due more to a collapse of credit than to any contraction in the actual quantity of the money-factor. If, in studying this question, we suppose that the play of credit should be considered as about equal in the two periods for comparison, 1780-1790 and 1810-1820, then we may fairly draw an inference as to the purchasing power of gold from tables of prices. On no other basis can the conclusion as to the value of gold be worth anything. In fact, for this reason, ordinary inferences from tables of prices are misleading in the extreme. For the present comparison the prices for this period have been arranged by Prof. Jevons55 and reduced to a scale of 100, which represents the prices of forty commodities in 1782. The results are presented herewith in Chart III, to which has been added the line representing the index-numbers computed by the "London Economist." The latter are based on the figure 2,200, which is the sum of the scales of 22 articles, each by itself having 100 as a basis. The average prices of 1845-1850 are taken as the standard (2,200), and the movement of the line shows the subsequent departure of prices from that basis. This completes a chart of the movement of prices to the present day; although it is to be regretted that the prices are not calculated in the same way, both by Mr. Jevons and the "Economist," thus presenting a continuous table without the break since 1850.

In the figures given by Prof. Jevons we have the following results condensed in the accompanying table. So far as these figures prove anything, when we compare the period in which our ratio of 1:15 was established by Hamilton with the period from 1810-1820, during which gold disappeared from the United States, it surely can not be said that gold prices fell (thus indicating an increased value of gold). Although our concern is not with the years from 1820-1830, yet even in this period we do not find that prices were lower when compared with those of 1782-1792. And in Mr. Horton's discussion it will be observed that he only wishes to show a fall of prices in 1821-1825. I can therefore believe that the English demand had only a temporary influence on the value of gold, and that the purchasing power of gold depended upon the demand of the commercial countries taken as a whole, and not upon that of England alone. I must also believe that a change in the relative values of gold and silver was sufficiently made out as early as 1810, and that it had its effect in driving gold out of circulation in the United States before 1820. Moreover, as we have not been able to find that the general purchasing power of gold (as expressed in the figures referred to by Mr. Horton) in 1810-1820 was less than in 1782-1792, we can not believe that gold had risen in value (in the former period). Therefore it seems to be inevitable that there was a fall in the value of silver, not merely with reference to gold, but with reference to commodities in general. On the contrary, we have seen, by the tables given herewith and by Chart III, that gold prices in the period just preceding 1820 were, if anything, higher than in 1782-1792. That is, so far as these prices go for anything, it was rather to be said that gold had fallen slightly, rather than risen, in its purchasing power, or, in other words, had fallen in its value relatively to other goods.

It does not appear from Mr. Jevons's figures, then, that the value of gold had risen by 1820 as compared with 1782-1792. Some confirmatory testimony is offered by Dr. Edmund Schebek in the tables56 of prices of a few articles in Continental markets:

It is to be kept in mind, however, that these were articles which would be in particular demand during the Napoleonic wars on the Continent. But the comparison of the average prices for 1781-1790 with those for either the period 1811-1820 or even 1821-1830 shows a marked rise of prices in the later periods. Still this does not furnish very strong proof that the value of gold had not risen relatively to grain, because Dr. Schebek has reduced all the quotations to silver prices. Therefore, there is a probable induction57 to be made from the table, so far as it goes, to the effect that since silver prices had risen, the value of silver had fallen in its purchasing power in grain; for if more silver is needed to purchase grain than before, the value of silver has fallen relatively to grain.

§ 4. The value of either of the precious metals at a given short period is a question of demand and supply; and it can be seriously influenced by cost of production only in the course of long periods, unless the lessened cost of obtaining the supply throws enormous quantities on the market at once, and thus depresses its value in a comparatively few years. The effect on the value, however, takes place through the operation of supply and demand. To determine the causes affecting the value of silver, therefore, we must take into account not only those influences which operate as supply, but also those which operate as demand.

When we discover that Mr. Horton's main position is that the English demand for gold had so important an influence as to alter the relation of gold to other commodities throughout the world, silver included, we find him appealing to demand. But in this question he ignores the question of supply. "How was this rise of gold, or, if it be preferred, this increase of difference between the metals, brought about? Was it due to any alteration in the relative cost of production? So far as I am informed, history has nothing to say on this subject."58 It is just here that I am compelled to dissent from his position. History has a great deal to say on the subject; and the historical method will serve us excellently well in this investigation. Induction is here our only method. I shall therefore proceed, so far as I am able, to show by the facts what have been the influences affecting the supply of the precious metals relatively to each other.

Inasmuch as the question here involved is one of a relation between the values of gold and silver, and of relative changes in the production and supply of the two metals, I have computed from Dr. Soetbeer's tables59 of the production of the precious metals the following figures, intended to show the annual production of silver relatively to gold (by weight) since the discovery of America:

To accompany this table I have constructed Chart IV, which contains two lines—one representing the value of silver60 relatively to gold, the other the quantity of silver relatively to gold which has been produced annually in the same periods.

The upper line, in the beginning of the chart, shows that, on the discovery of America, about eleven ounces of silver bought one ounce of gold; while silver has changed its relation to gold so much in the intervening time to the present time, that more than eighteen (now even requiring twenty) ounces are now required to buy one ounce of gold. The one exception to this steady downward tendency was in the period from 1710-1780, in which silver showed a tendency to recover its position relatively to gold; that is, in this period there was an upward movement of the line, which represented an increasing value of silver relatively to gold. This, however, does not of course imply that gold remained stationary in value. For the increased amount of gold produced to within a few years also has lowered its value 300 or 400 per cent relatively to other articles since the discovery of America. Any casual reader of history knows that a given amount of gold in the middle ages had then a much greater purchasing power than it has now.

The other line shows two considerable variations since the discovery of America—one in the period 1545-1680, and another in the period 1781-1820. Inasmuch as this line indicates the relative quantities of the two metals produced in each year, the line will rise whenever more silver than gold is produced, or whenever the gold product falls off (even if the silver product remains the same); and the line will decline whenever the silver product falls off relatively to the gold, or whenever the gold product increases (even if no change takes place in the production of silver). The line, therefore, indicates relations, not quantities. For example, the chart shows that 56.8 times as much silver as gold was yielded by the mines annually in 1581-1600, and 50.2 times as much silver in 1801-1810. But still the annual production of both metals was very much larger in this last period than in the former, although the number expressing the relation is less in the second case than in the first; for in 1581-1600 the annual production of silver was 418,900 kilogrammes, and of gold 7,380 kilogrammes; but in 1801-1810 there was produced annually 894,150 kilogrammes of silver and 17,778 kilogrammes of gold. And yet the line did not rise so high in the last period as in the former.

From the data before us it ought to be possible now to see what effects have been produced by these great movements of gold and silver. The principal event in the history of the precious metals, and which has received the attention of writers on economic history (the very event, in fact, which led to a discovery of the economic laws underlying money and gave birth to political economy), was the enormous production of gold and silver, beginning about 1545, from the mines of Mexico, of Peru, and especially of Potosi. The fact that a disproportionate mass of this production was silver—about forty-five times as much silver as gold—has been generally recognized. The effect on the relative value of gold to silver was extraordinary. By 1660 the enormous supply of silver had reduced the value of silver relatively to gold about 36 per cent. It is not to be understood, however, that this fall of silver indicated an absolute steadiness in the value of gold. The increased production of gold, as already mentioned, has also lowered its value since the discovery of America to a very serious extent. Chevalier estimates the fall61 of gold as much as 4 to 1. This fall in the value of silver is capable of explanation, The value of a commodity (cost of production apart) at a given time depends upon the relation between the demand and the total available supply then in existence. If the demand remain the same, and the supply be increased, the value will fall. Moreover, the extent of the fall will depend largely on the proportion between the amount of the increased supply and the amount already in existence. At the time of the discovery of America the world's stock of silver was comparatively small, and the influx of vast quantities from the American mines was capable of making a great change in the value of this existing stock. The ratio of gold to silver was changed from 1:11 to 1:15 by 1660—a change so sudden and so considerable (since gold itself had fallen) that it could only have been caused by the action of large annual supplies on a small existing stock, unsupported by a proportional demand.

It is to be remarked, also, from an examination of Chart IV, that the fall in the value can become generally apparent only after the annual supply, joining with the supply previously existing, has had the effect to increase the total supply, with which alone comparisons of commodities are to be made; so that only as the level of the total supply in existence rises (not the actual amount of the annual supply itself) can the change in value show itself. In other words, the change in relative values (of durable articles, like gold and silver, of which there is always an existing stock) must always follow, not be contemporary with, the change in the relative annual supply. An illustration of these principles can be seen in examining Chart IV. The fall in the value of silver was comparatively slight until 1620, although a large excess of silver over gold had been produced since 1545; and the effect of the silver production does not show its full effect until 1660, and even leaves its mark as late as 1701-1740. The effect of a production of silver, very large in comparison with that of gold, on the relative values of the two metals at this time, therefore, can not be denied, it seems to me, for a moment. The influence was the more considerable because of the disproportion between the large new production of silver and the comparatively small supply of silver then existing.

We are now in a position, at last, to discuss the causes operating to affect the relative values of gold and silver in the later period of 1780-1820, during which it happened that Hamilton was founding a bimetallic system in the United States, and was seeking for a satisfactory ratio. As has been said, a reference to Chart IV will show that the line indicating the relative product of the two metals has made only two great movements upward in the last four centuries. The first one we have just discussed, and history has generally admitted all the results as to the value of silver that have been here attributed to it; but, naturally enough (perhaps because fit materials for study, have been wanting until of late), no sufficient account has been taken of the second great movement in the history of the precious metals from 1780 to 1820. Jacob62 was too close to the events when he wrote to grasp the whole situation. But of this period, as extraordinary in its way as the period of 1560-1660, Horton remarks63 "History has nothing to say." In short, the changes in the relative production of silver and gold from 1781-1820 are on so enormous a scale as to be comparable only with the changes which occurred immediately after the discovery of the American silver mines. By changes I mean the immense preponderance of the silver over the gold product. In the earlier period the mass of new silver acted on a comparatively small existing stock, and brought a fall in value of 36 per cent. By 1780, however, the total quantity of both gold and silver in existence was largely increased by the whole annual production during the exceptional period in the sixteenth and seventeenth centuries. Turning to the period from 1780-1820, it is seen that a very great excess of silver over gold was produced. But the situation was a different one from that when a similar occurrence took place in 1560-1660. The existing stock had been enormously increased by 1780, and the annual supply of new silver, therefore, naturally bore a less ratio to the existing stock than did the annual supply to the whole stock in 1560. And even a greater annual production of silver in 1780 would have produced a less effect on the value of silver at that time than the annual supply in 1560 produced on the value of silver in the sixteenth century. Therefore, even if a greater amount of silver was mined in 1780-1820 than in 1560-1660, we must expect to find that it produced a less change in the former, than actually occurred in the latter, period. This is a matter capable of homely illustration. If a pailful of water be poured into a tub, the surface-level of water will rise on the sides of the tub higher than it would have risen had the pailful been poured into a village pond, because there was a greater quantity of water in the pond to be affected by the new water added. So in respect of silver. There was a greater quantity of silver already in existence by 1780 than in 1560 to be affected by the new supply.

The real influence of the period from 1780-1820 on the precious metals can be appreciated only by a comparison with the well-known period of 1560-1660, when the production of silver relatively to gold was at its highest point. Chart V will show the relative quantities of both gold and silver added to the world's stock in those years. The disproportion between the production of gold and silver is visibly large, and it is not surprising that it caused a change in the relative value of silver to gold of 36 per cent.64

With this exposition of the metallic product in 1560-1660 compare the production of silver relatively to gold in 1780-1820, as shown in Chart VI, constructed on the same scale as Chart V; and, although the latter period extends over only sixty years while the former covers one hundred years, it will be seen that the total product in 1780-1820 was much larger for both metals than in 1550-1660, although the relation between the amounts is about the same. In short, this later period is fully as extraordinary for its excessive silver product as the better-known but earlier period. As will be seen by reference to Chart IV, this great increase of silver was chiefly due to the increasing richness of the Mexican65 mines. Without doubt, although our statesmen had no knowledge66 of what was going on, it was this great outflow of silver from Mexico which made silver so abundant in our circulation and filled the West Indies, with which we traded, with the cheapened metal. This was noticed in 1819 by Mr. Lowndes,67 who says:

If the preponderance of the silver over the gold production in 1545-1660 caused a change in the relative values of the two metals of 36 per cent, it is not merely conceivable, but most natural, that a like preponderance in 1780-1820 should have had a similar effect. The actual change in the later period, however, was about 8 per cent. This fact, then, which I set out to examine, seems to me to be fully explained by the history of the relative production of the precious metals. Indeed, in considering the very great disproportion between the gold and silver mined in 1780-1820 as shown by Chart VI, the wonder is, not that a change in the value of silver should have resulted, but that the change should have been so small as is indicated by [less-than symbol, possibly spurious—Econlib Ed. Added as note March 2005 while processing this file]8 per cent. But this, however, according to a well-known principle of value, already given, must be due to the fact that by 1780 the existing stock had been so largely increased since 1550 that an extraordinary production in 1780-1820 was not capable of producing so great an effect as before, because of the greater mass to be affected.

This, then, is the explanation of the downward tendency of the value of silver relatively to gold in 1780-1820, as it appears from the results of my investigation.68 I have found what I must think is a very substantial cause for the fall of silver, beginning its work in 1780 and reaching very marked results on the relations of the two metals before any measures whatever were taken by England to resume specie payments. In a word, chronology kills Mr. Horton's theory.69

§ 5. The foregoing explanation, moreover, is the only one which will clear up other difficulties, and for this reason gives an additional presumption of its truth. The fact has been pointed to that the annual production of silver was falling off after 1810, and yet that it was exactly in the period of after 1810 that the fall in the relative value of silver to gold began to be very marked.70 The inference from this is that it is absurd to suppose that the relative values of the two metals in this period could have been affected by the previous excessive production of silver. There ought to be no difficulty here. It must rain in Abyssinia before the Nile can rise in Egypt. Or, to refer to a former illustration, in showing that the annual supply can not regulate the value of gold or silver, the surface level of a pond is not fixed by the pailful poured in, but by the water already in the pond, together with the new supply—or, in brief, by the total existing supply. So with the value of silver. It was true the production71 fell off after 1810. But the extraordinary new supply added since 1780 was only just beginning to show its full force on the previously existing stock. It may have stopped raining in Abyssinia, while the rising tide was still sweeping down the channels of the Nile many thousand miles below. In truth, there was in this movement of the value of silver another illustration of the fact that the effect on the value of money is not contemporary with, but subsequent to, the changes in production. Indeed, the general principles governing the value of the precious metals find in these facts, connected with our history, striking illustrations.

Having thus offered as my explanation of the cause of the divergence in the relations of gold and silver in 1780-1820 the excessive production of silver in Mexico and South America (which can be compared only with the period of 1560-1660), without having found that tables of prices showed any diminution in the purchasing power of gold by 1820 as compared with 1782-1792, I must conclude that the character of the change was that of a fall in the value of silver, and not of a rise in that of gold.

In the following chapter I shall proceed to discuss the means adopted by Congress to meet the inherent difficulty of balancing a double standard on a movable ratio. It is a feat which has never been successfully performed since the world began; but it is a matter of serious concern to find out the lessons of our own experience in the matter. It will be of interest to see whether we have learned anything from the events which overthrew Hamilton's system.

