A CONCURRENT CIRCULATION OF GOLD AND SILVER
A CONCURRENT CIRCULATION OF GOLD AND SILVER
[1878]
It seems as if the United States were destined to be the arena for testing experimentally every fallacy in regard to money which has ever been propounded. A few years ago only a very few people here had ever heard of the “double standard” or knew what it meant. In 1873 we became simply and distinctly a “gold country” in law, as we had been for forty years in fact. Immediately after that date silver began to fall in value relatively to gold, so that, if we had been on the “double standard,” and had not been deterred by considerations of honor, morality, and public credit, which considerations kept the double-standard countries from taking that course, we could have paid our debts in silver at an advantage. Forthwith all those persons who had before been racking their brains to devise some scheme for resumption without pain or sacrifice, turned their attention to silver, and began to devise plans for getting back to the position which, as they thought, we had unwisely abandoned. The consequence has been that, for the last year, the country has produced numberless editorials, essays, lectures, and speeches, full of the most crude sophistry, and the most astonishing errors as to all the elementary doctrines of coinage and money. The favorite object of all these schemes is to find some means of increasing the amount of money at the disposal of the world, or of this nation, so as to raise prices and make it easier to pay debts. These schemes have taken their point of departure in the speculations of some European economists. In Europe the propositions of the economists in question have never passed beyond the realm of speculation and theoretical discussion amongst professional economists. They have been regarded by some as probably sound, and capable of being made the basis of advantageous legislation. By others, superior in number and authority, they have been regarded as unsound. Inasmuch as they involve an international coinage union between all civilized countries and could be put to the experiment only on a scale involving immeasurable risks, the overwhelming judgment has been that they were out of the question. Here, however, our amateurs and empirics are in hot haste to make the experiments, without any coinage convention, or with the coöperation of only a few and the less important nations, that is to say under circumstances which even the most extreme bimetallists condemn as ruinous.
It must be observed then that there lies back of all this popular discussion a scientific and technical question of great delicacy. I might even say that it is a speculative question, or a question in speculative economics, for we have no experience of an international coinage union, or of a concurrent circulation, of the metals. We have to imagine the state of things proposed and reason a priori as to what must be the result. There is a postulate to all these schemes which has never been expressed and never been discussed, but which is assumed to be true. It has two different forms: (1) A concurrent circulation of gold and silver may be established in any country: (2) A concurrent circulation of gold and silver may be established by a coinage union of all civilized nations. These postulates, or we may say this postulate, for the latter includes the former, I have now to bring in question. If the science of money teaches that there cannot be a concurrent circulation of the metals, then the schemes which I have referred to are all condemned. The question, moreover, has won such an immediate and practical significance in the country that it is no longer a subject for academical discussion amongst economists, about whom opinions may differ without importance.
The Senate of the United States has just passed a bill containing the following provision:
“Sec. 2. That immediately after the passage of this act the President shall invite the governments of the countries composing the Latin Union, so called, and of such other European nations as he may deem advisable, to join the United States in a conference to adopt a common ratio between gold and silver for the purpose of establishing internationally the use of bimetallic money and securing a fixity of the relative value between those metals; such conference to be held at such a place in Europe or in the United States at such a time within six months as may be mutually agreed upon by the executives of the governments joining in the same. Whenever the governments so invited, or any three of them, shall have signified their willingness to unite in the same, the President shall, by and with the advice and consent of the Senate, appoint three commissioners who shall attend such conference on behalf of the United States, and shall report the doings thereof to the President, who shall transmit the same to Congress.”
The conception which governed this legislation is plain enough. It proposes to secure a concurrent circulation of the two metals at a fixed ratio by an international agreement. The proposition is to put the experiment at work when only three nations besides ourselves consent and in the meantime to remonetize silver here at sixteen to one when the market ratio is seventeen and one-half to one. This adds to the absurdity of the bill, but has no hearing on my present controversy. I challenge the postulate which is assumed, which has never been discussed, much less proved, that a concurrent circulation is possible if an international union can be made. Anybody who concedes this concedes, as I view it, the fundamental and controlling error in the silver craze. If this premise is conceded, there can be no further controversy on the arena of science. It remains only to try to overcome practical difficulties. Such is the issue I raise with those who, under any reservations whatsoever, concede that a concurrent circulation is possible. In a body of scientific gentlemen I need only refer to the mischief done in science by assuming the truth of postulates without examination, and I need make no apology for bringing forward with all possible force and vigor a controversy on a point so essential. It is my duty to say that I may be in error, and I have the misfortune to differ here with gentlemen from whom I dissent seldom and unwillingly, but it will not be denied that, while there is controversy on a point so essential, and at a moment when practical measures of high importance to every person in this country are proposed, based on certain views of the matter, I am right in promoting discussion. I wish to be understood as paying full respect to everybody, but I address myself, without compliments, to the question in hand. I shall be satisfied if I make it appear that I have some strong grounds for the position I take in a long, careful, and mature study of this question in all its bearings.
