The Online Library of Liberty

A project of Liberty Fund, Inc.

• Introduction.
• Taxation and Work.
• Chapter I.: Occupations. Distribution of Products.
• Chapter II.: Taxation Measured By Work.
• Chapter III.: Taxation Measured In Money.
• Chapter IV.: Principal Sources of Revenue.
• Chapter V.: How the Tariff Should Be Reformed.
• Chapter VI.: Taxation Which the Government Does Not Receive.
• Chapter VII.: British Tariff Reform.
• Chapter VIII.: Beggarly Compensation of United States Officials.
• Chapter IX.: What Is Protection?
• Chapter X.: Occupations That Cannot Be Protected By Duties On Imports.
• Chapter XI.: Method of Tariff Reform.
• Chapter XII.: Protection By Exemption From Taxation.
• Chapter XIII.: Free Trade the Objective Point.
• Chapter XIV.: Attempted Definition of the Principle of Protection By Senators Sherman, Hoar, and Aldrich.
• Chapter XV.: Hamilton’s Policy.
• Chapter XVI.: Tariff Protection Does Not Raise Wages.
• Chapter XVII.: Protection Promotes War; Free Trade Promotes Peace.
• Chapter XVIII.: Does Tariff Protection Promote Liberty?
• Chapter XIX.: Progressive Reduction of Duties.
• Chapter XX.: Cost of a High Tariff.
• Chapter XXI.: Development By Free Commerce.
• Chapter XXII.: High Wages and Low Cost.
• Chapter XXIII.: The Use of Machinery By Nations.
• Chapter XXIV.: The Waste of Armies.
• Chapter XXV.: Senator Morrill’s Report On Canada Received. Food and Wages.
• Chapter XXVI.: In the Matter of Silver, Bi-metallism, and Free Coinage.
• Chapter XXVII.: Volume of Trade.
• Chapter XXVIII.: Taxation By Bad Money.
• Chapter XXIX.: How to Maintain Silver Equal to Gold.
• Chapter XXX.: The Issue Joined.
• Chapter XXXI.: Personal Observations—conclusion.

CHAPTER XXIX.

How to Maintain Silver Equal to Gold.

I had intended to close this series with Chapter XXVIII.; but I venture to add number XXIX., for the purpose of submitting a suggestion made by Mr. Chauncey Smith, whose close study of these subjects gives great weight to his conclusions. Chapters XXX. and XXXI., concluding this series, will summarize our present position on the tariff question.

It is admitted by all the advocates of the bi-metallic theory, and even by all the advocates of the free coinage of silver of full legal tender who are not themselves personally interested in silver mining, that the only element which is absolutely necessary to the unit of value or standard of lawful money by which all contracts are liquidated is stability or uniformity of valuation year by year, decade by decade, and, so far as it is within the power of human foresight, to assure it, generation by generation.

It is urged, and indeed it is believed by many persons, that gold has become relatively scarce and has appreciated. It is therefore held to be insufficient in quantity to meet the conditions of a lawful standard or unit of value. It is held that silver must be coined, and must be kept at a parity with gold, in order that there may be a sufficient quantity of coined money both of gold and silver to meet the demands of the world for the use of coin. The main problem is how to maintain the parity of silver with gold and how to keep it in circulation without incurring the danger of demonetizing gold and throwing the whole work upon silver only. It may have remained for my sagacious friend to solve this question in a very simple manner, one which would be manifestly right and just and to which no one can take exception whose purpose is not to depreciate the standard or unit of value or to force the country upon a single silver standard.

The purpose is to enable the people of this country to avail themselves of our production of silver as well as of gold, to convert that silver into coin, and to maintain that coin at par with gold.

There may be one very simple, certain, and effective method of doing this, for which we have an example in the experience of our country.