Part I, Chapter IV

Change of the Legal Ratio by the Act of 1834

§ 1. The condition of the currency of the United States from 1820 to 1830, arising from the disappearance of gold, from the extensive issue of paper money (a large part of it secured only by small reserves), and from the circulation of foreign coins, was confused in the extreme.1 At the adoption of the Constitution we possessed virtually a metallic currency of scanty amount. The first United States Bank (1791-1811) was conservatively managed, and did not issue its notes excessively, nor in denominations below ten dollars. "Bank-notes were rarely seen south of the Potomac or west of the mountains." After the failure to renew the United States Bank charter in 1811, local banks multiplied and paper issues expanded without limit. The suspension of the banks in 1814, and the continued issue of paper, in denominations "from one sixteenth part of a dollar upward," certainly did not aid in increasing the quantity of the precious metals in the country. The establishment of the second United States Bank (1817-1837) assisted in bringing about specie payments in the United States soon after its re-charter. But the bank reserves were almost entirely of silver.2 The silver coinage, however, was in a deplorable confusion, and requires some brief description.

There were few United States coins in circulation. The act of 1792 decreed that each dollar should "be of the value of a Spanish milled dollar as the same is now current." In fact, the Spanish milled dollar formed the most important part of our silver currency, and, being heavier than the American dollar piece, commanded a premium. The tendency showed itself, consequently, to coin United States dollar pieces, and hoard foreign dollars. By exporting the lighter American dollars to the West Indies, and to any places where they were received for their face value equally with Spanish dollars, these latter were imported, sent to our Mint, and a profit realized. Foreign dollars, therefore, bore a premium3 of one quarter to one half per cent over United States dollars. The banks, therefore, paid out United States dollars when called upon for silver for exportation. This process kept the Mint busy, but without the effect of filling the circulation with our own coins. The Mint, therefore, was a useless expense to the nation, but a source of profit to the money-brokers. The coinage of dollar pieces was consequently suspended in 1805 by the President,4 and none were coined until 1836.

The legal value of foreign coins in the United States, moreover, was regulated by an act of 1793, and by its terms these foreign coins were made a legal tender. But these enactments were temporary, and ran only for short periods. Congress, however, "ceased to regulate the value of one description of foreign coins after another until finally, in 1827, none were recognized as legal tenders except our ancient money,5 the 'Spanish milled dollar.' " Now, although the coinage of the United States silver dollar was discontinued in 1805, a profit was still realized by importing Spanish dollars, because two half-dollars served the same purpose as a dollar piece did before, containing, as they did, as much pure silver as the dollar piece. And our silver continued to be coined and exported,6 while foreign silver continued to flow in. So far had this gone that of $11,000,000 of silver coined in the five years preceding 1831, $8,000,000 had been coined7 from foreign dollars; and, of the specie in the United States Bank, only $2,000,000 out of $11,000,000 were in our own coins. These foreign coins, however, were now not all "Spanish milled dollars." The Spanish countries of America had before this date established their independence of Spain and assumed new names, so that their coins could no longer strictly be termed "Spanish dollars," and consequently these South American coins, although in circulation, were not thereafter a legal tender. The effect of this condition of affairs was quite considerable, as may be seen by statements of the currency. The amount of the metallic circulation in 1830 is thus estimated:8

There had been coined to this date $34,000,000 of silver coins by the United States Mint, of which only $14,000,000 remained in the country. These Spanish coins, which had displaced the American silver, moreover, became much worn and reduced in weight, and, being in practice current with other coins, without regard to weight, naturally acted to drive out our own coins.10 A memorial11 of the New York bankers, led by Mr. Gallatin, in 1834, represented

The only legal medium being United States silver coins, "of which there is not a sufficient quantity to answer the ordinary purposes of business," commerce was obliged to use foreign coins which were then no longer a legal tender. Since United States silver dollars were no longer coined, and since it was more profitable to send the Spanish dollars to the Mint, not enough dollar pieces remained in circulation. They asked, therefore, that the silver "dollar of Mexico, Colombia, Chili, and Peru, which are equal in weight and fineness to the Spanish dollar, be likewise made a legal tender, if weighing not less than 415 grains." It is clear that, however much some remedy might be needed, this step would only increase the difficulties. The bill would increase the means of driving out United States silver coins. It was enacted into law12 January 25, 1834, although Mr. Sanford had very properly shown13 that no foreign coins should be made a legal tender. The enactment, however, had no bad influence, because the coinage act of 1834 soon made it ineffective.

The confused state of the silver coinage as thus described, the absence of gold, and the existence of a paper currency, therefore, complicated the situation. It was thought by some that the disappearance of gold was due to the existence of paper money. "Paper14 was the antagonist of gold, and, our gold being at present undervalued, the paper had driven it out of circulation." And naturally, during the war on the bank, the scarcity of specie was attributed to the action of this institution. Secretary Ingham,15 in 1830, reasoning post hoc ergo hoc, observed that, "prior to the year 1821, gold and silver generally bore the same relation in the market of the United States which they did in the Mint regulation.... But, at no time since the general introduction of bank paper, has gold been found in general circulation." While wrong, of course, as to the ratio, he had yet observed the disappearance of gold about the time of the extension of bank issues. This was probably true;16 but that the paper was the cause of the disappearance of gold is another question. In driving specie out of circulation, paper has no special hostility to the one metal, gold, and none whatever to the other metal, silver. Large denominations of paper would, of course, act to supersede the more valuable metal used in large transactions; but paper issues would have driven out silver equally well with gold. As a matter of fact, however, the paper had not driven out silver; indeed, the metallic circulation and the reserves behind the paper were in silver. For this use, gold, if in circulation, would have been equally employed. That is, whatever effect the paper had to supersede specie, it would have acted equally against silver or gold; and if only one metal had disappeared and the other had remained, this must unquestionably have been due to a force of a different nature than that supposed, and one which had the effect of leaving only one metal and driving out another. This may be made more clear by anticipating our story somewhat. After 1834, as we shall soon see, gold came into circulation. Why did not the paper drive out the gold after 1834, as it was thought to do before 1834? It certainly did not do it. We can not, therefore, believe that the paper, however much it may have helped in the process, was the cause of the disappearance of gold. What the cause was has been already fully explained.17

§ 2. Having seen the condition of our currency after Hamilton's system had been tried twenty-five years, we must admit that this condition was much worse in 1820 than it was in 1800. It was not a cheerful prospect. But we now turn from this picture to see how the country proposed to deal with these difficulties, to see whether the true causes were understood, and whether experience had taught its lessons.

As early as 1818 the United States began to recognize that Hamilton's ratio of 1:15 differed so much from the market ratio between gold and silver, that if it were still designed to maintain a double standard, a new adjustment of the legal relations of the two metals was necessary. While nominally possessing a double standard, the country really had only one, and that a silver standard. Owing to causes beyond the control of a legislature, and which could not have been foreseen, the value of silver was so affected in its relation to gold as to destroy the working of a bimetallic system. Here is to be found the inherent difficulty of such a scheme. Had Agassiz, when measuring the movement of the glaciers in the Alps, attempted to build an observatory resting partly on the bank of solid rock and partly on the surface of the slowly-moving stream of ice, his house might have hung together only on condition that the bank had sympathetically begun to move with the ice, but in no other way. Our Congress, however, did not yet realize the whole situation. Either they must give the double standard another trial at a new ratio corresponding with the change in the market ratio, or choose one of the two metals as a single standard. If they did the former, what assurances were there that, even if the legal ratio then were the same as the market ratio, the country should escape from future changes and not again see the same results as ensued from Hamilton's auspicious experiment? There are evidences18 that this was distinctly seen by several writers. But there were other ideas as to the remedies.

The first proposition in Congress appeared in a resolution, worthy of Charles V of Spain, to inquire into the expediency of prohibiting the exportation of gold from the United States. The "exportation of specie of every description was rigidly prohibited by law" during the embargo in 1807-1808, and in 1812. But, as Talbot19 reported, "the Bank of the United States, and some of the State banks, made considerable efforts to import specie. The exportation of it during the same period has, it is believed, been equal, if not greater, than the importation by the banks and by individuals."

A committee, of which Mr. Lowndes was chairman, reported,20 in 1819, in favor of a new legal21 ratio of 1:15.6, to correspond with the market ratio. The error was perpetuated of a subsidiary coinage containing proportional quantities of silver to the dollar piece; but it was suggested that coins less than half-dollars be limited in their legal-tender power to five dollars.

The most considerable contributions to the discussions on the coinage in the early part of this century were made in the three reports of Mr. Campbell P. White, of New York.22 In his first report of 1831 he expounds the following doctrine:23

In the report of 1832 he adds:

The committee, therefore, recommended a single standard of silver24 alone. In short, our experience since 1792 had made a deep impression on the minds of the intelligent men of that time. Both Mr. C. P. White and Secretary Ingham25 began to see that, in the nature of things, a double standard, without constant changes of the legal ratio, could not exist for any length of time. Mr. Ingham saw no safety in bimetallism, because, in his opinion, it was impossible to keep the mint and the market ratios alike. In the best discussion of the subject there was a disposition shown to select a single standard, and that of silver. And, with this general review of the plans proposed, we may now go on to recount the choice of means actually adopted in 1834.

§ 3. When the matter finally came before Congress, the bill first proposed by Mr. White's committee in the House contained a scheme for a double standard at a ratio of 1:15.6. But in the selection of a ratio there were various opinions at that time, thus tabulated,26 as to the weight of the gold coins (leaving the silver dollar unchanged):

Speaking of the failure of the two metals to circulate concurrently, and of the inaction on that subject since the death of Mr. Lowndes in 1822, Condy Raguet28 gives a reason for the presentation of this bill in 1834:

Political projects also entered, as we shall soon see, into the passage of this bill and the selection of a ratio. How they worked may be seen first by a reference to the actual ratios of gold to silver in these years. The quotations of silver since 1833 have been authoritatively given in the London tables of Pixley and Abell, and since that date are not disputed. We have consequently an exact knowledge of the market ratios of gold to silver at this time when a new adjustment was being made. Chart VII has been constructed on the basis of these tables, and shows that the average ratio from 1825 to 1835 was a little more than 1:15.7. The only action which could be justified by monetary experience, or by the hope of maintaining a double standard, demanded that the United States in 1834 should adopt the market as the legal ratio. Did the statesmen in charge of the bill have a definite knowledge of the market ratio, even if they intended to follow it? There seems to be no doubt of it. Three of the plans given at the beginning of this section were based on a ratio of 1:15.6, which was generally supposed to be the market ratio in the United States (and it was very near the true ratio). The bill of the committee embodying a double standard based on the ratio of 1:15.6 was introduced into the House, and had passed through the Committee of the Whole,30 when it encountered the political breezes and was driven out of its course. Mr. C. P. White changed front, and, although in his previous elaborate reports he had strongly urged31 the ratio of 1:15.6, he himself proposed an amendment altering the ratio in the bill to 1:16, which was adopted and finally enacted. The bill proposed by Mr. White's committee became significantly known as the "Gold Bill." This move, which was of course at variance with any attempt to retain a double standard, had probably both a political and a monetary object. It will be remembered that Mr. White, in his reports, opposed a double standard and favored a single standard of silver. In my judgment, he was easily led by his preference for a single standard to join in establishing a ratio between gold and silver which must, in the nature of things, soon bring about a single standard, if not of silver, at least of gold; while, on the other hand, there was a strong political party waging war against the United States Bank, and desirous, as part of their warfare, to make a battle-cry of a gold currency, in distinction to the paper issues of the bank. Under the leadership of Benton, the anti-bank party made support of the "Gold bill" and the ratio of 1:16 a partisan shibboleth.

Benton32 said that 1:15 5/8 "was the ratio of nearly all who seemed best calculated, from their pursuits, to understand the subject. The thick array of speakers was on that side; and the eighteen banks of the city of New York, with Mr. Gallatin at their head, favored that proportion. The difficulty of adjusting this value, so that neither metal should expel the other, had been the stumbling-block for a great many years; and now this difficulty seemed to be as formidable as ever."

It was urged that Spain, Portugal, Mexico, South America, and the West Indies (except Cuba, which had 17:1) rated silver to gold at 16:1; but it is quite likely that the ratio of 16:1 was favored as much because it gave a slight advantage to gold as that other countries had such a ratio. In the debates in the House, Mr. Cambreleng, of New York, openly admitted33 the object of the change: "By adopting a higher ratio we shall be more certain of accomplishing our object, which is to secure for our own country the permanent circulation of gold coins." And the political considerations triumphed.34 Mr. Selden, of New York, moved as an amendment the adoption of a ratio of 1:5 5/8, but it was lost by a vote of 52 to 127; and Mr. Gorham's amendment of a ratio of 1:15.825 was rejected, 69 to 112.35 In short, the majority were evidently aiming at a single gold standard,36 through the disguise of a ratio which overvalued gold in the legal proportions. In the market an ounce of gold bought 15.7 ounces of silver bullion; when coined at the Mint it exchanged for sixteen ounces of silver coin. Silver, therefore, could not long stay in circulation.

§ 4. The Coinage Act of 1834,37 therefore, in contradistinction to the policy of Hamilton in 1792, did not show the result of any attempt to select a mint ratio in accord with that of the market. It was very clearly pointed out in the debates that the ratio of 1:16 would drive out silver.

Mr. Gorham,38 of Massachusetts, "warned the House not to bring about, by its hasty legislation, the same state of things in relation to silver which had heretofore existed respecting gold.... If the law should make gold too cheap, the country would have no silver circulation.... We should soon have the same cry about the want of silver coin which there was now about gold. Then the next step would be to tamper with the value of the dollar."

So long as the market ratio was 1:15.7 and the Mint ratio 1:16, there would certainly be a tendency to the disappearance of silver. But it was urged that, inasmuch as the value of silver relatively to gold had been steadily falling for many years, it was quite likely that it would continue to fall still more in the future. Not knowing the cause of the fall in silver, it was only natural that this error should have arisen. The ratio of 1:16 was therefore urged, because, as it was said, it would anticipate39 the change of the next few years in the market ratio. This, however, did not come, as may be seen by Chart VII.