It will economize time and space, if, before entering on my subject, I try to clear up two points: (1) what is an economic force or an economic law, and how ought we to go about the study of economic phenomena? (2) What is a legal tender?
(1) What should be our conception of an economic force or an economic law, and how ought we to study economic phenomena? Some people seem to think that economic phenomena constitute a domain of arbitrary and artificial action. They think that social phenomena of every kind are subject to chance or to control. They see no sequence between incidents of this kind. They have no conception of social forces. They think economic laws are only formulae established by grouping a certain number of facts together, like a rule in grammar, and they are prepared for a list of exceptions to follow. This conception, in its grosser forms, is now banished from the science, but it still has strong hold on popular opinion. It also still colors a great many scientific discussions, those, namely, who seek to carry forward the science by following out the complicated cases produced by the combined action of economic forces in our modern industrial life, and describing them in detail. In my opinion such efforts are all mistaken.
I regard economic forces as simply parallel to physical forces, arising just as spontaneously and naturally, following a sequence of cause and effect just as inevitably as physical forces- — neither more nor less. The perturbations and complications which present themselves in social phenomena are strictly analogous to those which appear in physical phenomena. The social order is, to my mind, the product of social forces tending always towards an equilibrium at some ideal point, which point is continually changing under the ever-changing amount or velocity of the forces or under their new combinations. Consequently, I do not believe that the advance of economic science depends upon fuller and more minute description of complicated social phenomena as they present themselves in experience, but on a stricter analysis of them in order to get a closer and clearer knowledge of the laws by which the forces producing them operate. If this can be attained, all the complications which arise from their combined action will be easily solved. Of course we have peculiar difficulties to contend with, inasmuch as we cannot constitute experiments, and it is necessary to rely largely upon historical cases which present now one and now another force or set of forces in peculiar prominence. The facts which show the difficulty of the task, however, have nothing to do with its nature.
According to this view of the matter there is no more reason to be satisfied with generalities in economics than in physics. Some writers on economic subjects, who pride themselves upon scientific reluctance, remind me of Mr. Brooks, in “Middlemarch.” They believe in things up to a certain point, and are always afraid of going too far. They would be careful about the multiplication table, and not bear down too hard on the rule of three. They do not discriminate between care in the application of rules, and confidence in scientific results; or between harshness in personal relations and firm convictions in science. The more we come to understand economic science the more clear it is that we are dealing with only another presentation of matter and force, that is to say, with quantity and law, so that we have mathematical relations, and have every encouragement to severity and exactitude in our methods. When, therefore, it is said that the economists do not pay sufficient heed to the power of legislation, that is no stopping place for the argument any more than it would be in physics to say that sufficient heed was not paid to friction. The question would then arise: What is the force of legislation? Let us study it, just as we would go on to study friction in mechanics. When it is loosely said (as if that dismissed the subject) that men have passions and emotions and do not act by rule, the objection is not pertinent at all. It is connected with another wide and common, but very erroneous notion, that economic laws involve some stress of obligation on men to do or abstain from doing certain things. I suppose this notion arises from the classification of political economy amongst the moral sciences. Economic laws only declare relations of cause and effect which will follow, if set in motion. Whether a man sets the sequence in motion at all or not, and if he does so, whether he does it from passion or habit or upon reflection, is immaterial. Such is the case, as I understand it, with all sciences. They simply instruct men as to the laws of this world in which we live that they may know what to expect if they take one course or another, or they instruct men so that they may understand the relations of phenomena of forces beyond our control so that we may foresee and guard ourselves against harm. It follows from all this that I demand and aim at just as close thinking in political economy as in any other science. I think we must try to get as firm hold of principles and fundamental laws as we can, and that, especially in the face of speculative propositions, we ought to cling to and trust the firmly established laws of the science.
(2) As to legal tender, it seems to me that the public mind has been sadly confused under the regime of paper money. Money is any commodity which is set apart by common consent to serve as a medium of exchange. If it is a commodity, it will exchange by the laws of value, and will therefore serve to measure value. It must therefore be a commodity, an object of desire requiring onerous exertion to get it. In theory, it may be any commodity. The question as to what commodity is a question of convenience — that one which will answer the purpose best. Through a long period of experiments we have come to use gold or silver, simply because we found them the best. Convenience here gave rise to custom, and money of gold or silver owes its existence to custom entirely, and not to law at all. Law has, only in very few instances even selected that one of the two metals which should be used. Even that has come about through custom. Law, therefore, here as elsewhere where it has been beneficent and not arbitrary, has followed custom, recognized it, ratified it, and given it sanctions. (1) A legal tender law, therefore, where customary money is used, simply declares that the parties to a contract shall not vex each other by arbitrarily departing from the custom. The creditor shall not demand, and the debtor shall not offer, out of spite or malice, anything but the customary money of the nation. Such a legal tender law has no significance whatever. No one thinks of it or speaks of it or takes it into account, unless he be one of those whose idle malice it prevents.
