Part 12

In his "Proposals for an Economical and Secure Currency," Ricardo makes the following statement, which I commend to the careful attention of the advocates of the single gold standard:

While a standard is used, we are subject to only such a variation in the value of money as the standard itself is subject to; but against such variation there is no possible remedy, and late events have proved that, during periods of war, when gold and silver are used for the payment of large armies distant from home, those variations are much more considerable than has been generally allowed. This admission only proves that gold and silver are not so good a standard as they have been hitherto supposed--that they are themselves subject to greater variations than it is desirable a standard should be subject to. They are, however, the best with which we acquainted.

If any other commodity less variable could be found, it might very properly be adopted as the future standard of our money, provided it had all the other qualities which fitted it for that purpose; but while these metals are the standard the currency should conform in value to them, and whenever it does not, and the market price of bullion is above the mint price, the currency is depreciated. This proposition is unanswered and is unanswerable. Much inconvenience arises from using two metals as a standard of our money; and it has long been a disputed point whether gold or silver should by law be made the principal or sole standard of money. In favor of gold it may be said, that its greater value under a small bulk eminently qualifies for a standard in an opulent country.

And I may here remark that it requires an opulent country to maintain the single gold standard, and the country does maintain it at very great expense. I do not wonder that he thought an opulent country, a creditor country, the only one that ought to adopt it, for no other country can afford to adopt it. But, like many people who in attempting to improve their condition in society attempt luxuries and extravagances which they can not maintain and which force them back into the ranks from which they came, so nations in attempting to establish the gold standard may find themselves reduced from opulence to poverty.

Ricardo continues:

But this very quality subjects to greater variations of value during periods of war or extensive commercial discredit, when it is often collected and hoarded, and may be urged as an argument against its use. The only objection to the use of silver as the standard is its bulk, which renders it unfit for the large payments required in a wealthy country; but this objection is entirely removed by the substituting of paper money as the general circulation medium of the country. Silver, too, is much more steady in its value in consequence of its demand and supply being more regular; and, as all foreign countries regulate the value of their money by the value of silver, there can be no doubt that on the whole silver is preferable to gold as a standard, and should be permanently adopted for that purpose.

Innumerable additional citations from authors of repute could be adduced to fortify this position.

It will thus be seen that the fluctuations in the value or purchasing power of both gold and silver have always been admitted by scientific writers. They were so well understood three centuries ago that in Queen Elizabeth's reign (1576) the British Parliament directed that the rents reserved in the long leases of certain college lands should be payable, not in money, but in wheat. And at various times during the past seventy years propositions have been formulated to substitute for gold and silver as a standard of value for deferred payments, a tabular statement of the prices of the principal articles of commerce, to be made by official authority and published from time to time, by the average of which the fluctuations of gold could be ascertained and proper allowance made for them in the settlement of time transactions. Professor Jevons, Prof. Francis A. Walker, and other political economists of note have expressed approval of such a tabular standard for long-time contracts, as securing greater equity than would gold as a measure of values.

Those who now assert that silver has fallen and that gold has not risen in value arrive at this conclusion by a very safe process of reasoning. First, to show that silver has fallen they measure it by gold alone, without reference to the general range of prices; and then to prove that gold has not risen they make it the measure of itself. An increase or decrease of the value of either can not be ascertained by reference to the other, and certainly not by constituting either of them a standard by which to judge itself. It would of course be forever impossible to show any change in the value of gold or silver, or of anything else, measuring it by itself. It is only by looking at the relations which both metals bear respectively to a considerable range of commodities generally dealt in as well as to each other, that it can be ascertained with certainty what has happened.

Not only upon consideration of all the facts I have given, but upon the logic of the situation, it must be obvious that gold has risen and will continue to rise in value as long as its volume decreases and the demand for it increases. Since 1860, when 77 per cent. of the combined yield of the two metals, it has diminished not only in relative proportion to the yield of silver, but it has diminished absolutely. For the five years ending with 1860 the yield of gold throughout the world was $137,000,000 a year; for the five years ending 1889 the yield was but $110,000,000 a year. If, as claimed by the advocates of the single gold standard, an increase in the yield of silver decreases the value of silver, by what system of logic can they deny that a decrease in the supply of gold increases the value of gold?

In a late issue of the London Economist, that of April 26, 1890, I find an editorial article relating to the recent discussion on bimetallism in the British House of Commons. That article comments somewhat sharply on Mr. Smith's assertion that "a conspiracy had been formed among the financial class in Europe and America to get rid of silver as full-valued money in order to increase the value of gold, in which their revenues are paid." In the course of his comments the editor, by "confession and avoidance," admits our whole contention as to the rise of gold and the fall, as a natural consequence, of the prices of commodities. He says:

It may not be amiss, however, to point out that the increase in the exchangeable value of gold has been by no means such a gain to the financial class as he in common with many others suppose; for advantage has been very largely taken of it to cut down the return upon the capital which the financial classes have invested. It has favored debt conversion schemes, and it has been one of the influences that have caused the rate of interest in general to decline so decidedly, that, all round, the yield of investments is now very appreciably lower than it was fifteen years ago. The idea that the creditor class have realized unmixed gains and the debtor class have suffered unmitigated losses by the alteration in the purchasing power of gold is thus altogether fallacious. There has in their case, as in all others, been a species of compulsory give and take. Each has gained and each has lost something, and now that the process of readjustment has been carried so far it would be unwise to the last degree to unsettle everything again by such legislation as the bimetallists propose.