The effects of the undervaluation of silver, and the overvaluation of gold, in the legal ratio of 1:16, as compared with a market ratio of 1:15.7, were soon manifest. Gresham's law was brought into play, but its operation in this period was exactly the reverse of that in the preceding period (1792-1834). In the latter, the depreciated silver drove out gold; in the former, the overvalued gold began to drive out silver. It is evident that there would be a gain in putting gold into the form of coin, instead of, as heretofore, regarding it as merchandise. A man could buy for $15,700 an amount of gold bullion, which, when coined for its owner at the United States Mint, possessed a legal tender coin value of $16,000. A debtor, therefore, would gain $300 by paying his creditor in gold, the overvalued metal. And as there was such a premium on the use of gold, so there was a corresponding premium on the disuse of silver. If a debtor had $16,000 of silver coin, he need take of it only $15,700, melt it into bullion, and in the bullion market buy gold bullion, which, when coined at the Mint into gold coins, would have a debt-paying power of $16,000. There was a profit of $300 in not using silver as a medium of exchange, and in treating it as merchandise. The act was passed in June; and in the fall40 of 1834 gold began to move toward the United States in such quantities that for a time some alarm was created in London as to the amount of reserves in the Bank of England. It then became very difficult to get silver41 in the United States, and there began a displacement of silver by gold, irrespective of the issues of paper money, which at last culminated, when the discoveries of gold in 1848 had lowered the value of gold, in the entire disappearance of silver. It can not be said, then, that the act of 1834 was properly a part of a bimetallic scheme. For certainly we did not long enjoy the use of both metals in our circulation. The very process by which gold began to come in, carried silver out of use.42 "It would probably be safe to assert that... one half of the citizens of our country, born since 1840, had never seen a United States silver dollar. If we should be mistaken in this; if it should be shown that one half of our people had seen a silver dollar some time in their lives, we could still fall back on the well-known historic fact that the dollar in question was rarely used as money after 1840."43

It is quite clear, however, that had the ratio of 1:15.6 been adopted in 1834, instead of a counterfeit bimetallism at a ratio of 1:16, the same results would have ensued in the former case as in the latter. The gold discoveries so altered the relative value of gold to silver—exactly reversing the situation in 1780-1820—that the system would again have been left on one leg, and that a gold one. A glance at Chart VII will show that after 1850 the ratio of gold to silver moved in the opposite direction, and, instead of approaching 1:15.6, it fell to between 1:15½ and 1:15. In short, a purely bimetallic scheme in 1834 could not have succeeded in retaining both metals in concurrent circulation, owing to the impossibility of forecasting the future supplies of the precious metals, to say nothing of anticipating the changes in the future demand for them. In attempting to settle upon a legal ratio which will correspond with the market ratio for any length of time, a problem of the nature of perpetual motion is encountered. Calculation must be made not merely as to the future value of silver, but also as to the future value of gold. Neither of these things is possible. The value of each metal depends on its own demand and supply; so that for the two metals there are four independent factors to be considered. It is absurd to suppose that, if there should be a change in one of these factors, there should ipso facto be changes in the three other factors of such a character as to neutralize the change in one. The situation is like a table resting on four legs. Two of these legs at one end may represent the demand and supply of silver, and the two at the other end the demand and supply of gold. The first two fix the height of the table at one end relatively to the height at the other end; moreover, a change in one leg will cause a destruction of the general level of the table, not to be counterbalanced except by an accommodating change in each of the other three. But it is impossible that these changes should be either in a direction or extent that should exactly offset the effect of an interfering change in but one factor. It is well worth notice, too, that changes of this description were going on in the values of both gold and silver in the years when there was no complaint that discrimination44 was exercised against one metal or another.

We can see, then, that the ratio of 1:16 resulted in a movement of silver out of, and of gold into, the circulation, somewhat earlier than it would have come about had the ratio of 1:15.6 been adopted; but the movement, operating with no great force for a few years, received an unexpected momentum from the gold discoveries, which, by lowering the market value of gold toward 1:15, made the overvaluation of gold in the legal ratio of 1:16 still more evident, and so still further increased the profit in coining gold and melting silver into bullion. We should expect, therefore, to find a confirmation of this explanation in the movement of gold and silver to the Mint of the United States. In the preceding period of 1780-1834, we saw by Chart II that the coinage of silver, the cheaper metal, preponderated; and now we can see, in Chart VIII, a similar movement, but very much more marked,45 in the opposite direction. The coinage of the overvalued gold soon preponderated over that of silver. A comparison of Chart VIII with Chart II will show the force and opposing direction of the influences at work in the two periods in a very distinct manner. It will be remembered that the silver coinage was chiefly of denominations below a dollar. Of silver dollar pieces, not a single one was coined from 1806 to 1836, and thereafter only in very small quantities. But, so far as the Mint figures tell the story, a very considerable movement of gold to the Mint did not begin until 1843; for the Russian mines began by that time to sensibly increase the supply of gold.

§ 5. The act of 1834 changed the legal ratio from 1:15 to 1:16. The readjustment of the weights of the coins in order to meet this change could have been made in two ways: (1) either by increasing the number of grains in the silver dollar until it had reached the value of the gold dollar, and thus restored to it the value it had lost by its depreciation; or (2) by lessening the weight of the gold dollar until it had been accommodated to the fall in the value of the silver dollar. The latter, unfortunately, was the course adopted. It is to be regretted that, in this manner, we laid ourselves open to the charge of debasing our coinage;46 but it is true. The amount of pure silver in the dollar was left unchanged at 371.25 grains; but the amount of pure gold in the gold eagle was diminished from 247.5 grains to 232 grains. This debased the gold coins of the United States 6.26 per cent, and to that extent the law gave gold a less legal-tender value than it had possessed before 1834. Not knowing that the Mexican product had lowered the value of silver, and that gold had not risen in value in 1820, our statesmen refused to maintain the unit of unchanged purchasing power represented at that time by gold, and dropped to the level of the cheapened silver standard. By adhering to the dollar of silver, and altering the gold coins to suit it, we had the appearance of retaining "the dollar of our fathers," but we overlooked the essential fact that this silver dollar had fallen seriously in value.

Mr. Ingham took the ground47 in 1830 that silver should be adopted as the standard of the United States, because all contracts were at that time practically made in terms of silver, and because for many years silver had been the only coin in circulation. This does not seem to me a tenable position. The highest justice is rendered by the state when it exacts from the debtor at the end of a contract the same purchasing power which the creditor gave him at the beginning of the contract, no less, no more. The statement of Mr. Ingham does not imply that contracts should be paid in silver, because silver furnished the unit which had varied least in value. His conclusion was, of course, based on no such position; but only on such a supposition could it be just. To claim that the amount of silver in a dollar ought not be raised, because all contracts were payable in silver, would have been just only if he had proved that silver had not changed in its purchasing power. Those whose contracts were paid in silver, after that metal had fallen in value, lost an amount of purchasing power equivalent to the depreciation.

It is not certain, also, that after the act of 1834 drove out silver, contracts entered into before 1834 were protected by retaining the original weight of the silver dollar. For example, before 1834 a debt might have been paid either by 100 ounces of pure gold, or 1,500 ounces of pure silver, in coin; after 1834, the debt, owing to the debasement of the gold coins, could be paid by 94 ounces of pure gold in coin, or 1,500 ounces of pure silver in coin. But if silver was practically out of circulation, the creditor, in receiving 94 ounces of gold, would obtain in terms of silver only what silver bullion he could buy with the gold. If the market rate were 1:15.7, he would have received of silver only 1475.5 ounces of silver bullion, thus suffering a loss of 24.5 ounces of silver. On this supposition, contracts were not protected by retaining the monetary unit as fixed in the dollar made of the depreciated silver. Indeed, Mr. Ingham saw the effect, in case of a disappearance of silver, when he said, "Successive changes of this nature must in time subject the policy of this Government to the reproach, which has been so justly cast upon those of the Old World, for the unwarrantable debasement of their coins." And this was exactly what happened.48 Moreover, full warning49 of this was given in the debates in Congress.

As was to have been expected, the effect of this debasement was not confined to the time in which it occurred. Its evil lived after it, and came up in the form of precedent. It would not be unnatural that it should raise its ugly head, if it is desired in the future to tamper with contracts by altering the standard of payments, since it has already been quoted as a precedent by the Supreme Court of the United States in the second legal-tender decision50 of 1871. Since even monetary irregularities, after being enacted into law, have the sacredness of legal precedent, a legislator may well pause before dealing with such questions as these in haste, or in obedience to party policy.

§ 6. The act of 1834 was supplemented by a law in 183751 which changed the proportion of alloy to pure metal in our coins. It will be remembered that Hamilton recommended 11/12 of the weight to be pure, and 1/12 to be alloy for both gold and silver coins. This recommendation, however, was carried out only in respect of gold coins in the act of 1792; for silver coins were issued with an alloy52 of slightly more than 1/9, or in the proportion of 371.25 grains pure, in 416 grains of standard, silver. Therefore, the original silver dollar, as it was coined from 1792 to 1837 (and 100 cents of the subsidiary coinage also), weighed 416 grains, "standard weight"—that is, the pure silver plus the alloy. The 416-grain dollar, of course, contained 371.25 grains of pure silver.

In 1837 a very sensible reform was made by establishing the same proportion of alloy for both gold and silver coins; and by making that proportion 1/10, which was equivalent to saying that the amount of pure metal in a coin should always be 9/10 of its standard weight, or 900 thousandths fine. This is our present system, and the amount of pure metal in a coin can now be found by subtracting 1/10 from its full or standard weight; or the standard weight can be found by adding 1/9 to the weight of the pure metal. Pure gold aid silver is defined as 1,000 thousandths fine.

By the act of 1834, the pure gold in an eagle (no gold dollar pieces were yet coined) was reduced from the weight of 247.5 grains given by act of 1792 to 232 grains, and the standard weight fixed at 258 grains. This, in decimal terms, was equivalent to 899.225 thousandths fine for our gold coinage. The act of 1837, therefore, slightly changed the quantity of pure gold from 232 grains to 232.2 grains, retaining the standard weight of 258 grains, and thus gave exactly 900 thousandths fine for the eagle, as well as for our other gold coins of less denominations which contained weights proportional to the eagle. This addition of 2/10 of a grain to the pure gold makes the legal ratio between gold and silver coins 371.25 : 23.22, or 15.98+ to 1; while in the act of 1834 the ratio was almost exactly 10:1 (371.25 : 23.2).

In dealing with the weight of the silver dollar, the amount of pure silver in it was left untouched, as it was fixed by the act of 1792, at 371.25 grains. But in order to establish the ratio of alloy at 1/10, the standard weight, which was fixed at 416 grains in the act of 1792, was changed in 1837 to 412½ grains. This is the origin of the common name of "412½-grain dollar." It dates from 1837; although the quantity of pure silver in it has been unchanged since the act of 1792; 412  grains is its "standard weight."

Part I, Chapter V

The Gold Discoveries and the Act of 1853

§ 1. The discoveries of gold in Russia, Australia, and California, by which the gold product reached its highest amount soon after 1851, form an epoch in the monetary history of every modern state with a specie circulation. They have been the most important events in the later history of the precious metals, and their effect upon the relative values of gold and silver has been serious and prolonged. It is not too much to say that almost all the bimetallic discussions of recent years would not have arisen had this unexpected and astonishing stream of gold from the mines of both the Old and the New World never been poured upon the market. From it date almost all our modern problems relating to gold and silver, and, as we shall later see, we can not discuss the silver question of to-day without reference to this extraordinary production of gold.

The figures of annual production, which are elsewhere53 given, show the extent of the addition which was made to the world's supply already in existence. From an average annual production in 1840-1850 of about $38,000,000, the gold supply increased to a figure beyond $150,000,000 after 1850. The effect of this increase was unquestionably to lower the value of gold; in other words, to diminish its purchasing power over commodities of general consumption.54 It was one of those unexpected events which no human sagacity could have foreseen; and, as it seriously affected the value of one of the two metals in our double standard, it threw a new obstacle in the way of its successful progress. There being a fall in the value of gold this time, instead of a fall in the value of silver as before, the necessity arose of a new adjustment of the legal ratio for our gold and silver coins in order to keep both metals in circulation. That is, if bimetallism was to be continued, the experience of the United States required a constant readjustment of the Mint ratio to the market ratio, because of constant changes in the relative values due to natural, and so to unforeseen, causes. After an experience of sixty years, did the United States propose to continue a nominal double standard after its constant failure to keep both metals in circulation? We shall confine ourselves to this question in the present chapter, and to the legislation in which the decision on this matter was contained.

The extraordinary change in the annual production of gold is made clear by noticing in Chart IX the rise of the space covered by yellow after 1850, and comparing this with the extent of the space covered by the same color in earlier periods.55

Of the general and more important effects ensuing from the increased gold production I shall speak in a later chapter,56 in connection with its influence on the value of silver.

§ 2. When the value of gold fell under the regular flow of a new and extraordinary supply, as might have been expected, Gresham's law began to work more actively than ever. It hias been seen already that the Mint ratio of 1:16 began in 1834 the movement which was slowly substituting gold for silver. The fall in the value of gold now aggravated this tendency into a serious evil. The divergence between the legal and the market ratios clearly revealed by 1849, at the latest, a long-standing error in regard to the subsidiary coinage. In 1804 an ounce of gold bought about 15.7 ounces of silver in the bullion market (but 16 ounces in the form of coin). In the period we are now considering, however, since gold had fallen in value, one ounce of gold could buy 15.7 ounces no longer, but a less number, which in 1853 was about 15.1 ounces. It will be seen at once that this widened the difference between the Mint ratio of 1:16 and the market ratio, and so offered a greater profit to the watchful money-brokers. Being able to make legal payment of a debt either in silver or gold, a man having 1,600 ounces of silver could tale only 1,540 of them to the bullion market, and there buy 100 ounces of gold, which would by law be a legal acquittal of his debt. He would thus gain 60 ounces by paying his debt in gold rather than in silver. When the ratio was 1:15.7, he would have gained only 30 ounces. So that the fall in the value of gold acted to increase the speed with which gold drove out silver.

This changed relation is to be found in the quotations of silver coins in gold prices. The amount of pure silver in a dollar, or two halves, four quarters, etc., was 371.25 grains; in a gold dollar, 23.2 grains. The act of 1834 had said that gold was 16 times as valuable as silver, and that 23.2 grains of gold should be equivalent to 371.25 grains of silver; but the market is unaffected by legal decrees, and values are not fixed by any legislature. The market values of the two metals in 1853 having then assumed a relation of about 1:15.4, a gold dollar57 could buy 15.4 times 23.2 grains of silver in the market, or 357¼ grains. This amount was 14 grains less than the legal silver dollar. But if 357¼ grains was the market equivalent of a gold dollar, 371¼ grains would be worth more than a gold dollar in the market; that is, silver dollars were worth about 104 cents of a gold coin in 1853, and even rose to 105 cents in 1859.58 Taking these figures, it will be seen in another way why it was unprofitable to use a silver coin as a medium of exchange. If a dollar of silver was worth 104 cents in gold coin, and since gold coin was a legal tender for all payments, no one would, on grounds of self-interest, choose to pay 104 cents when 100 cents would serve the same purpose. Consequently, only the cheaper metal was used, and that was gold, while silver was wholly banished from use as money, and in the United States became an article of merchandise only.

But this went further than ever before. It will be recalled that the subsidiary coinage of silver had since 1792 contained weights of pure silver proportional to the weight of the dollar piece; that is, two halves, four quarters, ten dimes, and twenty half-dimes, contained as much pure silver as a dollar piece, or 371¼ grains. Consequently, if a dollar piece of silver had become worth 104 cents in gold, two halves, four quarters, etc., would have become worth the same sum in gold; therefore the profit in exchanging gold for subsidiary silver was such that it was also driven from use. A half-eagle exchanged for ten half-dollars gave the same profit as when exchanged for five separate dollar pieces. In this way all the silver used for small "change," the subsidiary coinage, disappeared from circulation. Through the operation of Gresham's law even the coins needed for small retail transactions had been reached, and the business of the country became seriously embarrassed by the want of small coins.59 "We have had but a single standard for the last three or four years," said Mr. Dunham60 in behalf of the Committee of Ways and Means in 1850; "that has been and now is gold." In short, by 1850 the people of the United States found themselves with a single standard of gold, but without enough silver to serve for necessary exchanges in retail transactions. The balancing plank in this vacillating system had now tipped quite in the other direction, for before 1834 the silver end was up. Now it was the gold end. How soon would it be the silver end again, if we adhered to such a system?