(2) A legal tender law is used where a subsidiary token currency is employed as a part of the system, to prevent debtors from using it in payment, and to prevent the system from bringing about a depreciation of the money. In this case it is part of the device for using a token currency, and is open to no objection. It would check the debtor when he meant to perpetrate a wrong. It would not enable him to do one.
(3) A legal tender law has been used very often, however, to give forced circulation to a depreciated currency of little or no value as a commodity. In that case the legal tender act enables the debtor to discharge his obligations with less commodities than he and the creditor understood and expected when the contract was made. If the creditor appeals to the courts, they are obliged to rule that the debtor has discharged his obligation, when he has not, and they give the creditor no relief. Hence it appears that a legal tender act giving forced circulation to depreciated currency amounts simply to this: it withdraws the protection of the courts from one party to a contract, and leaves him at the mercy of the other party to the extent of the depreciation of the currency. Obviously no other act of legislation more completely reverses the whole proper object of legislation, or more thoroughly subverts civil order. The English passed two or three acts of this nature, although they were not specifically acts for making banknotes legal tender, during the bank suspension at the beginning of this century. It would have been interesting to see what English courts would have made of an act which reversed the whole spirit of English law by diminishing the rights of one party under a contract, and which made the courts an instrument for his oppression instead of an institution to provide a remedy, but no case came up. The twelve judges on appeal overturned the sentence of a man convicted of buying and selling gold at a premium. Some few persons demanded and obtained gold payments throughout the suspension but the paper circulation was really sustained by public opinion and consent, it being believed that the bank suspension was necessary. This form of legal tender, therefore, is totally different from that first described. I call it, for the sake of discrimination, a forced circulation. When a legal tender act giving forced circulation to a depreciated currency is first passed, if it applies to existing contracts it transfers a percentage of all capital engaged in credit operations from the creditor to the debtor. In its subsequent action it subjects either party to the fluctuations which may occur in the forced circulation, robbing first one and then another. Hence the debtor interest is that the depreciation once begun shall go on steadily, because any recovery would rob debtors as creditors were robbed in the first place.
Having disposed of these two points I now take up the question I proposed at the outset: Is a concurrent circulation of gold and silver possible under an international coinage union?
Here we have to make a radical distinction between two different propositions for an international coinage union. The first is that of M. Wolowski. He pointed to the comparatively small fluctuations of the precious metals and to the effect which France had exerted by the double standard, and inferred that if all civilized nations would join France in her system they might arrest the fall of either metal before it became important. If the coinage union fixed upon a ratio of one to fifteen and one-half, then, if silver fell all would use silver, which would arrest its fall. If gold should fall, all would use gold. As the metal in use would always be the one which was cheaper than the legal ratio, the other would be above it, if I may so express it. Hence neither would be permanently demonetized, because neither could fall so low as to go out of use. Only one would be used at a time but the other would be within reach, and if either should rise relatively to commodities, debtors would not suffer but might even be benefited by being enabled to turn to the falling metal. This system would require of the law nothing except to prescribe that the mint should coin either metal indifferently which people might bring, silver coins being made fifteen and one-half times as heavy as gold coins of the same denomination, both being of the same fineness. This is Wolowski's plan, and these are the advantages he expected from it. He thought that it would hold the alternative open between the two metals. He feared that silver, if universally demonetized, would fall so low as to go out of use entirely for money. He thought that France and, later, the Latin Union ought not to bear alone the cost of keeping up the value of silver. He thought the debtor ought not to be oppressed by being forced to rely on one metal alone which might rise relatively to commodities. He did not propose to give the debtor the use of the whole mass of both metals at the same time. Indeed that arrangement would defeat Wolowski's purpose, for if the whole mass of both metals could be brought into use at once prices would rise. Those who are indebted now would win, but when prices and credit had adjusted themselves to the bimetallic money the effect would be exhausted. Debts contracted after that would be relatively just as heavy to pay as they are now, and if the precious metals taken together rose relatively to commodities, debtors would have no recourse to anything else. Now this chance of recourse, when the standard of value rose, was just what Wolowski wanted. His language is very guarded and scientific. He never went further than to say that his scheme would restrain and limit the fluctuations of the metals — how far he did not know and did not pretend to say. He thought the fluctuations would be so narrow that the transition from one metal to the other would be a relief to debtors without any appreciable injustice to creditors. All this is very clear and very sensible. On theory it is open to no radical objection. The discussion of it turns upon considerations of practicability and expediency. It is much to be wished that this plan should be called by its proper name: the alternative standard, or, better still, the alternate standard. It counts among its adherents a number of strong men, and many others have signified assent to it on theoretical grounds.
