Front Page Titles (by Subject) XI.: THE AMERICAN COMMISSION ON THE CURRENCY. - The Works and Life of Walter Bagehot, vol. 6 (Lombard Street, Essays on Guizot & Cairnes, The Depreciation of Silver)
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XI.: THE AMERICAN COMMISSION ON THE CURRENCY. - Walter Bagehot, The Works and Life of Walter Bagehot, vol. 6 (Lombard Street, Essays on Guizot & Cairnes, The Depreciation of Silver) 
The Works and Life of Walter Bagehot, ed. Mrs. Russell Barrington. The Works in Nine Volumes. The Life in One Volume. (London: Longmans, Green, and Co., 1915). Vol. 6.
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THE AMERICAN COMMISSION ON THE CURRENCY.
The last act of the Congress was to appoint a Commission, to consider and report on the currency question in its various present bearings, that is:—
“First, into the change which has taken place in the relative value of gold and silver; the causes thereof; whether permanent or otherwise; the effects thereof upon trade, commerce, finance, and productive interests of the country, and upon the standard of value in this and foreign countries;
“Second, into the policy of the restoration of the double standard in this country, and if restored, what the legal relation between the two coins, silver and gold, should be;
“Third, into the policy of continuing legal-tender notes concurrently with the metallic standards, and the effects thereof upon the labour, industries, and wealth of the country; and,
“Fourth, into the best means of providing for facilitating the resumption of specie payments.”
And this Commission will, no doubt, be of use to European economists in collecting information as to many American matters connected with the currency, upon which it is now very difficult to find a trustworthy authority. But as far as respects the practical questions to be determined in the United States, “half would have been more than the whole”; it would—at least, if we may judge at this distance—have been much better to have restricted the Commission to fewer points, than to empower them, as has been practically done, to inquire into anything and everything as to American currency. In the heat of a Presidential contest, the Commission must be active-minded indeed if they can thoroughly work out all this.
The set of facts most wanting inquiry certainly is the new set—that relating to the change in the value of silver. The conditions of resumption—the mode in which a satisfactory paper currency should be maintained after resumption—are old matters, on which American statesmen can find no difficulty in obtaining information quite as good as this Commission will collect for them. But the present relative position of silver and gold is a perfectly new thing in the world, and America, as a principal producer of both, and as having to settle whether she will have a currency of both or either, ought certainly to investigate it as soon and as completely as possible.
The cardinal present novelty is that silver and gold are, in relation to one another, simply ordinary commodities. Until now they have not been so. A very great part of the world adhered to the bi-metallic system, which made both gold and silver legal tenders, and which established a fixed relation between them. In consequence, whenever the value of the two metals altered, these countries acted as equalising machines. They took the metal which fell; they sold the metal which rose; and thus the relative value of the two was kept at its old point. But now this curious mechanism is broken up. There is no great country now really acting on this system. The “Latin Union,” it is true, adhere to the name, but they have abandoned the thing. As they do not allow silver to be coined except in limited quantities, they have no longer an equalising action; they no longer receive the depreciated or part with the appreciated metal, and, therefore, the two metals now exchange for one another, just as other commodities.
The gold-price of silver is now like the gold-price of tin—left practically, for the first time in history, without artificial regulation, and free from the manipulation of Governments. And it is into the consequences of this that the United States should now inquire, for they have nowhere been fully treated of.
The first effect is that to which M. Léon Say drew attention not long ago, in a speech of much ability—the instability of the value of the two metals. In former times, he justly said that the fluctuations in the relative value of the two metals were few and small, but now they are many and large. Particular causes, no doubt, aggravate that instability at this moment—especially the demonetisation of silver by Germany, and the supposed likelihood of great supplies from Nevada. But though the instability is aggravated by these causes, it is not created by them, and it will not cease with them. There is no inherent reason why the gold-price of silver should be uniform, any more than why the gold-price of platinum should be the same. The old notion of extreme steadiness is one generated by the practice of Governments, and which has ceased when the practice ceased, and will not revive till it revives.
The United States, therefore, which have a “money” to choose, must observe that they have three courses to choose from, and must see what are the consequences of each. First—they may choose the old bi-metallic, or double-standard plan. But if they do, they must make up their mind to be always changing their coinage. The natural value of the two metals now being, as we see, fluctuating, a nation which takes both will be incessantly changing from one to the other—it will always be taking the worse and giving the better. The existence of such a country, or set of countries, is an advantage to the world at large, because, as we have seen, it preserves a uniformity between the two metals, one or other of which is used by all civilised nations to count value. But the expense and inconvenience of a changing currency are great, and how far a nation would be wise to undergo them for the good of the world, we are not sure. She herself obtains no advantage; she sells gold for silver, or silver for gold, and the brokers get their commission; but this is all. And to a great borrowing nation like America, it would always be an objection that she would pay in the worse coin at the time of payment, whatever it might be. At the present moment, America would become a silver country, and the interest and principal on her obligations would be paid in silver. The evil, of course, would not be what the momentary circumstances of the market would now suggest. Silver would not be at 52d. per ounce if America was a country with a sole silver currency. So large a demand as her coin requirements would send the price up very rapidly—perhaps to its old amount. Still, as the debts of America are so large, the probable objection which a lender might make to the certainty of his having to accept the inferior mode of repayment is to her important; she would possibly have to borrow on terms somewhat less good.