This, then, was the situation produced by the gold discoveries in connection with the act of 1834, establishing the ratio of 1:16. It now remains for me to recount the remedy which Congress was again forced to apply to the situation as a corrective. As we shall see, the difficulties were met much more intelligently than ever before.

§ 3. The act of 1853 was a practical abandonment of the double standard in the United States. There was virtually no opposition to the bill, even though its real purpose was openly avowed in the clearest way in the House by Mr. Dunham,—who had the measure in charge and who showed an admirable knowledge of the questions involved:61

In answer to another plan, the same speaker62 said:

We have heard a great deal in later years about the surreptitious demonetization of silver in 1873. There was, however, vastly too much criticism wasted on the act of 1873; for the real demonetization of silver in the United States was accomplished in 1853. It was not the result of accident; it was a carefully considered plan, deliberately carried into legislation in 1853, twenty years before its nominal demonetization by the act of 1873. The act of 1853 tried and condemned the criminal; and, after twenty years of waiting for a reprieve, the execution only took place in 1873. It was in 1853 that Congress, judging from our own past experience and that of other countries, came to the conclusion that a double standard was an impossibility for any length of time.

It can not be said, however, that this conclusion was reached wholly through unselfish reasons. The underlying prejudice in favor of gold, if gold can be had, which we are sure to find deeply seated in the desires of our business community whenever occasion gives it an opportunity for display, was here manifesting itself. The country found itself with a single metal in circulation. Had that metal been silver, we should have had to chronicle again the grumbling dissertations on the disappearance of gold which characterized the period preceding 1834. But in 1853 the single standard was gold. This was a situation which no one rebelled against. Indeed, no one seemed to regard it as anything else than good fortune (except so far as the subsidiary coins had disappeared). It was very much as if a ranchman, starting with one hundred good cattle and one hundred inferior ones, had found, when branding-time came, that, by virtue of exchange with his neighbors, the two hundred cattle assigned to him were, in his judgment, all good ones, and none inferior. From a selfish point of view, he had no reason to complain. It would have been a very different story had the two hundred cattle all been inferior.

In the debates it was proposed63 that, as the cause of the change in the relative values of gold and silver was the increased product of gold, the proper remedy should be to increase the quantity of gold in the gold coins. This was exactly the kind of treatment which should have been adopted in regard to silver in 1834, and it seems quite reasonable that this should have been the only true and just policy in 1853. Certainly it was, if it was intended to bring the Mint ratio into accord with the market ratio, and try again the experiment of a double standard. But this was exactly what Congress chose to abandon. There was no discussion as to how a readjustment of the ratio between the two metals might be reached, for it was already decided that only one metal was to be retained. This decision, consequently, carried us to a point where a ratio between the two metals was not of the slightest concern. And so it remained. The United States had no thought about the ratios between gold and silver thereafter until the extraordinary fall in the value of silver in 1876. The policy of the United States in retaining gold, once that it was in circulation, was only doing a little earlier what France did in later years. When the cheapened gold, after 1850, had filled the channels of circulation in France, and had driven out silver, France made no objections; but when a subsequent change in silver tended to drive out the gold, France quietly held on to her gold. The United States, as well as France, again showed the unconscious preference for gold of which Hamilton spoke in 1792.

§ 4. In the provisions of the act64 of 1853 nothing whatever was said as to the silver dollar-piece. It had entirely disappeared from circulation years before, and acquiescence in its absence was everywhere found. No attempt whatever was thereafter made to change the legal ratio, in order that both metals might again be brought into concurrent circulation. Having enough gold, the country did not care for silver. At the existing and only nominal Mint ratio of 1:16, the silver dollar could not circulate, and no attempt was made in the act to bring it into circulation. It is, therefore, to be kept distinctly in mind that in 1853 the actual use of silver as an unlimited legal tender equally with gold was decisively abandoned. Under any conditions then existing a double standard was publicly admitted to be hopeless. The main animus of the act, therefore, is to be found in what is not included in it, that is, in the omission to insert any provision which would bring the silver dollar again into circulation.

As the act stands on the statute-books, it is practically nothing more than a regulation of the subsidiary silver coinage,65 and its study is but a lesson in the proper principles which should regulate that part of a metallic currency. Hitherto 100 cents of fractional silver coin had contained 371¼ grains of pure silver; and, as has been seen, whenever anything happened to drive out the silver dollar-piece, the subsidiary coins disappeared equally with the dollar. The recognition of this fact led to the adoption of the first correct rule for such money. The act reduced the number of grains of pure silver in 100 cents from 371.25 to 345.6 (the standard weight being changed from 412½ to 384 grains), equivalent to a reduction of 6.91 per cent from the former basis. This was more than the difference between the value of the gold dollar and the silver dollar (which was worth about 104 cents in gold). In short, it was intended66 to reduce silver to the position of a subsidiary metal. The reason for the reduction of weight, so that 100 cents of the small coins should be worth even less than the value of the gold dollar, is substantiated by the experience of many countries. It protects the subsidiary coin from disturbance, even if changes in the relative values of gold and silver drive out one or the other metal which is coined in larger pieces. There were only 345.6 grains of pure silver in 100 cents of this coin; a dollar of gold (23.2 grains) would buy 357¼ grains of silver bullion (at a market ratio of 1:15.4). If a person should melt the new silver coins (345.6), he would fall considerably short of having enough (357¼) to buy a gold dollar; and, there being no profit, there would be no motive in melting the silver, or withdrawing them from circulation. The first step, therefore, was gained by lowering their weight so that the market value of the pure silver in the subsidiary coins was worth less than the gold dollar.67 The silver was given a face value in that form greater than as bullion, and there could be no reason to withdraw them from use.

Far from there being any fear of their disappearance, the next question was, how to prevent silver from flowing to the Mint and seeking the form in which it would be more highly rated than as bullion. In fact, if the weight of the subsidiary coinage were too far reduced, it would offer a premium to counterfeiters, even if as much silver were used in the false, as in the United States, coin. But the second principle to be observed prevented too great a quantity of silver from flowing to the Mint. This was the withdrawal of "free coinage" of subsidiary currency, and a limitation of the supply by leaving its amount to the discretion of the Secretary of the Treasury.68 The limitation of the supply to the amount actually needed for the use of the public would keep subsidiary coins current at their face value; because of the necessity of having such pieces for small transactions. Of course, the complete theory demands that the Government should redeem them at their tale value, in order to prevent redundancy; but this was not carried out in the act of 1853. These coins could be purchased69 only from the Mint, and naturally, with gold, at their face value; they would, therefore, get into circulation at first only at par. Consequently, no more would get out than those who offered a full gold value for them believed were needed, or no more than they could pass at their face value. In the original bill, as proposed by Mr. Dunham's committee, it was intended to make these coins receivable for debts due to the Government of the United States. This, of course, was a partial means of redemption; but it was not70 then adopted by Congress. In practice, however, such a provision has not proved necessary in order to keep the coins at par. Almost the only serious opposition to the bill was made by Andrew Johnson, of Tennessee, who seemed to be unable to grasp the foregoing principle:71

The third principle applicable to a system of subsidiary coinage, and which was followed in the act of 1853, was that which limited its legal-tender power to a small sum. The difference between the intrinsic and face value, if there were free coinage, would enable a large payment to be made in a very inconvenient form by means of large sums of small coins. This, however, could be avoided by such a provision as was included in this act, which limited the amount of subsidiary coins to be offered in payment of debts to a sum not exceeding five dollars.73 But this difficulty was also checked by the absence of free coinage. Even in this case, however, the limitation of legal-tender power would prevent a possible annoyance in business transactions.

The bill, which originated in the Senate, passed the House without any practical alteration. A motion to lay the bill on the table was twice lost, by votes of 54 to 109, and of 65 to 111. It was passed in the House with 94 ayes, the noes not counted.74

Part I, Chapter VI

The Gold Standard, 1853-1873

§ 1. At no time after the act of 1853 until the Civil War was the silver dollar of 412½ grains equal to less than 103 or 104 cents of our gold coins, and, consequently, it was never seen in circulation. The country had willingly acquiesced in the practical adoption of the single gold standard, and so well did the situation satisfy all demands that the question of gold and silver dropped out of the public mind. The subsidiary coinage of silver introduced by the act of 1853 served its purpose admirably. With gold as the medium of exchange for large payments, and an overvalued silver coinage for small payments, the business interests of the country were fully content, and no trouble need have arisen to this day from any disturbances in our system of metallic currency had we been saved from the evils of our Civil War. Until the passage of the Legal-Tender Act early in 1862 (specie payments were suspended December 31, 1861) our currency continued to be what it was intended it should be in 1853—a gold currency. Paper money, issued by the State banks, was, of course, in circulation; but I do not propose here to include the history of paper issues. Paper money acts to drive out either metal which is in use; and so its existence does not alter conclusions which are concerned only with the two metals. We can say, without hesitation, that our coinage system from 1853 to the Civil War worked admirably. There were evidently no longings to use the silver dollar piece when it was worth 3 or 4 per cent premium.

§ 2. The act of February 25, 1862, issued the first installment of United States legal-tender notes to the amount of $150,000,000. A similar amount was authorized by a second act passed July 11, 1862, but which was going through the preliminary stages of enactment in June. The result of the depreciation of the paper money which became manifest by a premium on gold in June to the extent of 5 per cent, and in July of 20 per cent, naturally brought Gresham's law into operation, by which the cheaper paper was substituted for the more valuable gold. Gold disappeared before the depreciating paper, and it was not until January 1, 1879, that it again appeared.

The displacing paper did even more than this. It drove out the subsidiary coinage in 1862. As early as July 2d the newspapers noted the disappearance of small coin, and its accompanying inconveniences. But in Congress there was very little conception of the causes at work. While the second legal-tender bill was under discussion in June, members seemed to be utterly unconscious of what was going on. On June 17th an amendment was introduced into Section 1 of the bill in regard to the small denominations of paper to this effect:

This measure was evidently intended to protect the small coins in circulation. It was believed, no doubt, that, if paper of small denominations were not issued, subsidiary coins would remain in circulation. The discussion and probable passage of an act authorizing this second issue of paper so depreciated its value that, before the five-dollar notes could have been issued from the printing-press, and even before the passage of this bill, the disappearance of the small coins was remarked upon (July 2d). This showed distinctly that ten-dollar notes, if depreciated, could drive out silver coins of denominations less than one dollar. There was, in truth, only a greater profit in dealing with larger sums. A large quantity of silver coins collected together and sold for depreciated legal-tender paper of large denominations gave the same proportional profit as if small notes had been used in the process.75

The subsidiary silver, containing 345.6 grains of pure metal, circulated at its face value in exchange for gold coins; but, if a 412½-grain dollar, containing 371.25 grains of pure silver, were counted as par, 345.6 grains of subsidiary coinage would be worth relatively, so far as regards the pure silver it contained, only 93.09 cents (although its legal value in small payments was 100 cents). The market valve of a dollar containing 371.25 grains, in 1862, however, was 104.16 cents of our gold coins. But, inasmuch as the subsidiary coins would be melted, or exported, only on estimates of their intrinsic value, the market price of 345.6 grains of silver would be 96.96 cents of our gold coins.

As soon, therefore, as the paper money depreciated below 96.96 cents, as compared with our gold coins, the movement of subsidiary silver out of circulation would begin. The operation can be easily seen by the adjoined diagram. As soon as the United States notes depreciated below 100, or par, there would be a profit in withdrawing our gold coins from use, according to Gresham's law. And when the depreciation had reached a point below 96.96, the silver coins must of necessity disappear. By June 1, 1862, the premium on gold was 5 per cent, which showed a depreciation of the United States notes to 95.23 cents in a dollar; by the 1st of July, the premium on gold was about 18 per cent, showing a depreciation to 84.7 cents in a dollar. In short, the subsidiary coins must have been withdrawn very soon after any effect on the gold coins was apparent. The paper money at 84.7 cents would very rapidly dislodge both kinds of coins.

Although, on the 17th of June, in the second legal-tender act, any paper issues of denominations less than a dollar had been forbidden, Congress was forced, by the events we have just described, to pass a bill authorizing the issue of a paper fractional currency on July 17, 1862. The absence of small silver had brought into existence tokens, tickets, checks, and substitutes of every description, issued by merchants and shopkeepers; and Congress was obliged hastily to authorize a currency, originally based on the likeness of postage-stamps, but which finally resulted in simple exercise of the function of note-issues for small denominations. Congress was unwilling to admit the necessity for such issues of paper, and the first act was entitled "An Act to authorize payments in stamps."76

§ 3. The paper-money period continued until the resumption of specie payments, January 1, 1879. Meanwhile no gold was in circulation. The fractional paper notes continued in use in spite of an ill-judged and ridiculous attempt of the Secretary77 of the Treasury to redeem them, with but a small reserve of silver, in October, 1873. This incident is an evidence of a extraordinary ignorance in a finance minister. Very soon after the commercial crisis of September, 1873, the exceptional condition of the exchanges and the arrival of gold caused a fall in the premium on gold in October from 11 to 6 per cent. But with a gold dollar worth 106 cents in paper, the paper was worth only about 94 cents in gold, while, as it will be remembered, the 345.6 grains of silver in the subsidiary coinage were equivalent to 96.9 cents in gold.78 Not until gold had fallen to 104, at least, could it be hoped that silver would remain in circulation. But Secretary Richardson announced that silver had fallen so low that he proposed to resume payments in that metal. He had in the Treasury not more than half a million79 in silver; gold was selling at not less than 106, and a profit still existed in exchanging paper for subsidiary silver. On the 27th of October, 1873, "Secretary Richardson issued a circular letter to the several sub-treasury officers, directing them to pay out silver coin to public creditors, should they desire it, in sums not to exceed five dollars in any one payment."80 In practice, the silver was paid out in sums of a few hundred dollars a day, for, of course, every creditor demanded his share of silver. The silver was not given in exchange for paper currency. The silver, when paid out, disappeared, and would have done so had the Secretary issued millions, instead of hundreds, of dollars of it.81

While discussing the subject of subsidiary coinage, it may be best to anticipate our story slightly and narrate here the means by which resumption of silver payments was finally achieved in 1877-1878. The Resumption Act, passed January 14, 1875, enacted (Sec. 1):

Not until 1877, however, did the premium on gold fall so low that, by the corresponding rise in the value of paper, it warranted an attempt at resumption of silver payments. The following table82 will show the value of a paper dollar in gold since 1865:

Secretary Bristow felt some doubts83 as to his authority to pay out silver coins for notes under the provision of the Resumption Act just quoted, and a subsequent bill84 was passed April 17, 1876. The amount of fractional currency outstanding was about $42,000,000, and the pressure for redemption at first was very strong.85 All but $16,000,000 of the fractional paper notes had at once come in for redemption; but since then about $1,000,000 more have been redeemed, leaving $15,000,000 yet outstanding, or, more probably, destroyed. After the first severe pressure due to the redemption of the fractional paper-money had ceased, the demand for silver coins at the Mint still continued in order to satisfy the needs of trade; whereon Congress permitted an additional issue of $10,000,000 in exchange for legal-tender notes.86

Part I, Chapter VII

The Demonetization of Silver

§ 1. In 1873 we find a simple legal recognition of that which had been the immediate result of the act of 1853, and which had been an admitted fact in the history of our coinage during the preceding twenty years. In 1853 it had been agreed to accept the situation by which we had come to have gold for large payments, and to relegate silver to a limited service in the subsidiary coins. The act of 1873, however, dropped the dollar piece out of the list of silver coins. In discontinuing the coinage of the silver dollar, the act of 1873 thereby simply recognized a fact which had been obvious to everybody since 1849. It did not introduce anything new, or begin a new policy. Whatever is to be said about the demonetization of silver as a fact must center in the act of 1853. Silver was not driven out of circulation by the act of 1873, which omitted the dollar of 412½ grains, since it had not been in circulation for more than twenty-five years. In 1853 Congress advisedly continued in motion the machinery which kept the silver dollar out of circulation, and, as we have seen, avowed its intention to create a single gold standard. This, then, was the act which really excluded silver dollars from our currency. A vast deal of rhetoric has been wasted on the act of 1873, 3, but its importance is greatly overrated. A law which merely recognized existing conditions can not be compared with the law which had for its object to establish those conditions; and this states the relative force of the act of 1853 and that of 1873.