The term “bimetallism” ought to be restricted to another theory of which Cernuschi is the advocate, which has for its purpose to unite the two metals at once in the circulation and give debtors the whole mass of both metals as a means of payment. Cernuschi believes that the international coinage union could arrest the fluctuations of the metals entirely; or that there is some narrow limit of fluctuation within which both would remain in use, and that the coinage union could hold the value-fluctuations of the metals within these limits. The American schemes are numerous and so crude that it is difficult to analyze or classify them. They are also of many different grades. They all, however, seem to have this in common, that they want to secure to the debtor the use of both metals at once, and that they aim at a concurrent circulation. They must, therefore, be classed under bimetallism. These schemes all involve not simply what Wolowski said — that legislation and union could limit the fluctuations- — but the proposers know how much it would limit them, and they can control the results. This view has very few adherents in Europe. It has not been discussed there save by one or two writers. It is passed by in silence for reasons which I shall soon show.
The opinion has been expressed that these two propositions differ only in degree. From this opinion I must express my earnest dissent. It is the very cardinal point of my present argument. Wolowski's alternate standard seems to me to rest upon the belief that legislation of the kind proposed would restrict the fluctuations in value of the metals. It affirms that legislation would have a certain tendency. Any plan for a concurrent circulation giving debtors the use of the whole mass of both metals pretends to say how far the tendency would go and what its results would be. To my mind the difference between those two propositions is that between a scientific and an unscientific proposition. We have a parallel case before us. Some say re-monetization would cause an advance in silver. Others say re-monetization would make a four hundred and twelve and one-half grain silver dollar equal in value to a gold one. Are those two propositions the same save in degree? It seems to me that only a very superficial consideration of them could so declare. Obviously they differ in quality more than in degree. The former of these propositions is not false in principle; the question in regard to it must be decided by circumstances. The second is false and erroneous from beginning to end, and would be false even if temporarily and by force of circumstances the silver dollar should become equal to the gold dollar, because it rests, like the old doctrine that nature abhors a vacuum, upon false views of all the forces involved. Just so with regard to a concurrent circulation or bimetallism as compared with the alternate standard. The latter predicts tendencies to arise from the play of certain forces. Those tendencies are the true effect of those forces. The question may be raised whether the means proposed would bring those forces into action, whether they would be as great as is expected, whether they would be counteracted by others, but there is no error as to the nature and operation of economic forces. Bimetallism predicts results, not tendencies. It assumes to measure the consequences and say what will result as a permanent state of things. It therefore involves the doctrine that legislation can control natural forces for definite results. If legislation cannot so control natural forces, then we cannot secure a concurrent circulation, giving the debtor the use of the whole mass of both metals with which to pay his debts. At a time like this, when the silver craze seems to be asserting itself as a mania, by sweeping away some who ought to be most staunch in their adherence to economic laws and most clear in their perception of economic truths, I may be pardoned for insisting most strenuously upon this distinction and upon its importance. Many of the American writers have been betrayed into error by not having examined these two plans and discriminated between them with sufficient care. It is very common to see arguments based upon the alternate standard and inferences drawn as to bimetallism which are entirely fallacious because they cross the gulf between the two theories without recognizing it. Bimetallism is so plainly opposed to fundamental doctrines of political economy that few European economists have felt called upon to discuss it. Here the case is different, and the more ground it wins, and the more danger there is that it will affect legislation, the more urgent is the necessity to resist every form of it.
Now my proposition is that a concurrent circulation, that is a permanent union of the two metals in the coinage, so that the debtor can use both or either, is impossible. Permanent stability of the metals in the coinage, whether with or without an international coinage union, is just as impossible in economics as perpetual motion is in physics. Against perpetual motion the physicist sets a broad and complete negation, because action and reaction are equal. He does not care what the principle may be on which any one may try to construct perpetual motion. If any one brings to him a perpetual motion perhaps he will spend time to examine and analyze it and show how it contravenes the great law of motion. I claim that a concurrent circulation is impossible on any scheme or under any circumstances because it contravenes the law of value. Value fluctuates under supply and demand at a limit fixed by what Cairnes calls cost of production, or Jevons calls the final increment of utility, or Walras calls scarcity, all of which on analysis will be found to be the same thing. Bimetallism affirms that, under legislation, although supply and demand may vary, value shall not. In order to test this let us next examine the influence of legislation on value.