The surest way to keep the valuation or estimation of any given article above what it would otherwise be, is to add to its cost to the consumer by taxation. If the tax is one that cannot be evaded, if it is assessed at a moderate rate, so as not to promote fraud, and if it is levied both upon the import and the domestic production, it will eventually raise the cost and therefore the valuation of that specific article in the community that consumes it. We have an example in the present price of spirituous liquors, of which both the import and the domestic product are taxed. When the tax was first imposed at two dollars per gallon it was evaded; when it was reduced it was collected, and presently it was advanced a little from the lowest rate at which it stood for some time.

Tobacco is another example of an article of which both the import and product are taxed, to the end that so far as the consumers are concerned the tax is added to the cost to the consumer and the price is based upon the cost of production, the profits to the producer, and the tax. Liquors and tobacco now yield a revenue equal to the entire normal cost of the government, aside from the interest on the national debt, the bounties to the sugar planters, and the pensions, and that revenue is paid by consumers in the higher price and valuation due to taxation.

The question put by Mr. Smith is: “Why should not silver be taxed in the same way?” The standard by which silver bullion is bought and sold is its valuation in gold; the effort of legislation, sustained by both parties at the present time, is to maintain the parity of our silver coinage with our gold coinage. On the other hand, the price of silver bullion is thirty per cent. less than the nominal value of the silver in the dollar when it is converted by coinage into silver dollars. The price being quoted in cents, the gold dollar contains one hundred cents’ worth of pure gold; the silver dollar contains seventy cents’ worth. These silver dollars have been maintained at a parity with gold coin down to the present time by limiting the quantity coined, and because they can be directly or indirectly converted into gold dollars through the United States Treasury.

The free coinage of silver dollars of full legal tender without taxation would imperil the present standard or unit of value, and would, in the course of time, prevent the maintenance of the parity of our silver coin with our gold coin; gold would then be demonetized and our currency would be contracted to a silver standard, thus destroying credit, bringing about a cessation or paralysis of trade and lowering rates of wages.

In the long distant future the country would, of course, adjust itself to the single silver standard; wholesale prices in silver would rise rapidly, retail prices would follow slowly after stocks had become exhausted, but wages would remain depressed for a very long period and until full confidence and enterprise had been restored so far as they might be on a single fluctuating silver standard.

This danger may be wholly avoided if there is merit in the suggestion offered by Mr. Smith; to wit, to tax both the import and product of silver in a sum that would represent the exact difference between the value of silver bullion in its ratio to gold.

This method, if it could be framed in practical legislation, would be beneficial to all parties. Only that proportion of silver ore would be taken out of the ground to be smelted and converted into coin that would be required for use in that form at the cost of production with the tax added. Of course, other supplies of ore or of silver bullion would be required for use in the arts, but so far as the monetary use of silver in our country is concerned the supply would be limited to the demand that would ensue for bullion at cost subject to the tax.

If it were proved by the offer of free coinage of taxed silver that there was no deficiency of gold and that silver coin under these conditions was not required, then the silver ore would remain as a reserve store in the ground to meet future needs and to be drawn upon only so fast as it might be required for use in the arts. If free coinage raised the price, then the tax would be correspondingly reduced.

It may be objected that there is a large foreign demand for silver at the present low cost of production and low price. That demand, however, may be very easily met by a drawback of ninety-nine per cent. on the tax or duty if any silver had been imported; in this respect copying the provisions of the law upon tin-plates upon which a drawback is allowed upon exports; silver bullion mined within our own limits could also be exported in bond free of taxation, as whiskey is.

In this way our mines would continue to be worked for the full supply of all the silver that the world requires, while the danger of imperilling the stability of our own currency would be avoided by keeping the domestic price of bullion always at a certain ratio to gold by varying the price according to the price of untaxed bullion.

It may be objected that the price of silver varies, but in dealing with other questions the country has become habituated to granting discretion to the Secretary of the Treasury. Under the present law the only imperative rule is that he shall buy so many ounces of silver bullion each month without regard to the price; this leaves to his discretion all negotiations for fixing the price at the time of each purchase.