The act of February 12, 1873,87 is known as the act which demonetized the silver dollar. Important consequences have been attached to it, and it has even been absurdly charged that the law was the cause88 of the commercial crisis of September, 1873. As if a law which made no changes in the actual metallic standard in use, and which had been in use thus for more than twenty years, had produced a financial disaster in seven months! To any one who knows of the influence of credit and speculation, or who has followed the course of our foreign trade since the Civil War, such a theory is too absurd to receive more than passing mention. To the year 1873 there had been coined of 412½-grain dollars for purposes of circulation only $1,439,457, and these were coined before 1806.89

But while the act of 1873 had little importance in changing existing conditions, it had an influence of a kind which at the present time can scarcely be overestimated. We are now,, in the course of our story, approaching the year 1876, in which occurred the phenomenal fall in the value of silver. Had the demonetization of the silver dollar not been accomplished in 1873 and 1874, we should have found ourselves in 1876 with a single silver standard, and the resumption of specie payments on January 1, 1879, would have been in silver, not in gold; and 15 per cent of all our contracts and existing obligations would have been repudiated. The act of 1873 was a piece of good fortune, which saved our financial credit and protected the honor of the State. It is a work of legislation for which we can not now be too thankful.

§ 2. It is, moreover, possible that the silver dollar was not "demonetized" in 1873, in spite of the prevailing impression to that effect. The legal-tender power of the silver dollar was not taken away by this measure. The coinage laws had not been revised since 1837, and in the act of 1873 occasion was taken to drop out the silver dollar from the list of coins which were thereafter to be issued from the Mint.90

It will be noticed that the dollar of 412½ grains is omitted from the list of silver coins which were in the future to be issued by the Mint, and of this list it is said that they shall be a legal tender to the amount of five dollars; but nothing is said which takes away the legal-tender quality of a coin already in existence, but of which no mention was made. Whatever silver dollars there were in existence were still a legal tender to any amount after the act was passed, although no more could be coined. The silver dollar, however, was demonetized; but not by the act of 1873. The revision of the Statutes of the United States, previously authorized, was adopted as the law of the land in June, 1874. In the Revised Statutes91 the legal-tender power of all silver coins is thus limited:

This statement, it will be noticed, is a general one, and applies to any silver coins of the United States whatever, while the act of 1873 predicated a limited legal-tender power of only a specified list of silver coins. The legal enactment, therefore, which really took away the legal-tender quality of the silver dollar of 412½ grains, was passed June 22, 1874. The act of 1873 only discontinued its coinage; the provision of the Revised Statutes took away its debt-paying power for sums beyond five dollars.92

The act of 1873 also made a change in the charge for seigniorage. Until 1853 the expense of changing bullion into coin was borne by the Government; but the act of 1853 inserted a charge of one half of one per cent. on all but subsidiary silver coins. No seigniorage, of course, was charged for subsidiary coins, because there was no "free coinage" of them by individuals. The act of 1873 now reduced the charge from one half to one fifth of one per cent.93

§ 3. The act of 1873 has been the subject of a curious controversy. After the fall of silver in 1876, and the subsequent rise of bimetallic discussions, severe denunciations of the act of 1873 were heard. It was asserted that the demonetization of silver was secretly carried out without any knowledge of it by the general public, or even by financial experts. In the silver discussion of 1878 it was charged94 that the silver dollar had been demonetized surreptitiously in 1870. The probable ground for this belief arose from the form of the bill, which, as we have seen, made a list of the silver coins, and from this list simply omitted the silver dollar without calling attention in the enactment itself to its discontinuance. An enactment, however, does not usually describe what has been omitted; its affirmations are positive. The discontinuance of the silver dollar, moreover, was not kept a secret during the time of more than two years when the bill was before Congress. Mr. W. D. Kelly, chairman of the Committee of Coinage, Weights, and Measures of the House, and reported the bill January 9, 1872, in the following words,95 with the recommendation that it pass:

Far from having been accomplished surreptitiously, the discontinuance of the silver dollar was very well known through the attention given it by the Secretary of the Treasury in his reports for 1870, 1871, and 1872. The bill,96 substantially as passed, was the work of John Jay Knox, and was transmitted by Secretary Boutwell to Senator Sherman, chairman of the Senate Finance Committee, April 25, 1870; the bill was sent out for criticism and suggestions to no less than thirty persons familiar with the Mint and with coinage operations; it was printed thirteen times by order of Congress; it was considered during five different sessions of the Senate and House; the debates on the bill in the Senate occupy 66, and in the House 78, columns of the "Congressional Globe," and it was not finally passed until February 12, 1873. The following table97 will show the slow process by which the bill finally became a law:

Although it was in reality a codification of laws relating to all questions connected with details of the Mint, assay-offices, and coinage, the intention of the bill in regard to the omission of the silver dollar is unmistakable. In the original bill, as sent out by Mr. Knox for suggestions, a silver dollar of 384 standard grains was proposed, or one on the basis of the existing subsidiary coinage. In this provision there was not only no intention of retaining the dollar of 412½ grains (at the old ratio of 1:15:98), but it was intended to insert in its place one containing 25.65 grains less of pure silver. The discontinuance of the old silver dollar by the bill was mentioned by Mr. Knox in his report to the Secretary of the Treasury accompanying the bill99 when laid before Congress. The experts, moreover, to whom the bill was sent for suggestion, noticed this change in our policy:

All this testimony is important because it affords corroborative proof to show beyond cavil that, in 1873, bimetallism was considered an impossibility for the United States. The contrast between the state of mind in 1873 and after the remarkable fall of silver in 1876 is, therefore, very striking, and demands some special explanation in later chapters.

When the bill came before Congress for discussion there was no opposition whatever to the omission of the silver dollar of 412½ grains from the list of authorized coins. The Senate occupied its time chiefly on questions of seigniorage104 and abrasion,105 and the House on a question of the salaries of the officials.106 The chief debate was in the House, when the bill was in charge of Mr. Hooper (Massachusetts), on April 9, 1872. He explained the bill to the House section by section,107 during the course of which he said:

To this position no objection was taken except that, as we had no gold or silver then in circulation, it was profitless to legislate on such questions.108 The opposition to the bill concerned itself with seigniorage, abrasion, or salaries, and the apparently self-evident policy of omitting the silver dollar was so generally accepted that it was used by Mr. Kelly (Pennsylvania) as a means to silence other objections:

What the animus of Congress was in respect of the question of bimetallism is perfectly clear, and was as well epitomized as in any other words by the following remarks:

In the act of 1792 our "unit" had been declared (Sec. 9) to be a silver dollar; in the act of 1873, on the other hand, it was enacted (Sec. 14): "That the gold coins of the United States shall be a one-dollar piece, which, at the standard weight of twenty-five and eight tenths grains, shall be the unit of value," etc.

§ 4. The act of 1873 authorized the coinage of a piece known as the trade-dollar, whose subsequent history proved a mystery to many people, and which afforded to speculators an opportunity for profit. Its existence was not due to the demand for ordinary coins at home, and had a different origin.

It is a well-known fact that Oriental nations have a peculiar power of absorbing111 silver in great quantities. To such an extent is this true that merchants in the China trade require silver as the best means of purchasing goods from that country. Naturally enough, of the various coins of a certain general kind, the coin which contained the most pure silver, and which also passed at the same tale value, was preferred by Eastern nations. The Spanish silver dollar was the coin originally used in this Oriental trade, but later gave place to the Mexican dollar. And within recent years, until 1873, because it was in highest favor with the Chinese, the Mexican dollar was systematically bought and sold by the banks in the United States to supply merchants who had payments to male in the East. The reason for this is to be seen by comparing the quantities112 of pure silver in the various coins circulating in Chinese ports (with the trade-dollar also included):

By this table it may be seen that a coin like the trade-dollar, which contained more pure silver than the Mexican dollar, might supersede it in the favor of the Chinese, and thereby afford a new market for the silver of the United States—which, as early as 1873, began to feel the effects of an increasing production. It was therefore proposed by Dr. Linderman,113 later Director of the Mint, to the Treasury, that the Mint should coin silver bullion into the form which should meet this Eastern demand and better serve the wants of our merchants. The plan was proposed to Congress by the Secretary of the Treasury, and was incorporated into the revision of the Mint laws which formed the main object of the act of 1873. As was seen in the preceding section of this chapter, it was first proposed to coin a silver dollar of only 384 grains standard coin; but the Senate struck out this provision, and, to serve the wishes of those who proposed a new market for silver, the trade-dollar of 420 grains was authorized instead. It was not intended to issue a silver dollar which should circulate in the United States, but merely to lend the authority of the Government stamp to silver bullion in order to aid in finding a market for silver in the East, and at the same time to relieve merchants from paying the high premium exacted for the Mexican dollars, sometimes amounting to from 11 to 22 per cent.114

This object was very successfully carried out, and the trade-dollar, authorized by the act of 1873, was extensively shipped to China, where it was generally received in the southern ports.115 Inasmuch as a dollar of 371¼ grains bore a premium in gold until 1874, a trade-dollar containing 378 grains of pure silver would be worth still more in gold than the other dollar, and there could be no reason for its circulation in the United States.

The trade-dollar was in reality an ingot, shaped like a dollar piece, but with different devices than those on the dollar of 412½ grains; it weighed 420 grains standard weight (that is, 900 fine), and, consequently, contained 378 grains of pure silver. The cost of manufacturing the coin at the various mints was charged upon the owner of the bullion presented for coinage; so that the expense of melting, refining, assaying the silver, and the expense of making the dollar,116 was borne entirely by the owners of bullion, and not by the United States.

As was said, the trade-dollar was not intended to circulate in the United States. Not having been considered a legal coin, it was not intended to give it any legal-tender quality whatever. It will be remembered, however, that the act of 1873 presented a list of coins to which was given a legal-tender power in sums not exceeding five dollars. By inadvertence, and without any intent, the trade-dollar was included in this list, and became possessed of a legal-tender power equally with subsidiary coins to the limit of five dollars. When this was discovered, the error was corrected by an act of July 22, 1876, which took away any legal-tender quality from the trade-dollar.117 Of its subsequent history and the closing of its career I shall speak in another chapter.

In our story we have now reached another unexpected and unforeseen incident, the extraordinary fall in the value of silver in 1876 and later years. To this event I shall devote the following chapters in Part II, treating of the Indian demand, the demonetization of silver by Germany, the action of France and the Latin Union, and the causes of the fall in the value of silver in 1876. Thus prepared, we can then intelligently study the history of bimetallism in the United States subsequent to that date.

[1.]See also S. Dana Horton's "Gold and Silver," chap. iii.

[2.]These arguments may be most conveniently found in F. A. Walker's "Political Economy," and "Money, Trade, and Industry"; and in S. Dana Horton's "Silver and Gold," and the "Report of the International Monetary Conference of 1873." See also the French Report of the Mon. Confer. of 1881, in index "Bimétallisme."

[3.]"Providence seems to have originally adjusted the relative values of the precious metals."—Sir Roderick Murchison, quoted by Ernest Seyd in "Decline of Prosperity," title-page. The following words of Turgot are often quoted: "Gold and silver were constituted, by the nature of things, money and universal money, independently of all convention and all law."

[4.]"Between gold and silver, therefore, there is not any fixed proportion as to value, established by Nature, any more than there is a fixed proportion established by Nature between lead and iron, or between wheat and tobacco. Nature does not say that one ounce of gold shall always be worth so many ounces of silver any more than she says that a certain number of pounds of iron shall always be worth so many pounds of lead, or that a bushel of wheat shall always be worth a fixed quantity of tobacco."—Raguet, "Currency and Banking," p. 219.

[5.]Cf. J. K Upton's "Money in Politics," chap. iii.

[6.]The Spanish dollar equaled 5 shillings in Georgia; 8 shillings in North Carolina and New York (12½ cents); 6 shillings in Virginia, Connecticut, New Hampshire, Massachusetts, and Rhode Island (16 2/3 cents); 7 shillings 6 pence in Maryland, Delaware, Pennsylvania, and New Jersey; 32 shillings 6 pence in South Carolina. This accounts for the present reckoning of 12½ cents to a "shilling" in New York, Ohio, etc., and of 16 2/3 cents in New England and Virginia ("nine pence" still being used as the equivalent of 12½ cents). The persistence, to the present day, of the units of account of a century ago, although the coins representing them have long passed out of existence, is one of the striking facts in monetary history.

[7.]"Report of 1878," p. 422. It is to be kept in mind, however, that the Spanish dollar with which this comparison was made varied in weight.

[8.]"Report of the International Monetary Conference of 1878," pp. 425-435. In referring to this authority I shall hereafter call it the "Report of 1878."

[9.]"Report of 1878," pp. 430, 431.

[10.]Ibid., pp. 437-443. "The unit or dollar is a known coin, and the most familiar of all to the mind of the people. It is already adopted from South to North, has identified our currency, and therefore happily offers itself as a unit already introduced."

[11.]"Report of 1878," pp. 445-449.

[12.]Samuel Osgood and Walter Livingston. See "Report of 1878," pp. 449-453.

[13.]For the first instance of a double standard in this country see the experiment of the colony of Massachusetts in 1762. Cf. Upton, "Money in Politics," p. 21.

[14.]Dated May 5, 1791. It is given in full in "Report of 1878," pp. 404-484.

[15.]"Gold may, perhaps, in certain senses, be said to have a greater stability than silver; as, being of superior value, less liberties have been taken with it in the regulations of different countries. Its standard has remained more uniform, and it has, in other respects, undergone fewer changes; as, being not so much an article of merchandise, owing to the use made of silver in the trade with the East Indies and China, it is less liable to be influenced by circumstances of commercial demand. And if, reasoning by analogy, it could be affirmed that there is a physical probability of greater proportional increase in the quantity of silver than in that of gold, it would afford an additional reason for calculating on greater steadiness in the value of the latter."

[16.]"But our situation in regard to the west India Islands, into some of which there is a large influx of silver directly from the mines of South America, occasions an extraordinary supply of that metal, and consequently [since our trade with the west Indies was important] a greater proportion of it in our circulation than might have been expected from its relative value."