The cases in which legislation acts on value are all cases of monopoly. Such is the case with token money; such is the case with irredeemable paper. As with every other monopoly, the successful manipulation of these monopolies consists in controlling supply, to fit the supply to the demand at the price which the monopolist wants to get. The history of every monopoly shows the great difficulty, I might say, in the long run, the impossibility, of doing this. The bimetallists propose not to act on the supply, and so create a monopoly, but to act upon the demand. This is a new exercise of legislation, different from any yet tried, and not guaranteed by any experience. Now to act upon the demand is, in the phrase of the stock brokers, to make a corner, that is to buy all that is offered at a price. Stock gamblers do this so as to sell out again at an advance to those who are forced to buy. If there are none who are forced to buy, then those who bought above the market have lost their capital. The propositions of the advocates of the alternate standard and of bimetallism are alike in proposing that all civilized nations shall combine to make a corner on the falling metal. Whether that is a worthy undertaking or not I will not stop to inquire. It is evident that the nations of the coinage union would have no one on whom to unload after they had bought, and that there would be an inevitable loss and waste of capital in the transaction. This, however, is not all. A corner is effective or not according to its scope. It must embrace the whole object to be raised in price, and above all it must act upon a limited amount which is not fed from any new source of supply. A corner on the precious metals is not to be made effective even by a combination of all civilized nations. In my opinion there is a grand fallacy in the notion that a coinage union would do what France did, only on a larger scale. Wolowski saw France, lying between Germany, a silver nation, and England, a gold nation, carry out the compensatory operation, and he inferred that all nations could agree to do the same, more widely, more easily, and with wider distribution of the loss. It seems to me that there was an action and reaction here between members of the group of nations which one can easily understand, but that if all nations joined in the system, the alternation would not work at all for want of a point of reaction. If all nations agreed to join the corner on the falling metal, they could not all bring their new demand to bear on the new supply at the same time. As the mines are limited and local, a new supply would touch the market only at one point. Hence the coinage union implies no aggregation of force at all. Make the union embrace the whole world, and the effect is just the same as if there were none at all, the matter standing simply on the natural laws for the distribution of the precious metals. Control of demand by a corner or of supply by a monopoly acts more efficiently the smaller and closer the market is, and, conversely, the larger and wider the transaction, the less the efficiency. Furthermore, a corner to succeed must make sure that there is no source of supply, and that it has to deal only with an amount which can be computed. The gold corner on Black Friday, 1869, was ruined when the Secretary of the Treasury ordered sales of gold. A monopoly in like manner, must be able to count on steady and uniform demand. The coal combination failed when the hard times suddenly contracted the demand for coal. Hence the movement towards a wider market, embracing a larger quantity, is always a movement towards less, and not towards greater control by artificial expedients.
Applying these observations to the matter before us, I have to say (1) that I consider the inference that a coinage union would do what France did under the double standard, only more surely and efficiently, quite mistaken; (2) as to the alternate standard, I do not believe that the alternation would work on a worldwide scale at all. I regard its operation in France as fully accounted for by the relations of the three countries, England, France, and Germany; (3) as to bimetallism, the coinage union, instead of gaining more stringent control to counteract and nullify the effect of changes in supply of either metal, would have less effect in that direction the larger it was.
Having thus examined the nature of artificial interferences with value, and their limitations, I return to my proposition that to establish a concurrent circulation is just as impossible as to square the circle or to invent perpetual motion. No doubt it is difficult, perhaps impossible, to make a demonstration of a negative proposition like this. The burden of proof lies upon those who bring forward attempts to solve the problem, and I can justly be held only to examine and refute such attempts. No proof has ever been offered by any of the persons in question. No one of them has attempted as much of an analysis of the effect of artificial expedients on value as the one I have just offered. No one of them has attempted to analyze the operation of the proposed coinage union, to show how or why they expect it to act as they say. They pass over this assumption as lightly as our popular advocates of silver assume that re-monetization would put an end to the hard times. They content themselves with analogies, or with loose and general guesses that such and such things would result from a coinage union. We all know what dangers lurk in the argument from analogy. The further you follow it the further you are from the point. An analogy has no proper use save to set in clearer light an opinion or a proposition which must rest for its merits on an appropriate demonstration. Thus the attempt has been made to illustrate the power of governments to control the fluctuations of the metals by the analogy of a man driving two horses. It is said that this is “controlling natural forces for definite results,” and it is asked, “if one man in his sphere can do this, why may not the collective might of the nation do this in its sphere?” My answer is that it is in the sphere of man to tame horses, but it is not in the sphere of nations to control value, and therefore the analogy is radically false. I cannot be held to argue both sides of the question. I am not bound to put all the cases of the adversaries into proper shape for discussion and then to refute them. I plant myself squarely upon the fundamental principles of the science of which I am a student and deny that any concurrent circulation is possible except under temporary and accidental circumstances, because it involves the proposition that legislation can control value to bring about desired results. A concurrent circulation must mean one which is concurrent, and if it is to offer debtors the whole mass of both metals to pay their debts with, it must be permanent. If both metals should be used for a time until prices and contracts were adjusted to them, and then one should rise so much as to go out of use, the consequences would be disastrous to debtors beyond anything now apprehended.