Secondly—the United States might take the single gold standard like ourselves; and this is what, till very lately, every English economist would have advised them to do. The evils of this plan had not then been seen, but its good was very apparent. That all great commercial nations should have the same metal for money is, per se, a plain gain. The objection is that there may be some difficulty in getting the gold for so many, very rapidly. The total production of gold, according to the estimate laid before the Silver Committee, for recent years is:—
or nearly £20,000,000 a year. And this is not at all a large amount to provide for the yearly uses of the world.
or at the rate of £4,432,000 a year, being more than one-fifth of the whole. So that if Germany, America, and perhaps the Latin Union, were all to take to a gold currency, there would certainly not be too much gold. Probably the money markets of the world would be straitened by there not being sufficient.
The third and last course open to the United States is to make silver their sole standard. A few weeks ago this would have been generally deemed to be beyond the limits of consideration; at that time there was a panic, and it was imagined that the price of silver was going to fall lower and lower till it became worth hardly anything. But experience has now shown, as theory always suggested, that there would be a demand for silver for the East consequent on its cheapness—that this demand would grow with its cheapness—and then an almost indefinite quantity, if supplied, would in time be taken off the market. As the supply here is small, the price has risen rapidly, though it has for a moment been checked again by the financial operations of the Council of India in drawing for their tribute. The extreme panic as to the price of silver has, therefore, passed away, and we are able to consider calmly whether it would be wise for the United States to take it for a standard of value or not.
If they did, it is certain that the price of silver would for the moment rise, because so very large an extra quantity would at once be required; and it is very possible that this price might not again fall. The final regulator of the price of silver is the cost at which it can be produced in the least fertile mine that can maintain itself in working. At the present moment, there are new mines as to whose extent there are very various accounts, which may supersede some of the worst of those at work, and so lessen the maximum cost of the production of silver—the cost which fixes its price. But if so large a new demand for silver as that for supplying the United States with money were added to the existing demands, very possibly the extra fertility of these new mines might be exhausted before that demand was satisfied. These mines might come to be not so much better than the old mines as to throw any old mine out of work; and if so, the price of silver would remain what it formerly was. And if this happened, silver would be as good a standard of value as it has ever been.
There would, undoubtedly, be several difficulties in the adoption of a silver standard by the United States. First—Much of the interest of their debt is now payable in gold coin. This would not, however, cause much difficulty, if the price of silver were to rise, as we have suggested, to something like the old level. The United States might then either continue to receive their Customs’ duties, as they now do, in gold only, and to pay their interest with such gold, or they might pay an equivalent in silver. The difficulty would be one of detail only, and might be met.
Secondly—what is more serious—The trade between the United States and the gold-using countries would be liable to be disturbed by every fluctuation in the value of gold and silver. And we are not yet in a position to say what the amount of this inconvenience would be, because the changes in the relative values of the two will in future probably be greater and more frequent than they used to be. As we have explained, the double-standard nations used to equalise the price for the rest of the world, and now it seems probable that they will do so no longer. An element of uncertainty would thus be introduced into the largest international operations of the United States, which might be very important, and which it is difficult to estimate beforehand. But in all likelihood this uncertainty would not be so great as that caused by the inconvertible and ever-fluctuating greenbacks which the United States have now borne very patiently for many years.
Thirdly—The United States will, by choosing silver for their money, undoubtedly suffer by using the less convenient metal for large transactions instead of the more convenient. Silver is bulky to carry, and cumbersome to count. But a good and secure system of paper money might easily be devised, which would reduce this disadvantage to minor proportions; though that system, like all systems of paper money, is liable to the objection that it may be at any moment departed from, and a bad paper money substituted for a good. No nation which is engaged in first-rate commerce should select a silver money, unless it believes that its circumstances, the character of its people, and the peculiarities of its Government enable it to manage a paper one.
The great reason for inquiring whether it would not be best for the United States to take silver as a money, and not gold, is that it is much more likely to be done. It is always a great advantage to have a strong private interest concurring with and enforcing a great national interest. And here the silver-producers are anxious to sell their silver, and fearful that they may not be able to do so. Whereas the gold-producers, on the other hand, feel sure of their market, and are careless what happens. The fear is that the United States may go on for many years to come with inconvertible paper, as they have for many years past; the difficulties of resuming specie payment are very considerable, and when resumed it may not be kept to unless it is some one’s interest that it should be so. But the silver-producers are clearly strong in Congress, wish to get their silver substituted for greenbacks, and would be watchful to see that owing to keeping too small a reserve or other mismanagement, greenbacks did not come back again, if they had once been got rid of. And these producers can put the argument in a way very attractive to American nationalism. They can say, “If you use silver you will raise its value, not only here, but throughout the civilised world. You will support an interest which needs supporting, and you will hurt no one, but make America richer by so doing.” And all nations—especially nations which govern themselves—are apt to be much moved by such reasoning.
We hope, therefore, that the American Commission will not be distracted by the old phases of the currency question, and that they will give their attention to the new points presented by the present new relation between gold and silver, and the respective advantages and disadvantages of the courses they have to choose from. There is not one of them which has not much of both, and, in such case, only very deliberate study can show how to bring out the most good with the least evil.