[17.]In the Report of the Committee to Congress in 1785 (see p. 12) the same idea was uppermost. They saw that the French ratio of 1:15 attracted silver to France from England and Spain, where silver had a less value (viz, 1:15.2 in England and 1:16 in Spain); consequently it was urged that a ratio like the French, or even 1:14.75, would be likely to draw silver to the United States from England and Spain, and thereby increase the chances of gaining enough of this metal to satisfy our needs. Jefferson also, in 1782, seeing that France lost gold, but England and Spain lost silver, thought it well to adopt a ratio of 1:15, because, as our commerce was chiefly with Spain, we should receive silver readily from Spain, where the ratio was unfavorable to silver [1:16].

[18.]Mr. Upton, it seems to me, is in error when he says ("Money in Politics," p. 39): "He admitted that if the ratio between the metals should not prove to be the commercial one, there was hope of retaining only the overvalued metal in circulation. He asserted his belief, however, that 1:15 would prove to be the commercial ratio."

[19.]Hamilton explains the prevalence of this ratio by the fact that it arose from a custom existing in years before of comparing gold coins with earlier issues of Spanish Seville pieces (386¾ grains of pure silver), which contained more pure silver than the Spanish dollars current in 1791. The Board of Treasury also ("Report of 1878," p. 449) gave 1:15.6 as the ratio in common use in 1786.

[20.]In 1782, Robert Morris reported that the best assays to his knowledge made the dollar in general circulation to contain about 373 grains of pure silver. In 1785, a committee reported, and Congress adopted, a plan for a dollar of 362 grains, but it was not carried out. The Board of Treasury, in 1786, proposed a dollar of 375.64 grains. See "Report of 1878," pp. 431, 447, 449.

[21.]Gallatin, in a letter to Mr. Ingham, Secretary of the Treasury (December 31, 1829), says: "The present rate (1:15) was the result of information clearly incorrect respecting the then relative value of gold and silver in Europe, which was represented as being at the rate of less than 15 to 1, when it was in fact from 15.5 to 15.8 to 1" ("Report of 1878," p. 591). But Hamilton did not attempt to adjust his ratio according to the ratio prevalent in Europe.

[22.]"Report of l878," p. 456.

[23.]Ibid., p. 484. Cf. also Horton's note, p. 460.

[24.]These tables are collected and given in full in Appendix II, together with Cashier White's figures, and critical notes on some of the ratios. All the evidence we have goes to confirm the Hamburg quotations as generally reliable, and to show White's figures to be almost utterly worthless.

[26.]See "Report of 1878," p. 478.

[27.]"Standard" is the term applied to the pure metal mixed with the alloy. The actual weight of a finished coin, of course, contains a certain weight of fine or pure metal, plus the alloy. England, Spain, Portugal, and France then put an alloy of one twelfth of the total, or standard, weight into their gold coins. (See "Report of 1878," p. 466.) The origin of this fraction is in the use of carats. Twenty-four carats fine is a standard of pure gold, and these countries adopted as the standard of fineness in their gold coins twenty-two carats, or 22/24, or 11/12. Reduced to the decimal system, 11/12 is 916.66 thousandths fine.

[28.]Although Hamilton recommended the same alloy for silver as for gold coins, for some reason Congress did not carry out the suggestion. Instead of adding alloy to 371½ grains of pure silver, so as to make the standard weight 405 grains (which would have been one twelfth alloy), Congress fixed the standard weight of the silver dollar at 416 grains, thus establishing a fraction a little more than one ninth of alloy (or, in the decimal system, 892.43 thousandths fine). The same was true of the subsidiary silver coins, or denominations below one dollar.

[29.]For the provisions of the act at length, see Appendix III.

[30.]Jefferson approved of Hamilton's choice of 1:15. Cf. "Report of 1878," p. 486.

[31.]Even if we take the untrustworthy figures of white, we find that the ratio was below 1:15, and had been since 1786. Therefore it can not be charged by Benton that Hamilton favored silver by the ratio of 1:15, since this ratio gave gold an exchange value in the coins greater than that in the market (so far as White's table goes).

[32.]Mr. Baring, the banker, testified: "A very slight difference of one tenth or one fourth per cent would determine the use of one metal or another."—Quoted by C. P. White, p. 43 of "H. R. Report No. 278," vol. ii, 1833-1834, 1st session, 23d Congress. In speaking again of this report I shall describe it as "Report No. 278, 1833-1834."

[33.]A vivid illustration of this fact is given in Macaulay's "History of England," chap. xxi. About 1691, new coins were issued of full weight to take the place of the worn and clipped coins which caused so much wrangling in every bargain; but the old coins and the new were equally received by the state for government dues. There was, therefore, a premium on clipping the new coins, if the old and clipped coins were an equally good tender for taxes. The new coins disappeared as fast as they came from the Mint. Men and women were hanged in numbers for this kind of money-making, but the trouble went on as before, until the proper remedy was applied in 1695 by ceasing to receive the worn and clipped coins for more than their value by weight.

[34.]"The most extreme instance which has ever occurred was the case of the Japanese currency. At the time of the treaty of 1858, between Great Britain, the United States, and Japan, which partially opened up the last country to European trades, a very curious system of currency existed in Japan. The most valuable Japanese coin was the kobang, consisting of a thin oval disk of gold about two inches long and one inch and a quarter wide, weighing two hundred grains, and ornamented in a very primitive manner. It was passing current in the towns of Japan for four silver itzebus, but was worth in English money about 18s. 5d., whereas the silver itzebu was equal only to about 1s. 4d. Thus the Japanese were estimating their gold money at only about one third of its value, as estimated according to the relative values of the metals in other parts of the world. The earliest European traders enjoyed a rare opportunity for making profit. By buying up the kobangs at the native rating they trebled their money, until the natives, perceiving what was being done, withdrew from circulation the remainder of the gold."—Jevons, "Money and Mechanism of Exchange," p. 84.

[35.]See infra, chap. iii, § 5.

[36.]On which a report was made January, 26, 1819. 3 Finance, p. 398.

[37.]"Thirty Years' View," vol. I, chap. cv. Speech on the revival of the gold currency.

[38.]"It is believed that gold, when compared with silver, has been for many years appreciating in value."—In a "Report on the Currency," February 24, 1820. Cf. "Report of 1878," p. 519. "In the autumn of the year 1820 [November 25] an article, written by me, was published in your gazette ['National Gazette'] explaining the cause of the disappearance of gold from the United States."—Condy Raguet, "Currency and Banking," p. 207.

[39.]And they add: "There is a continual and steady drain of that metal from this country." See "Report of 1878," p. 554.

[40.]"It is a notorious fact that there is at this moment a traffic carried on between the United States and Canada more destructive to our national interest than an evasion of the embargo, or even partially supplying the enemy with provisions, as its effects are so much more extensive. We mean the taking from this country an immense quantity of GOLD to Canada, and receiving therefor British Government bills. It is well known that thousands of pounds sterling are daily offered on the exchange; and such is the demand at this moment for gold that it will bring upward of 4 per cent advance for the purpose of the above-mentioned traffic."—From the "Boston Patriot," in "Niles' Register," vi, p. 46, 1814.

[41.]3 "Finance," p. 399. Mr. Ingham (Secretary of the Treasury, in a report to the Senate, May 4, 1830), in discussing this, says that, although Lowndes attributed the fact to an error in the selection of a ratio by Hamilton, "it does not appear from the market price in the United States, during the whole of that time [1792-1819], that gold was more valuable for exportation than silver. On the contrary, it will be observed, by reference to Table B [White's untrustworthy table], that in England, prior to 1810, the ratio of gold to silver had for fifty years averaged at less than 1 to 14.75, and at no period of ten years as high as 1 to 15." He then admits "the fact that it [gold] did not then [prior to 1819] circulate." Cf. "Report of 1878," p. 576, for the context.

[42.]"H. R. Report," p. 5, No. 513, 24th Congress, 1st session, March 26, 1836.

[43.]C. P. White says, in 1832: "For the last fifteen years our currency has been exclusively banknotes (except for small change), subject to redemption, on demand, with silver."—"Report No. 278," p. 24, 1833-1834.

[44.]The exceptional gold coinage in 1820 was due to special importations of gold by the Bank of the United States, in order to bring about specie payments.

[45.]See Table of Annual Coinage at the United States Mint, Appendix IV.

[46.]"H. R. Report No. 278," 1833-1834, contains them all. For this extract see "Report," March 17, 1832.

[47.]"It was in the early part of the year 1818—when the subject of the resumption of cash payments by the Bank of England (which had been suspended since 1797) occupied the attention of the British public and prepared the way for the act of Parliament to that effect, which was adopted in 1819—that a change in the relative value of gold and silver in the market of the trading world first became generally apparent in the United States."—"Currency and Banking," p. 222. Bolles, following Raguet, says on one page: "Not until 1818, when the question arose of resuming cash payments by the Bank of England, did the fact clearly appear in this country that a change had occurred in the relative value of gold and silver"; but on the next page he asserts that "of the two metals it was apparent, even before the war of 1812, that gold was more desirable for exportation than silver."—"Financial History of the United States," pp. 502, 503.

[48.]"Report of 1878," p. 460, note. Cf. also ibid., pp. 701-709. In these pages Horton gives a short statement of his position in convenient form. In his volume, "Gold and Silver" (1877), pp. 74-98, he developed this theory more fully.

[49.]"Gold and Silver," p. 83.

[50.]Ibid., pp. 81, 83, 84.

[51.]"Silver and Gold," p. 83.

[52.]Gallatin also denies the validity of Horton's theory in the following words: "It is erroneously that the exportation of American gold coins, which commenced in the year 1821, has been ascribed to that extraordinary demand [in England for purposes of resumption]. That exportation has been continued uninterruptedly after that cause had ceased to operate, and, as will be seen hereafter, is due to the alteration from that epoch in the rate of the exchanges."—Quoted by C. P. White in "Report No. 278," 1833-1834, p. 42.

[53.]"The Resumption Act of 1819 continued the restriction of cash payment to February, 1820, and thereafter ordered the redemption by the bank of its notes, when demanded, in a quantity of not less than sixty ounces of gold (over $1,000) in gold bullion, at a discount for paper of about 3 7/8 per cent till October, 1820; from that date till May, 1821, at about 2 per cent discount; and thereafter, till May, 1823, at par, but still in bullion; while after the latter date all notes were to be paid in gold coin on presentation.

"The bank was, however, permitted to pay in bullion at higher rates in fixed periods, and in gold coin after May 1, 1822. A subsequent law permitted full redemption after May 1, 1822."—Horton, "Gold and Silver," p. 80.

[54.]"Report of 1878," p. 701.

[55.]First published in the "London Statistical Journal" in June, 1865, vol. xxviii, pp. 294-320, and reprinted in "Investigations in Currency and Finance" (1884), pp. 144-149.

[56.]"Collectiv-Ausstellung von Beiträgen zur Geschichte der Preise," Prague (1873), p. 102.

[57.]Another table from Dr. Schebek (p. 87) is given herewith, which warrants the same inferences:

[58.]"Report of 1878," p. 702.

[59.]See Appendix I.

[60.]For the figures, see Appendix II.

[61.]Cf. Cairnes's "Essays in Political Economy," p. 124.

[62.]"An Historical Inquiry into the Production and Consumption of the Precious Metals" (1831).

[63.]Mr. Horton has even quoted the figures of Soetbeer from 1761-1830, and strangely says they show no "change of relative quantity" sufficient to cause a rise in the value of gold due to consumption by the arts ("Report of 1878," p. 702).

[64.]"The entire foreign trade of the greatest commercial nation then in existence [in the sixteenth century] probably did not much exceed that which is now carried on in a single English or American port. The total tonnage of the united galleons which constituted the Spanish mercantile marine only amounted, a century later, as we are informed by Robertson, to 27,500 tons, little more than the tonnage of the Great Eastern steamship. Some of the most populous and wealthy communities of the present day had not yet begun to exist; and the whole quantity of the precious metals then in use was probably less than that which now circulates in some second-rate European kingdoms."—Cairnes's "Essays," p. 111.

[65.]The mines of Valenciana in 1760, of Catorce in 1773, and the districts of Zacatecas in 1710 and Guanaxuato in 1766, began the movement. "The vein of Biscaina, though it began to be worked at the beginning of the sixteenth century, did not become enormously productive till 1762, though in twelve years from that period the owner of it had gained a profit of more than a million sterling, with part of which he presented to the King of Spain two ships of war, one of them of 120 guns, and besides lent him upward of 200,000 pounds." Jacob, "Precious Metals," pp. 382, 383.

[66.]Even Tooke, who is quoted by C. P. White, had little knowledge of what was going on, although he suspects the truth. He "is inclined to doubt the correctness of the opinion that the British demand increased the relative value of gold; and he remarks: 'These circumstances, collectively' (diminution in the export of silver to Asia and the emancipation of Spanish America), 'are likely to have increased the supply of silver, and give reason to expect that the fall in the price of silver arose from a relative increase of its quantity and consequent diminution, of its value rather than from a diminished quantity and increased value of gold.' He admits, however, that 'all information hitherto accessible relating to the proportion of the supply and demand of the precious metals is vague, and insufficient to build any practical conclusions upon; and the only object of the arguments brought forward is to afford grounds for calling in question the opposite presumption, which, in my opinion, has been much too generally and hastily admitted.' "—"Report No. 278," 1833-1834, p. 42.

[67.]Report of January 26, 1819. 3 "Finance," p. 399.

[68.]Secretary Ingham ("Report on the Relative Value of Gold and Silver," May 4, 1830) makes a point in 1830 that the comparative demand for silver had fallen off, and that this had produced a fall in the value of silver: "(1) That which has the most direct influence upon it is the revolution in the India trade; some of the chief manufactures of that country are no longer consumed in the United States, and England pays for her whole consumption of India fabrics in fabrics of her own manufacture. It was stated by Mr. Huskisson, in 1829, that in the commerce with India the difficulty was not, as formerly, to find precious metals to remit in payment of the balance, but to find returns from India to Europe. (2) The change adopted in the monetary system of England in 1816, by which payments in silver were limited to forty shillings, has also diminished the comparative demand." See also "Report of 1878," pp. 562, 563. There is no ground, I believe, for supposing that from 1780-1820 there was any change in the absorptive power of Eastern nations for silver at all commensurate with the change in the relative values of gold and silver. No such change in the comparative demand mentioned by Secretary Ingham is claimed for the period of 1780-1820. His point, therefore, even if substantial, applies to a period later than we have in view.

[69.]For another theory, that paper drove out gold, see chap. iv, § 1.

[70.]Mr. Seyd says, in examining Dr. Soetbeer's tables: "Indeed, the objection urged against the concurrent use of gold and silver is based on a mathematical theory, which asserts that as one metal is produced at one time in greater quantity than the other, so it must fall in relative value to that other. The actual facts utterly contradict this axiom.... It will be admitted that this table does not in any way bear out the theory that the greater supply of the one metal over another causes its decline in relative value.... In 1810 the production of silver [relatively to gold] was eleven times as high as in 1851 and 1860, and yet no change [in the relative values] took place.... Can anything be more conclusive as to the utter fallacy of the supposed 'mathematical' principle?