I proceed then to criticize the notions of a concurrent circulation, as to their common features. The error with them all is that they try to corner commodities the supply of which is beyond their control or knowledge. That is a fatal error in any corner, as I have already shown. If it were proposed that each nation should have a certain amount of circulation, composed of the two metals in equal parts, and then that the circulation should be closed, then the corner might work and there would be some sense in it. Suppose that a nation had two hundred millions of fixed circulation, half gold and half silver, and that this sum was not in excess of its requirement for money. Then I do not see how either half of the coinage should fall relatively to the other; but if silver did fall, every dollar of silver which was sought would involve the relinquishment of a dollar in gold and this exchange would act on equal and limited amounts of each metal. It would then depress one metal and raise the other to an exactly equal degree. The balance might, in that case, be retained. The hypothesis of a closed circulation is, however, preposterous. No one thinks of it.
The plan of a concurrent circulation with a free mint strikes, upon close examination, at every step, against difficulties of that sort which warn a scientific man that he is dealing with an empirical and impossible delusion. How is it to be brought about? The movement towards a bimetallic circulation would never begin unless the ratio of the coinage was the market ratio. It would not go on unless the mint ratio followed every fluctuation of the market. It would not be accomplished unless the mint ratio at last was that of the market. It would not remain unless the market ratio remained fixed. But the mint ratio cannot be changed from time to time. If it were, the result would be inextricable confusion in the coins, driving us back to the use of scales and weights with which to treat the coins as bullion.
If we pass over this difficulty, and suppose, for the sake of argument, that the system had been brought into activity, the reasons why it could not stand present themselves in numbers. They all come back to this, that the supply is beyond our knowledge and control. If the supply of either metal increased, it would overthrow the legal rating at the point at which it was put into the market, and would destroy the equality there. Its effects would spread according to the amount of the new supply and the length of time it continued. The bimetallists seem to forget that an increased demand counteracts an increased supply only by absorbing it under a price fluctuation. The same error is familiar in the plans for perpetual motion. Speculations to that end often overlook the fact that we cannot employ a force in mechanics without providing an escapement which is always exhausting the force at our disposal. So the bimetallists seem to think of their enhanced demand as acting on value without an actual action and reaction which consist in absorbing supply under a price fluctuation. The new metal would therefore pass into the circulation and would destroy the equilibrium of the metals in the coinage. If this new addition were only a mathematical increment it would suffice to establish the principle for which I contend and to overthrow the bimetallic theory, for if I see that any force has a certain effect I must infer that the same force increased or continued would go on to greater effects; and if the final effect is not reached it is because the force is not sufficient, not because there is an act of the legislature in the way. If then, silver entered the circulation, gold would leave it and be exported, if the exchanges allowed of any export, or would be hoarded and melted. The silver-producing countries would therefore gravitate towards a silver circulation only, and other countries towards a gold circulation.
Here another assumption of the bimetallists is involved. They assume that the metal to be exported would be the one which falls. Thus, if all nations had a bimetallic circulation, and if the supply of silver in the United States increased, it would be necessary that this silver should be proportionately distributed among all the nations in order to keep up the bimetallic system. No bimetallist has ever faced this question. They assume that Americans would pay their foreign debts with silver in that case, and they rely on the international legal tender law to secure this. This is one of the fallacies of legal tender referred to at the outset. Rates of exchange and prices would at once vary to counteract any such operation, just as they always counteract the injustice of a forced circulation and throw it back on those who try to perpetrate it. It may suffice to put the ease this way. If we had both metals circulating together so that a merchant obtained both in substantially equal proportions, and if silver should fall ever so little in our markets, owing to increased production, and if a foreigner were selling his products here, intending to carry home his returns in metal, which metal would he retain to carry away? Obviously that one which at the time and prospectively had the higher value. Rates of exchange and prices would adjust themselves so as to bring about the same result through the mechanism of finance. This is one of the most subtle questions involved in the general issue, but it is vital to the bimetallic theory.
Some writers have satisfied themselves with general opinions — guesses, I am obliged to call them — that if the fluctuations were kept within certain limits the concurrent circulation would stand. They probably rely on an element analogous to friction which unquestionably acts in economy and finance. This element consists of habit, prejudice, passion, dislike of trouble. It acts with great force in retail trade, and in individual cases, and in small transactions. Its force diminishes as we go upwards towards the largest transactions, where the smallest percentages give very appreciable sums. It seems to me that the bimetallic system reduces this friction to a minimum. If a man has to spend a dollar he does not go to a broker to buy a trade dollar with a greenback dollar, and save a cent or two, but if he has both a gold dollar and a silver dollar in his pocket (and, under the bimetallic system, the chances are that when he has two dollars he will have one of each), it needs only the lightest shade of difference in value to determine him which to give and which to hold. A bank of issue, holding equal amounts of the two metals with which to redeem its notes, would find an appreciable profit in giving one and holding the other, and it would require nothing but a word of command to the proper officer, involving no risk at all. Hence I say this friction would be reduced to its minimum under the bimetallic system. It is astonishing what light margins of profit suffice to produce financial movements nowadays; and the tendency is to make the movements turn on smaller and smaller margins. Five in the thousand above par carries gold out of this country. Four in the thousand carries it from England to France. When the French suspended specie payments a depreciation of two in the thousand on the paper sufficed to throw gold out of circulation. A variation in the ratio of metals from 15.5:1 to 15.6:1 is a variation of six and one-half in the thousand. I do not see how small a variation must be in order to justify any one in saying that a bimetallic circulation could exist in spite of it. Therefore it seems to me that the more accurately the bimetallic system was established the more delicate and more easily overthrown it would be, while if it was not accurately established it would not come about at all. I submit that such a result is one of the notes of an absurdity in any science.