The editor of the Economist is to be commended for at least one thing. He does not quibble as to the most important point in the bimetallic controversy. He frankly admits that gold has risen, and does not, as some others do, attribute the fall of prices to improvements in methods of production.

He also admits that coincidently with and caused by the rise in gold there has been a great decline in the rates of interest, and, strangely, claims that the debtor is compensated for the rise in the value of money by the ability to convert the debt into one bearing a lower rate of interest, or, as he calls it, resorting to "debt-conversion schemes."

He does not inform us how any compensation can be made to the the debtor for the time the debt has been running, as to which it can not be converted, nor for the enhanced amount exacted from the current earnings of labor by the rise in the value of money to pay taxes and the expenses of Government, nor for the loss entailed on the debtor whose property is mortgaged on long time, where the holder of the mortgage refuses to convert it into an obligation bearing a lower rate of interest than originally contracted for. He suggests no method by which to make whole those who have lost their property through sheriff's sale by reason of falling prices and the rise in the value of money. Neither does he state how long it will be before the next confiscation is to take place, by reason of the continued operation of the cause that produced the first. But he has been frank enough to concede (what is never disputed except when the money question is under discussion) that there has been a rise in the exchangeable value of gold, and conceded its natural sequence, a fall in the rates of interest.

IMPROVED METHODS OF PRODUCTION.

In order to justify their position it becomes necessary for the advocates of continued demonetization of silver to insist that the fall of prices is not due to the rise in the value of gold but to improved methods of production.

Whatever the cause to which it is to be ascribed, the undoubted fact is that a fall of prices throughout the western world set in concurrently with the reduction of the world's money volume by the demonetization of silver. It was well understood at the time by those who had given consideration to the subject that demonetization alone would effect that result. This is manifest from an article in the London Daily News, a paper of exceedingly large circulation, quoted in the Journal of the Statistical Society of England for 1873, page 395. Referring to the adoption of the single gold standard by Germany the Daily News said:

As the annual new supply of gold throughout the world is reckoned at little more than L20,000,000 ($100,000,000), and the usual demand for miscellaneous purposes is very large, it follows that, if the German Government perseveres in its policy, the strain upon the existing stocks and currencies of gold will be most severe. For a time, at least, unless the annual production of gold should suddenly increase, the money markets of the world are likely to be perturbed by this bullion scarcity, and the fall in the value of gold----

which means the rise in prices that for some time had prevailed;

of which so much has been heard, will be checked or reversed.

The yield of gold did not "suddenly increase," and the intelligent prophecy of the Daily News was fully realized, not merely to the extent of a check to the rising prices; (or, as it is styled by the Daily News, a check to the "fall in the value of gold,") but to the extent of an immediate rise in the value of that metal, and a persistent and deplorable fall in the general range of prices.

This prophecy that the "fall in the value of gold" would be checked by the demonetization of silver; or, better, reversed by it, was welcome reading to the creditor and income classes of England and of the world.

That it was "reversed," and the value of gold appreciated, is as plain as that; one being subtracted from two, there is but one for a remainder.

The immediate fall in prices of commodities was the natural, the anticipated, and the deliberately intended result of that movement.

But we are now assured that this fall is not due to any monetary cause, but to the greater efficiency of machinery in the production of commodities.

No advocate of an increased volume of money denies that in a few departments of manufacture there have since 1873 been improvements tending to economize labor and cheapen products; but they emphatically deny and challenge proof that improvements of mere detail in the manufacture of some articles will account for the extraordinary fall of price since that time in almost every product of industry. We are also told that the development of the system of transportation, both by land and sea, have tended to lower the price of commodities to the consumers. I grant it. But we had those improvements before 1873.

The inventions made between 1873 and 1890, the period of falling prices, were no more important or radical in their effect on industry,--tended no more to cheapen commodities, than did those from 1850 to 1873, the period of rising prices. Indeed the inventions which preceded 1873 were as a whole much greater in scope, more far-reaching in result, and more revolutionary in their effects on industry, than those of the later period. All the great basic improvements had been invented, and had been incorporated with the industrial system of all civilized countries long before 1873, if we except the electric light and the telephone. We have had the steam engine, the cotton gin, and the spinning-jenny since the last century; the railroad and the steam-ship since the '30's; the telegraph, the mechanical reaper, steam-plow, and other agricultural labor-saving devices since the '40's; the sewing machine since 1854, and the Bessemer process and steel rail since 1857.