"Those in favor of the monometallic system have hitherto contented themselves with asserting that the varying supply must have the effect they suppose, without even examining the actual results. At a meeting of the Statistical Society of the 1st of April, 1879, Prof. Jevons, after using the ordinary platitudes, said: 'The value of silver, of course, falls as the ratio of weight given rises.' Like Dr. Soetbeer, Mr. Jevons belongs to the class of men who violate the rules of supply and demand by their one-sided view respecting them."—"Decline of Prosperity," pp. 81, 82.

[71.]After long years of peaceful mining the annual production of silver began to fall off by 1810, owing to the revolutions and intestinal wars in Mexico, New Granada, Peru, and Bolivia. The mines and mints often changed hands, and, as a consequence, the Mexican dollars coined from 1810 to 1829 were of various degrees of fineness, owing to the ignorant haste and carelessness with which the silver was mined and mixed with other substances; and they were accordingly discounted from 15 to 20 per cent. See Jacob, "Precious Metals," chap. xxv.

[1.]For a short account, see White's "Report No. 278," 1831, pp. 56, 57.

[2.]The Bank of the United States had arranged to import some specie from London through Messrs. Baring and Reed. "Under this contract, gold and silver were to be furnished, if it were practicable, in equal amounts, according to the American relative value of 1:15. Upward of $2,000,000 of silver have been accordingly supplied, but not one ounce of gold."—Lowndes, 1819, 3 "Finance," p. 399. "It is ascertained, in one of our principal commercial cities quite in the vicinity of the Mint, that the gold coin in an office of discount and deposit of the Bank of the United States there located, in November, 1819, amounted to $165,000, and the silver coin to $118,000; that since that time the silver coin has increased to $700,000, while the gold coin has diminished to the sum of $1,200, one hundred only of which is American."—Report, February 2, 1821, by Whitman, 3 "Finance," p. 660.

[3.]C. P. White, "Report No. 278," 1833-1834, pp. 66-72. The foreign dollars contained about 373½ to 374 grains pure silver. Secretary Crawford said "Spanish milled dollars compose the great mass of foreign silver coins which circulate in the United States, and generally command a premium when compared with the dollar of the United States."—Quoted by Talbot, January 6, 1819, 3 "Finance," p. 395.

[4.]Cf. C. P. White, ibid., p. 85. I find no reason whatever to suppose that this action of President Jefferson was as represented by Mr. Upton ("Money in Politics," p. 199). "He desired that gold should circulate as well as silver, and, to prevent the expulsion of gold, he peremptorily ordered the Mint to discontinue the coinage of the silver dollar." He did it to stop the exchange of our dollars for foreign silver dollars.

[5.]C. P. White, "Report No. 278," 1833-1834, p. 65.

[6.]White says the exportation came to be considerable in 1811-1821. Ibid., p. 85.

[7.]Ibid., p. 72.

[8.]Sanford, January 11, 1830, "Sen. Doc. No. 19," 1st session, 21st Congress, p. 11.

[10.]Mr. Jones (Ga.) said, in 1834: "Spanish and South American dollars furnish all our present circulation."—"Cong. Debates," vol. x, Part IV, 1833-1834, p. 4657.

[11.]"Report of 1878," pp. 679-683.

[12.]January 21, 1834, a law was also passed fixing the value of certain gold coins of Great Britain, Portugal, and Brazil at 94.8 cents per dwt.; those of France at 93.1 cents per dwt.; and those of Spain, Mexico, and Colombia at 89.9 cents per dwt.

[13.]"Senate Doc. No. 19," 1st session, 21st Congress, January 11, 1830.

[14.]Mr. Gillet, "Cong. Debates," ibid., p. 4659.

[15.]"Report of 1878," p. 575.

[16.]"We may experiment on our gold coins without fear...; though a legal tender, they have never been a measure of value" (white, "Report No. 278," 1833, 1834, p. 87). "Our gold coins are withdrawn from circulation soon after they are issued from the Mint" (Sanford, 1830, "Senate Doc. No. 19," p. 19.)

[17.]Chapter iii, § 4.

[18.]"The very fact that gold and silver have departed from the proportions established by our laws is ample proof that no such laws should ever have been enacted; and the certainty of a future change is equally conclusive against any further legislation on the subject. Even since the date of the report of the committee above referred to a more wide separation between the two metals has taken place; and had a law been enacted a year ago, agreeably to their suggestion, it might possibly have required an additional one in the present year to give it effect.—Condy Raguet, "Currency and Banking," p. 203, written January 26, 1822.

[19.]"Senate Doc. No. 549," 2d session, 15th Congress, 3 "Finance," p. 394.

[20.]3 "Finance," p. 399.

[21.]The silver dollar was to be reduced to 356.4 grains pure silver and 399.36 grains standard, and the gold eagle was to contain 237.98 grains pure gold and 259.61 grains standard weight. A seigniorage of 14.85 grains of silver was to be exacted on each dollar coined, which would have made the ratio less than 15:1.

[22.]"H. R. No. 278," 23d Congress, 1st session, entitled "Gold and Silver Coins," contains all three.

[23.]"Report No. 278," 1833-1834, p. 61.

[24.]"Silver is the ancient currency of the United States, the metal in which the money unit is exhibited, the money generally used in foreign commerce, and that description of the precious metals in the distribution of which we exercise an extensive agency. The committee, upon due consideration of all attendant circumstances, are of opinion that the standard of value ought to be legally and exclusively, as it is practically, regulated in silver."—"Report of 1878," p. 675, and "Report No. 278," p. 8.

[25.]"Report of 1878," p. 568. "The fluctuations in the value of gold and silver can not be controlled; and even the attempt to conform the Mint to the market values must produce a change in the latter."

[26.]By Mr. Moore, Director of the Mint. See "Report No. 278," 1833-1834, p. 79.

[28.]"Currency and Banking," pp. 224, 225, 226.

[29.]C. P. White felt the force of this reason in 1832 ("Report No. 278," p. 56): "It may be fairly concluded that the amount of silver annually furnished is not upon the increase, while, on the other hand, we have positive evidence of a rapid increase (as yet, to be sure, not comparatively on a great scale) in our own country, in the production of gold from mines represented to be of great territorial extent, and of encouraging and fruitful appearance."

[30.]"Cong. Debates," vol. x, Part 1V, 1833-1834, p. 4663.

[31.]"The committee are finally of opinion that the rate proposed by the Secretary of the Treasury, of 1 of gold for 15.625 of silver, is the utmost limit to which the value can be raised, with a due regard to the paramount interest; the preservation of our silver as the basis of circulation."—"Report No. 278," p. 56.

[32.]"It is true that all who approved the gold bill were not friends of General Jackson, and that all who opposed it were not his foes, but as the vote in Congress was made, in a great degree, a party vote, the party which so turned it to account are using every effort to reap the fruits of their policy."—Raguet,"Currency and Banking," p. 218.

[33.]"Cong. Debates," 1833-1834, vol. x, Part IV, p. 4671. Mr. Jones, of Georgia (where gold had been discovered), held: "If the gentleman is correct in saying our gold coins will return to us again after they have once left us, I can only say this is a consummation most devoutly to be wished...: If this ratio (1:16) will have the additional effect to bring them [gold coins] back again, it must be considered an additional recommendation to the substitute"—Ibid., p. 4654.

[34.]"Mr. White gave up the bill which he had first introduced, and adopted the Spanish ratio. Mr. Clowney, of South Carolina, Mr. Gillet and Mr. Cambreleng, of New York, Mr. Ewing, of Indiana, Mr. McKim, of Maryland, and other speakers gave it a warm support. Mr. John Quincy Adams would vote for it, though he thought the gold was overvalued; but if found to be so, the difference could be corrected hereafter. The principal speakers against it and in favor of a lower rate, were Messrs. Gorham, of Massachusetts; Selden, of New York; Binney, of Pennsylvania; and Wilde, of Georgia. And eventually the bill was passed by a large majority—145 to 36. In the Senate it had an easy passage [35 to 7]. Messrs. Calhoun and Webster supported it; Mr. Clay opposed it, and on the final vote there were but seven negatives: Messrs. Chambers, of Maryland; Clay; Knight, of Rhode Island; Alexander Porter, of Louisiana; Silsbee, of Massachusetts; Southard, of New Jersey; Sprague, of Maine."—"Report of 1878," p. 696, chap. cviii, 1834—"Thirty Years' View"; and see "Cong. Debates," p. 2122, vol. x, Part II, 1833-1834. The bill seems to have been little discussed in the Senate.

[35.]"Cong. Globe," vol. i, p. 467. John Quincy Adams voted for the bill "reluctantly and in the hope that the ratio would be amended elsewhere. He considered it entirely too high."—"Cong. Debates," vol. x, Part IV, p. 4673.

[36.]The Washington "Globe" said with some party rancor: "Contrary to their will, the bank party, even in the Senate, have been obliged to vote for the measures of the Administration, deemed essential to carry out its policy. By public opinion they have been forced to vote for the GOLD BILL, which is a measure of deadly hostility to the interests of the bank, will supersede its notes, and is the harbinger of a real SOUND CURRENCY. The people are now enabled to understand the policy of the Administration, and to see that it would give them GOLD instead of PAPER. The great bank attorney, Mr. Clay, was bold enough to vote against this bill; but he could carry only six of the bank Senators with him. The mass of them, although they voted for the bill with the utmost reluctance, dared not to tell the people, 'We will deny you gold, and force you to depend for a general currency on the notes of the mammoth bank.' Thus were they forced to minister to the triumph of the Administration."—Quoted in "Niles's Register," vol. x, fourth series.

[37.]See Appendix III for the text of the act.

[38.]"Cong. Debates," 1833-1834, vol. x, Part IV, pp. 46, 51, 52: "It was admitted there must be a concurrent circulation of silver and gold. The difficulty of fixing the ratio of their relative value arose from the various causes which concurred perpetually to alter the value of both, and which no one could control. If the ratio should be fixed to-day, these causes would change it to-morrow." Gorham was one of the earliest to propose that for every payment, beyond a small amount, one half should be paid in gold, and one half in silver. Cf. also Selden, ibid., pp. 44, 46.

[39.]"We have seen that there is a continual increase in the value of gold, and if the increase of the legal value cause any increase in the market value, it must be evident that 1:16 will, in a short time, be only equal to the increased market value. If we stop short of this [1:16], we shall soon be compelled again to increase the value of that metal, or to struggle with the same difficulties which now prevent the circulation of our precious metals."—Jones (Georgia), "Cong. Debates," vol. x, Part IV, 1833-1834, pp. 46, 56.

[40.]Early in the fall of 1834 (September 6th) it is recorded that 50,000 English sovereigns were imported into the United States, and the statement given that arrangements had been made for the importation of 2,000,000 more ("Niles's Register," fourth series, vol. xi, p. 1). Another record was made of the arrival of 40,000 English sovereigns. In the last week of July 400,000 sovereigns had been shipped from Liverpool (ibid., pp. 20, 21). A large part of this specie, it was said, belonged to the Bank of the United States.

September 13th, the Washington "Globe" reports the presentation of $208,000 in the form of foreign gold coins at the United States Mint.

In the third quarter of 1834, $2,800,000 in gold coin or bullion was imported into the United States. The movement of gold to the United States was so considerable that it excited alarm in London as to the condition of the Bank of England. The drain, however, soon ceased.

[41.]Says the "New York Star": "The keeper of one of our principal hotels sent on Saturday a $100 note to one of the pet banks for silver, but was refused it, only $10 being given, and $90 in gold. He then sent the gold to a broker, who charged ½ per cent. to exchange it for half-dollars." The cashier of an Albany bank said, "My table is literally loaded with applications from the country banks for change."—"Niles's Register," fourth series, vol. xiii, p. 132, October 24, 1835.

[42.]"The gold coins were so reduced in weight that it was now cheaper to pay debts in them than in silver coins. In consequence no more silver was coined for circulation, and the amount then in circulation, upward of $50,000,000, at once disappeared, being sent abroad in payment of obligations, or melted down for other uses at home. This sudden contraction of the currency [but it was filled by gold] created considerable distress, and the loss of the small silver pieces caused no little inconvenience. The panic of 1837 followed. Depreciated bank bills, 'shin-plasters,' and a few worn Mexican pieces came into circulation to take the place of full-weight silver pieces, which had been superseded by the cheaper gold coins."—Upton, "Money in Politics," p. 175.

[43.]Simon Newcomb, "International Review," March, 1879, p. 310.

[44.]Except possibly the charge that England "discriminated" against silver by confining it to her subsidiary coinage in 1816, which could have had no effect such as has been described, between 1780-1820, on the fall of silver. And the desire of the Jackson party for gold was not accompanied by any "hatred" of silver, but by only opposition to bank issues.

[45.]The lines in Chart VIII, owing to the larger figures, are drawn on a smaller scale than those of Chart II for the earlier period.

[46.]Whitman ("Report of 1878," p. 556) recognized this fact in 1821: "It will, of course, be objected that, if we should now render gold four per cent better, we shall thereby put into the hands of its present holders a clear net gain to that amount, provided they hold it with an intent to use it in this country. But it is not perceived how this will injure the public or individuals. And it will not be regretted by the benevolent that individuals should be benefited, if no one be injured." As if a change of standard could benefit some without at the same time injuring others! He goes on to say: "If, however, individual wealth be a public blessing, all will be benefited. At any rate, this is an incident utterly unavoidable, to a certain extent, in this case. It must be submitted to, as otherwise a positive national evil of great magnitude, as your committee deem it, must be encountered." The national evil he referred to was the disappearance of gold, which was due to a ratio which drove out silver. But he did not think the debasement of the standard should be considered in comparison with the disappearance of gold; without seeming to reflect that gold could have been restored equally well by increasing the weight of the silver dollar, and that thereby we could have escaped the charge of a debasement of the coinage.

[47.]"Report of 1878," p. 568.

[48.]Before 1834 the gold eagle was worth in silver coin 10.66½. The act of 1834 reduced its value to $10.—"I may remark that the total United States [gold] coin returned to us from the change of standard to the close of this year (1852) is but $1,534,963, showing that, of over twelve millions issued prior to 1834, but a small portion had remained in the country."—G. N. Eckert, Director of the Mint, January 17, 1853.

[49.]Mr. Binney said: "If [gold is] overvalued, its effect would be to enable a debtor to pay his present debts with less than he owed; and to that extent, consequently, to defraud his creditor; and it would, if it [the overvaluation] is considerable, place silver exactly in the condition in which gold now was, and make it an article of trade instead of currency."—"Cong. Debates," vol. x, Part IV, 1833-1834, p. 4665. Ewing "contended that it would impair existing contracts."—Ibid., p. 4669. As to the matter of debasement, Webster gave a characteristic reply: " If it had been imagined that there would have been any evil, it would not have been recommended."—"Cong. Debates," vol. x, Part II, 1833-1834, p. 2121.