An analogy has been suggested in illustration and support of the bimetallic theory that two vessels of water connected by a tube tend to preserve a level. I have already indicated my suspicion of all analogies, but I will alter this one to make it fit my idea of bimetallism. Suppose two vessels capable of expansion and contraction to a considerable degree, under the operation of forces which act entirely independently of each other, so that the variations in shape and capacity of each may have all conceivable relations to the corresponding variations of the other. Suppose further that each is fed by a stream of water, each stream being variable in its flow and the variations of each having all possible relations to the variations of the other. The fluctuations in capacity may represent fluctuations of demand, and the fluctuations of inflow, fluctuations of supply. Would the water in the two vessels stand at the same level except temporarily and accidentally, even though the two vessels were connected by a tube? The analogy of the connecting tube could not be admitted even then, because it brings into play the natural law of the equilibrium of fluids, to which the legal tie between the metals is not analogous. If we desire to make the analogy approximately just, in this respect, we may suppose that each vessel has an outlet and that a man is stationed to open the outlet of the vessel in which the water is at the higher point so as to try to keep them both at a level. It is evident that his utmost vigilance would be unavailing to secure the object proposed. I do not borrow the analogy or adopt it. I only show how inadequate it is, in the form proposed.
There is another group of propositions which have many advocates amongst us, of which something ought to be said — propositions of those who want to use silver as a legal tender at its value, under some scheme or other. Some want a public declaration, by appointed persons, from time to time, of the market value. Any such plan would throw on the officers in question a responsibility which would be onerous in the extreme, so much so that no one could or would discharge it; and it would introduce a mischievous element of speculation into the payment of all debts. It is, besides, open to the objections which may be adduced against the other plan, which is to have either coins or bars of silver, assayed and stamped, legal tender for debts at the market quotation. Here we need to remember the definition of legal tender given at the outset. If these silver coins and bars are convenient for the purpose they will come into use by custom and consent at their value. If they really pass at their market value, there will be no advantage to the debtor. One who has silver and wants to pay a debt can do so at its value by selling the silver. In this sense every man who produces wheat, cotton, iron, or personal services, pays his debts with them at their value. One who produced something else than silver would have no object in selling it for silver, to pay his debt with at the value of silver. He would have the trouble of another transaction, he would have to buy silver at its selling price, and the creditor to whom he paid it would have to sell it for money at the broker's buying price, with no advantage to either, but only to the broker. If silver passes at its value, legal tender has no force for it; if it is to have forced circulation in some way, it will help the debtor, as all forced circulation does, by enabling him to keep part of what he borrowed. If then these schemes really mean that silver shall pass at its value, they are of no use. It does so now. If they mean that silver shall be enabled to pay debts in some other way than iron, wheat, cotton, etc., then we know what we are dealing with. There is just as much reason why the government should pay for elevators and issue certificates of the amount and quality of grain, which should be legal tender, as there is why it should assay and stamp silver for that purpose, and issue notes for it. These cases only serve to bring out the distinction between money and merchandise, and to show that the perfection of money does not lie in the direction of a multiple legal tender, but of a single standard, as sharp and definite as possible. Such a standard has the same advantages in exchange as the most accurate measures of length and weight have in surveying or in chemistry, and it is turning backward the progress of monetary science to introduce fluctuations and doubt into the standard of value, just as it would be to cultivate inaccuracy in weights and measures.
Here I am forced to notice another hasty and mischievous analogy. Some devices for composite measures of length have been adopted to avoid contraction and expansion, and it is urged that bimetallic money is a step in the same direction. I by no means assert that science can do nothing to reach a better standard of value than gold is. What progress in that direction may lie in the future no one can tell, and he would be rash who should ever presume to deny that progress can be made; but when any proposition is presented it will have to show what composite measures of length show, viz., that its action is founded on natural laws. Heat and cold act oppositely on the components of the composite measures of length, or the arrangement is such that the action of the natural forces neutralizes. No such scientific principle underlies bimetallic money. The forces determining the value of gold and silver act independently of each other and are not subject to common influences. They are complex, moreover, and their effects are not uniform in their different degrees. Therefore this analogy also fails.