A tax might be imposed on silver subject to variation, month by month, according to the market price of silver bullion. A very simple computation could be made at the beginning of each month for an adjustment of the tax to the exact difference between the market price of the bullion and the unit of value which it is the intention to maintain unimpaired.

This would be a perfectly suitable, effective, and just method of maintaining the parity of silver and gold in our currency; it would prevent the waste of silver ore from our mines, while at the same time enabling the owners of the mines to supply all other nations free from taxation.

In the matter of the adjustment of the rate of taxation we all have an example in the present tariff of duties on other imports than those of silver. The declared purpose of the present tariff and the declared purpose of the Republican party is to put exactly that measure of taxation upon foreign imports that will represent the difference in the labor cost of each product in other countries as compared to the labor cost of the same commodity in this country. That, indeed, is a very complex matter, but Congress has undertaken it.

Where it would be impossible to vary a tax according to the cost of silver, the tax may be readily adjusted according to the price. No one knows what the labor cost of the production of silver is except those who work the mines and smelting works, and they keep their own councils.

It varies, of course, from a low cost to a cost very much above its gold value. But the price of silver bullion can be determined every day, and it would be wholly within the power of the government to vary the tax every day if that were expedient. It would be sufficient, however, to vary it only once for a considerable period, for the reason that if the price of bullion should rise, then the tax would fall, and then silver that had been coined at a higher cost under the imposition of a higher tax would be worth more than its face value, and would disappear from circulation, as our silver dollars disappeared from circulation prior to 1873, because they were worth more as bullion than as coin.

In fact this provision, if carried out, would bring into effect a perfectly simple method of maintaining the parity of silver and gold in our coinage without enabling the owners of the silver mines to put their product upon the government for more than it is worth. It offers a method of coining money and regulating the value thereof consistently with the terms of the Constitution, to which no exception can be taken except by those who desire to deprave our monetary system for nefarious or purely selfish purposes.

The very simplicity of this suggestion will carry conviction of its being a true method to all persons who do not want to run the risk of depreciating the unit of value either in order to sell silver for more than it is worth or in order to pay debts for less than the amount agreed. For example, in order that the silver bullion in the silver dollar of the present standard shall be equal in value to what it purports to be in the dollar, the market price of fine silver must be one dollar and twenty-nine cents per ounce. In other words, in order that the silver dollar may be worth as much after it is melted as it purports to be worth in the coin, the fine silver in it must sell at a fraction over one dollar and twenty-nine cents per ounce.

We will assume that on a given day after the enactment of the law under which the Secretary of the Treasury is to determine what the rate of the tax will be for a given period, the value of the silver bullion free from tax is eighty-nine cents per ounce. The difference between that and a valuation which keeps it at a parity with gold, to wit, one dollar and twenty-nine cents, is forty cents per ounce. Divide eighty-nine into forty, and we have the true ratio of the tax, namely, forty-five per cent.; 89 cents + 45 per cent. = $1.29 per ounce.

We will assume that the coinage is free, and that any owner of a silver mine may bring bullion to be coined; we do not ask him what it may have cost him; he is offered free coinage into dollars with which he can pay his debts and his wages subject to the true rate of taxation. The bullion worth eighty-nine cents per ounce is subjected to a tax of forty-five per cent., which he pays; that is to say, forty-five per cent. of eighty-nine cents is forty cents; this tax forms a part of the cost of silver dollars, as all taxes are customarily added to the price. The addition of the tax carries the price or valuation of the bullion up to one dollar and twenty-nine cents per ounce. That is exactly where it should be in order to maintain the parity of the silver dollar with the gold dollar.

No injustice is done to any one; the government gets a revenue, coinage is free, the unit of value is maintained, and if silver is to be exported, it is exported under a drawback, which will enable the owners to secure its full bullion value in all other markets without bringing disaster or disorder into the monetary system of his own country.

This suggestion may perhaps be rightly acted upon while the subject of the free coinage of silver is pending, even in the present Congress.