[50.]In discussing the fifth amendment, which forbids taking private property without just compensation or due process of law, the decision reads: "By the act of June 28, 1834, a new regulation of the weight and value of gold coins was adopted, and about 6 per cent taken from the weight of each dollar. The effect of this was that all creditors were subjected to a corresponding loss. The debts then due became solvable with 6 per cent less gold that was required to pay them than before... Was the idea ever advanced that the new regulation of gold coin was against the spirit of the fifth amendment?... It is said, however, now, that the act of 1834 only brought the legal value of gold coin more nearly into correspondence with its actual value in the market, or its relative value to silver. But we do not see that this varies the case, or diminishes its force as an illustration. The creditor who had a thousand dollars due him on the 31st day of July, 1834 (the day before the act took effect), was entitled to a thousand dollars of coined gold of the weight and fineness of the then existing coinage. The day after he was entitled only to a sum 6 per cent less in weight and in market value, or to a smaller number of silver dollars. Yet he would have been a bold man who had asserted that, because of this, the obligation of the contract was impaired, or that private property was taken without compensation or without due process of law."

On the point that the "obligation of a contract to pay money is to pay that which the law shall recognize as money when the payment is to be made," it was laid down: "No one ever doubted that a debt of one thousand dollars, contracted before 1834, could be paid by one hundred eagles coined after that year, though they contained no more gold than ninety-four eagles, such as were coined when the contract was made; and this, not because of the intrinsic value of the coin, but because of its legal value."—"Banker's Magazine," 1871-1872, pp. "765-767 .

[51.]See act, Appendix III.

[52.]That is, the fineness, in the act of 1792, when reduced to decimal terms, was for gold coins 916.66 2/3, and for silver coins 892.43 thousandths.

[53.]See Appendix I.

[54.]See Jevons, "A Serious Fall in the Value of Gold ascertained" (1863).

[55.]Chart IX is taken from Dr. Soetbeer's "Edelmetall-Production," 1879.

[56.]See chap. viii.

[57.]Gold dollar pieces were first coined in 1849. See laws of the United States in Appendix III.

[58.]For a table of the value of a silver dollar in gold coin from 1834 to 1876, showing that it had always been above the value of a gold dollar since 1834, see Appendix V.

[59.]"There is, then, a constant stimulant to gather up every silver coin and send it to market as bullion to be exchanged for gold, and the result is the country is almost devoid of small change for the ordinary small business transactions, and what we have is of a depreciated character. This does not injure your Wall Street brokers, who deal by thousands. They are making a profit by it; but it is a serious injury to the laboring millions of the country who deal in small sums."—C. L. Dunham, "Congressional Globe," Appendix, 2d session, 32d Congress, p. 190, February 1, 1853.

[60.]Ibid., p. 190. Mr. Skelton (New Jersey) remarked: "Gold is the only standard of value by which all property is now measured; it is virtually the only currency of the country."—"Congressional Globe," vol. xxvi, 2d session, 32d Congress, p. 629. "The expense of coining a given value of silver into the smaller coins is much greater than into the large, and when coined the great demand for them gives them a higher currency value than that assigned by law. As a proof of this, the demand for silver for exportation has not operated as yet upon these smaller coins; that is to say, the dime and half-dime (the quarter, too, has been partially exempted), while it has swept the silver dollar and half-dollar from the country."—Hunter, Chairman Fin. Com. of Sen., "Report No. 104," 1st session, 32d Congress, p. 11.

[61.]"Congressional Globe," Appendix, 2d session, 32d Congress, p. 190.

[62.]"Congressional Globe," Appendix, 2d session, 32d Congress, p. 190.

[63.]By Mr. Jones (Tennessee).

[64.]For the act, see Appendix III.

[65.]"The main object of the bill is to supply small silver change, half-dollars, quarter-dollars, dimes, and half-dimes.... The bill does not propose to change the value of the gold currency; it does not propose to disturb the standard of value now in existence throughout the country. Gold is the only standard of value by which all property is now measured; it is virtually the only currency of the country."—Skelton (New Jersey), "Congressional Globe," vol. xxvi, p. 629.

[66.]"We propose, so far as these coins are concerned, to make the silver subservient to the gold coin of the country.... We mean to make the gold the standard coin, and to make these new silver coins applicable and convenient, not for large but for small transactions."—Dunliam, ibid., p. 190. The only silver coins in circulation were three-cent pieces and Spanish coins ("fips," 12½-cent pieces, and quarters): 100 cents of the former contained only 83 1/3, cents of intrinsic value; and the latter were so abraded that they contained intrinsically from 6 per cent to 20 per cent of silver below their nominal or face value.

[67.]I can now speak of the gold dollar, since the Mint began to coin it in 1849.

[68.]"Sec. 5. That no deposits for coinage into the half-dollar [etc.] shall hereafter be received, other than those made by the Treasurer of the Mint, as herein authorized, and upon account of the United States."

[69.]Strangely enough, this law was evaded in actual practice. "All other governments pay the expense of minting by the difference between the intrinsic value of subsidiary coins and the value at which they circulate, and at which the government redeems them. And such was the law in this country until, by a ruling of Mr. Guthrie when he was Secretary of the Treasury, the Mint was ordered to receive silver from private individuals and coin it."—Mr. Kelley, "Congressional Globe," Part III, 2d session, 41st Congress, p. 2311. In 1870, John Jay Knox, in his Report accompanying the bill which became the act of 1873, said: "The practice at the Mint for many years [written 1870] has been to purchase all silver bullion offered at about $1.22½ per ounce, which is above the market price, paying therefor in silver coin.... The effect of the Mint practice has been to put in circulation silver coins, without regard to the amount required for purposes of 'change,' creating a discount upon silver coin."—"Sen. Misc. Doc., No. 132," 2d session, 41st Congress, p. 10.

[70.]June 9, 1879, however, an act was passed (see Appendix III) redeeming subsidiary silver coins in sums of twenty dollars.

[71.]He was afterward President of the United States.

[72.]"Congressional Globe," vol. xxvi, 2d session, 32d Congress, p. 476. He did not believe, moreover, that the great production of gold had lowered its value: "I assume here, and I defy successful refutation of it, that the quantity of gold may be increased upon that of silver without changing the relative commercial value of the metals."—Ibid., p. 490. He also said: "So far as coin is concerned, the changing of our standard of gold and silver has no more effect upon the gold and silver coinage of the United States than a change in the standard of weights and measures would have upon the price of our cotton or wheat."—Ibid., p. 491.

[73.]June 9, 1879, the amount to which silver coins in denominations below one dollar are a legal tender was raised to ten dollars.

[74.]"Congressional Globe," ibid., pp. 629, 630.

[75.]There had been good authority for the belief that coin would continue to circulate prodded no paper of a corresponding denomination were issued. See J. S. Mill's "Political Economy" (Laughlin's edition), p. 348.

[76.]Sec. 12, "Statutes at Large," 592. The twenty-five cent note, for example, contained a copy of five five-cent postage-stamps.

[77.]Secretary Richardson.

[78.]Cf. also a broker's table giving purchasing prices of silver coins in paper for exportation, in the "Financial and Commercial Chronicle," November 1, 1873, p. 590.

[79.]Upton, "Money in Politics," p. 146, says he had "only a few thousands."

[80.]Upton, ibid., p. 146.

[81.]The Secretary said he could have resumed silver payments if the newspapers had not discovered his plan and discussed it!

[82.]Taken from Upton, "'Money in Politics," p. 145.

[83.]Upton, ibid., p. 148.

[84.]See Appendix III, A, ix.

[85.]Secretary Bristow sold $17,594,150 of 5-per-cent bonds to aid in purchasing the silver bullion for the subsidiary coinage, which was subsequently met out of the surplus revenue.

[86.]See Appendix III, A, x, July 22, 1876.

[87.]See Appendix III.

[88.]"Report of the United States Silver Commission," 1877, vol. i, p. 125.

[89.]Upton, "Money in Politics," p. 201. [N.B. The text callout for this footnote is missing. The callout placement after "coined before 1806" is a guess and may be incorrect.—Econlib Ed.]

[90.]See act of 1873 in Appendix III, Sec. 15 and 17.

[91.]See Appendix III.

[92.]Cf. Upton, "Money in Politics," p. 207. This matter was quite thoroughly discussed in January, 1878, in the debates in the Senate. See, for example, the "Globe," p. 262, vol. vii, Part I, 2d session, 45th Congress.

[93.]The charge for seigniorage, however, was repealed by the Resumption Act in 1875; so that, like England, the United States now makes no charge for manufacturing its coin.

[94.]The following examples, out of many, may be cited: Senator Hereford (West Virginia) charged the fraudulent passage of the act of 1873, on May 27, 1872, on the House, because Mr. Hooper, in charge of the bill, reported a substitute, and moved to suspend the rules and pass the substitute; and because Mr. Hooper said, in answer to an inquiry concerning coins of small denomination: "This bill makes no change in the existing law in that regard. It does not require the recoinage of the small coins." The charge is made that the substitute was not read before it was passed.—"Globe," vol. vii, Part I, 2d session, 45th Congress, p. 205.

Mr. Bright (Tennessee) said in the House: "It was passed by fraud in the House, never having been printed in advance, being a substitute for the printed bill; never having been read at the Clerk's desk, the reading having been dispensed with by an impression that the bill made no material alteration in the coinage laws; it was passed without discussion, debate being cut off by operation of the previous question. It was passed, to my certain information, under such circumstances that the fraud escaped the attention of some of the most watchful as well as the ablest statesmen in Congress at the time. It was passed near the closing days of the session, when, in the bustle and precipitate rush of business, it was most favorable for the concealment of fraud.... Ay, sir, it was a fraud that smells to heaven. It was a fraud that will stink in the nose of posterity, and for which some persons must give account in the day of retribution."—"Globe," vol. vii, Part I, 2d session, 45th Congress, p. 584.

[95.]"Congressional Globe," Part I, 2d session, 42d Congress, p. 322.

[96.]It is to be remembered, however, that the bill dealt with many more matters, and those of a technical nature, than the omission of the silver dollar in itself. The originator of the bill, Mr. Knox, thus explains in his report (p. 2) how it was prepared: "The method adopted in the preparation of the bill was first to arrange in as concise a form as possible the laws now in existence upon these subjects [Mint, assay-offices, and coinage], with such additional sections and suggestions as seemed valuable. Having accomplished this, the bill, as thus prepared, was printed upon paper with wide margin, and in this form transmitted to the different mints and assay-offices, to the First Comptroller, the Treasurer, the Solicitor, the First Auditor, and to such other gentlemen as are known to be intelligent upon metallurgical and numismatical subjects, with the request that the printed bill should be returned, with such notes and suggestions as experience and education should dictate. In this way the views of more than thirty gentlemen who are conversant with the manipulation of metals, the manufacture of coinage, the execution of the present laws relative thereto, the method of keeping accounts and of making returns to the department, have been obtained, with but little expense to the department and little inconvenience to correspondents. Having received these suggestions, the present bill has been framed, and is believed to comprise within the compass of eight or ten pages of the Revised Statutes every important provision contained in more than sixty different exactments upon the Mint, assay-offices, and coinage of the United States, which are the result of nearly eighty years of legislation upon these subjects." Mr. Knox's report accompanied the bill to Congress, and gives a clear idea of its full character, with comparative tables of the existing and proposed coinage.—"Letter of the Secretary of the Treasury to the Chairman of the Committee on Finance, communicating a report of John Jay Knox, in relation to a revision of the laws pertaining to the Mint and coinage of the United States," May 2, 1870; "Sen. Misc. Doc. No. 132" 2d session, 41st Congress.

[97.]A brief history of the passage of the bill can be found in the "Report of Comptroller of the Currency," 1876, p. 170.

[99.]"The coinage of the silver dollar piece... is discontinued in the proposed bill. It is by law the dollar unit, and, assuming the value of gold to be fifteen and a half times that of silver, being about the mean ratio for the past six years, is worth in gold a premium of about 3 per cent (its value being $1.0312), and intrinsically more than 7 per cent premium in other silver coins, its value thus being $1.0742. The present laws consequently authorize both a gold-dollar unit and a silver-dollar unit, differing from each other in intrinsic value. The present gold dollar piece is made the dollar unit in the proposed bill, and the silver dollar piece is discontinued. If, however, such a coin is authorized, it should be issued only as a commercial dollar, not as a standard unit of account, and of the exact value of the Mexican dollar, which is the favorite for circulation in China and Japan and other Oriental countries"—"Sen. Mis. Doc. No. 132," 2d session, 41st Congress, p. 11.

[100.]E. B. Elliott (now Government Actuary), "Letter of the Secretary of the Treasury to the Speaker of the House of Representatives, communicating a report of John Jay Knox, Deputy Comptroller of the Currency, giving the correspondence of the department relative to the revision of the Mint and coinage laws of the United States, H. R. Exec. Doc. No. 307," 2d session, 41st Congress, June 29, 1870, p. 70.

[101.]Robert Patterson, ibid., p. 19.

[102.]Dr. Linderman, late Director of the Mint, ibid., p. 30.

[103.]J. R. Snowdon, formerly Director of the Mint, ibid., p. 38.

[104.]January 9, 1871.

[105.]January 17, 1873.

[106.]January 9, 1872.

[107.]"Congressional Globe," Part III, 2d session, 42d Congress, pp. 2305, 2306.

[108.]"This bill provides for the making of changes in the legal-tender coin of the country, and for substituting as legal tender coin of only one metal instead, as heretofore, of two. I think myself this would be a wise provision, and that legal-tender coins, except subsidiary coin, should be of gold alone; but why should we legislate on this now, when we are not using either of those metals as a circulating medium? "—Mr. Potter, ibid., p. 2310.

[109.]"Congressional Globe," Part III, 2d session, 42d Congress, p. 2316.

[110.]Mr. Stoughton (Michigan), ibid., p. 2308.

[111.]See chap. ix, "India and the East."

[112.]Linderman, "Money and Legal Tender," p. 54.

[113.]Linderman, "Money and Legal Tender," pp. 47-59.

[114.]"I don't know what we should do with the bulk of silver if it was not disposed of in some such way. I am very well aware that before the coinage of the trade-dollar the rate of exchange with China, owing to the scarcity of Mexican dollars, had caused them to change 7 per cent here within a week.

Q. Always commanding at that time a premium? A. Yes, sir. There was an extra duty on them from Mexico which gave them a premium at once; and an additional premium was created by the demand for them for shipment to China. I have paid 22 per cent premium for Mexican coin for shipment to China, and for many years the range was from 11 to 16 per cent."—Testimony of General La Grange before the United States Treasury Commission, "Report of Director of Mint," 1877, p. 52.

Q. Which do you like best to ship, trade-dollars or Mexican dollars? A. At present trade-dollars are better, because we get about 2 per cent more premium on them in China."—Fung Chung, ibid., p. 53.

[115.]"Trade-dollars are current by count at Singapore, Penang, Bangkok, and Saigon; they are current by weight at Swatow, Amoy, Foochow, and Canton. In Hong-Kong they are not a legal tender, and the banks will only take them from each other by special arrangement; but the Chinese take them freely in Hong-Kong when they want coin of any description, which is very seldom, as they prefer bank-notes, and only take coin from the banks when they require to export it from the colony. In the south of China, the Straits, and Cochin China the trade-dollar is well known and passes without comment along with the clean Mexican dollars, but in Shanghai and the northern ports it is unknown, and it is not likely to be current for a length of time."—"Report of the Hong-Kong and Shanghai Banking Corporation, and the Oriental Bank," January 30 and 31, 1871, in "Report of Director of Mint," 1878, p. 10.

[116.]This was one and a quarter per cent at the Philadelphia Mint, and one and a half at the San Francisco Mint, on the tale value.

[117.]See Appendix III, act of July 22, 1876, Sec, 2.