The opinion that a concurrent circulation is not possible has led several of the leading nations of Europe (and, at the time of writing such is still the system of the United States) to adopt the plan of a permanently false rating of gold and silver, so as to use silver as a subsidiary coinage. Silver is permanently overrated, so that it obtains currency above its bullion value. If the civilized nations want to use silver for money, so that the total amount of metallic money in the Western world shall be greater than the amount of gold, and if they are not satisfied with the use of it as subsidiary, then there is only one way left, and that is for some nations to use gold and some to use silver. This was the solution of the bimetallic difficulty which China was forced to adopt a thousand years ago. Some provinces used iron and some copper. The question then arises as to who will take silver. This brings me to the last point of which I have to speak.
I have discussed my subject as if gold and silver stood on the same level of desirability for money, and as if there were no choice of convenience between them. Such is not the case in fact. It will be observed that gold and silver never have been used together. Gold has generally been subsidiary, being employed for large transactions. With the advance of prices and the increase in variety of commodities, as well as in the magnitude of transactions, nations have passed from copper money to silver and from silver to gold. This advance is dictated by convenience. Silver is no longer as convenient a money for civilized industrial and commercial nations as gold. We therefore see them gradually abandoning silver, and we saw the Latin Union set up a bar against silver so soon as the operation of the double legal tender threatened to take away gold and give it silver. Whether this movement from silver to gold can be accomplished without financial convulsions I am not prepared to say, especially in view of the extent to which the nations have depreciated gold by paper issues, but I regard the movement as one which must inevitably go forward. The nations which step into the movement first will lose least on the silver they have to sell. The nations which use silver until the last will lose most upon it, because they will find no one to take it off their hands. If we now abandon the gold standard and buy the cast-off silver of the nations which have been using it and are now anxious to get rid of it, we voluntarily subject ourselves to that loss, which we are in no respect called upon to share. The Dutch at New York kept up the use of wampum longer than the English in New England. When the Yankees were trying to get rid of it, they carried it to New York, adding some which they manufactured for the purpose, and they carried the goods of the Dutchmen away. The latter then found that they held a currency which they could only get rid of at great loss and delay to the Indians north and west of them. The Yankees thus early earned a reputation for smartness. The measure now proposed is a complete parallel, only that now this nation proposes to take the role of the Dutch. We shall have to give our capital for silver, and after we have suffered from years of experience with a tool of exchange inferior to that which our neighbors are using, we shall have to get rid of it and buy the best. Then we shall incur the loss — to all those who have anything — of the difference between the capital we gave and that which we can get for the silver. The dreams of getting silver and keeping gold too, so as to have a concurrent circulation, are all vain. At the rating proposed there is no difference of opinion on this point amongst any persons at all qualified to give an opinion. The real significance of the propositions before the country is to make us one of the nations to take silver in the distribution I have described. The notion of a coinage union is impracticable. It would be easier to get up an international union to do away with war. England is perfectly satisfied with her money. She appreciates the peril of monetary experiments and will make none. Germany, Sweden, Finland, Denmark, and Holland have just changed from silver to gold, and will not enter on any new changes for a long period, if ever. The coinage union is therefore out of the question. The issue before us is simply whether we, being a gold nation, will, under these circumstances, abandon gold and take up silver. No doubt the nations which want gold would be very glad to have us do it. We should render them a great service; we should, however, do ourselves great harm, as much so as if we should buy a lot of cast-off machinery from them. They are waiting to see whether we are ignorant and foolish enough to put ourselves in this position; and when they have seen, we shall hear no more of the coinage union.
I have now presented the views to which my study of this question has led me. It will be perceived that I direct my attack against the postulate of all the bimetallic theories. I have carefully discriminated between the alternate standard and bimetallism. I have said little about the former. It is very much a matter of opinion whether it would work or not. I do not believe that it would, under a coinage union, but I should not feel forced to take strong ground against any one who held the contrary opinion. My subject has been a concurrent circulation of gold and silver, and I have tried to controvert the notion that any such thing is possible, with or without a coinage union, because that notion contradicts the first great law of economic science. If that notion is true, then there is no science of political economy at all; there are no laws to be found out, a professional economist has nothing to teach, and he might better try to find some useful occupation. If that notion is true, we have no ground on which to criticize the Congressmen who are trying to pass the silver bill. We cannot predict any consequences or draw any inferences from past experience. If legislation can control value for definite results, then the whole matter is purely empirical. In that case, the Congressional experiment may turn out well for all the grounds we have to assert the contrary; its success would only be questionable, not impossible; if it failed it would not be because its supporters had attempted the impossible, but because they had not used sufficient means. They could go on to try the experiment again and again in other forms and with other means, and they would indeed be doing right to proceed with their experiments, like the old alchemists, in the hope of hitting it at last. No economist would have any ground upon which to step in and define the limits of the possible, or to prescribe the conditions of success, or to set forth the methods which must be pursued — if he could not appeal with confidence to the laws of his science as something to which legislature as well as individuals must bend. Therefore one who holds the views I have expressed in regard to economic forces, laws, and phenomena is compelled, as well by his faith in his science as by the public interests now at stake in the question, to maintain that a concurrent circulation of gold and silver, either with or without a coinage union, is impossible.
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