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The History of Bimetallism in the United States; Laughlin, J. Laurence
26 paragraphs found.
Preface to the First Edition
PF.4

The explanation of the late fall in the value of silver, however, is intimately connected, to my mind, with an argument commonly heard, and urged with great ability and learning, in favor of bimetallism—the argument that gold has appreciated, and that there is not enough to satisfy the needs of trade. This position has been maintained, among others, by Mr. Goschen and Mr. Giffen in England, and by several writers and speakers in this country. I feel that this argument should not be passed by without pointing out an economic fallacy in it. The "appreciation of gold" is spoken of as if a change in the purchasing power of gold were a direct proof of the abundance or scarcity of gold. Nothing is more common than the presentation of tables of falling prices, and a conclusion drawn from the figures that gold has "appreciated." It is perfectly true that, as prices fall, a gold dollar buys more of commodities, and in this sense, that the gold coin has appreciated in value. But in all such arguments the implication is conveyed that this increased purchasing power of gold, when prices fall, is due to a diminishing supply of gold (or to an increased demand for it). This, I contend, is a complete non sequitur. When prices fell after the panic of 1857 the gold dollar bought perhaps seventeen per cent more than before the disturbance; but every one knows that the gold supply was increasing in an untold quantity. And yet the gold dollar had as certainly "appreciated" as it has since 1873. This makes it necessary to say that no direct inference whatever can be drawn from tables of prices as to the quantity of gold in existence at a given time. All economists know that prices are affected by purchasing power of any kind; that purchasing power, or demand for goods, comes not merely from the actual amount of money in the hands of the public, but also from the amount of credit used; and that the rapid use of money, banking devices, paper money, credit-substitutes for gold and silver, checks, drafts, and book-credits, all go to increase the demand for goods, if offered, and so act to increase prices. So that, even if the supply of metallic money were to remain exactly the same, prices might vary, owing to changes in the other factor affecting prices, namely, credit. Since 1873 a great collapse of credit and confidence has occurred; and it can not be argued logically that, therefore, because prices have fallen, gold is becoming scarce. It may, or may not, be true that gold is scarce, but it is not proved solely because prices have fallen.

Part I, Chapter I, The Arguments of Bimetallists and Monometallists
I.I.9

(10) Far from being true that the value *4 of any metal is providentially fixed, it depends, on the contrary, on the power of that metal to satisfy the demands of commerce as an artificial medium of exchange to save us from barter; as countries grow in wealth, it is found that, as an historical fact, commercial centers, where transactions are large, prefer gold to silver; consequently, the value of a metal, merely as affected by its demand, can not remain the same. Moreover, the supply of a metal can very seriously disturb its permanent value. No commodity, not even gold, has any sacerdotal qualities which beep its value invariable.

Part I, Chapter III, Cause of the Change in the Relative Values of Gold and Silver, 1780-1820
I.III.3

Year.Gold
price.

1815109
181691
1817117
1818132
1819112
1820103
182194
182288
182389
182488

Condy Raguet *47 believed that the change of the market ratio had at least been brought to general notice by the English demand for gold. The theory of Mr. C. P. White has been revived of late by Mr. S. Dana Horton, *48 who says: "The concurrent circulation of the metals at 15:1 (with that vis inertiæ which is one of the unsettled problems of money) did not succumb to the influences of foreign demand until the drain began for the resumption of gold payment in England." He substantiates his position by quoting *49 the following table of average prices, computed by Professor Jevons, to show that the English demand for gold caused a shrinkage in gold prices of commodities. The effect of this English demand is traced in Mr. Horton's argument by giving estimates of the supply of gold and silver then existing, and then comparing with the existing supply the amount of gold collected by England, in order to show how large the demand was in proportion to the supply. It is estimated *50 by him that the amount of gold used as a medium of exchange in western Europe in 1810 was $665,000,000, and that the accumulations of England for resumption purposes created a new demand for from $125,000,000 to $150,000,000 of gold, while the annual production at that time was only $7,500,000. "When, however, the process of obtaining gold [for England] from abroad had had time to exert its full effect on prices, and gold was actually substituted for paper, the fall took place, as depicted in the table of prices, giving for 1821-1824 an average of 90 in the place of 116—a difference of level of nearly 23 per cent."

I.III.4

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

I.III.5

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

I.III.12

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

I.III.13

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

I.III.18

From the data before us it ought to be possible now to see what effects have been produced by these great movements of gold and silver. The principal event in the history of the precious metals, and which has received the attention of writers on economic history (the very event, in fact, which led to a discovery of the economic laws underlying money and gave birth to political economy), was the enormous production of gold and silver, beginning about 1545, from the mines of Mexico, of Peru, and especially of Potosi. The fact that a disproportionate mass of this production was silver—about forty-five times as much silver as gold—has been generally recognized. The effect on the relative value of gold to silver was extraordinary. By 1660 the enormous supply of silver had reduced the value of silver relatively to gold about 36 per cent. It is not to be understood, however, that this fall of silver indicated an absolute steadiness in the value of gold. The increased production of gold, as already mentioned, has also lowered its value since the discovery of America to a very serious extent. Chevalier estimates the fall *61 of gold as much as 4 to 1. This fall in the value of silver is capable of explanation, The value of a commodity (cost of production apart) at a given time depends upon the relation between the demand and the total available supply then in existence. If the demand remain the same, and the supply be increased, the value will fall. Moreover, the extent of the fall will depend largely on the proportion between the amount of the increased supply and the amount already in existence. At the time of the discovery of America the world's stock of silver was comparatively small, and the influx of vast quantities from the American mines was capable of making a great change in the value of this existing stock. The ratio of gold to silver was changed from 1:11 to 1:15 by 1660—a change so sudden and so considerable (since gold itself had fallen) that it could only have been caused by the action of large annual supplies on a small existing stock, unsupported by a proportional demand.

Note:
Even Tooke, who is quoted by C. P. White, had little knowledge of what was going on, although he suspects the truth. He "is inclined to doubt the correctness of the opinion that the British demand increased the relative value of gold; and he remarks: 'These circumstances, collectively' (diminution in the export of silver to Asia and the emancipation of Spanish America), 'are likely to have increased the supply of silver, and give reason to expect that the fall in the price of silver arose from a relative increase of its quantity and consequent diminution, of its value rather than from a diminished quantity and increased value of gold.' He admits, however, that 'all information hitherto accessible relating to the proportion of the supply and demand of the precious metals is vague, and insufficient to build any practical conclusions upon; and the only object of the arguments brought forward is to afford grounds for calling in question the opposite presumption, which, in my opinion, has been much too generally and hastily admitted.' "—"Report No. 278," 1833-1834, p. 42.
Note:
Mr. Seyd says, in examining Dr. Soetbeer's tables: "Indeed, the objection urged against the concurrent use of gold and silver is based on a mathematical theory, which asserts that as one metal is produced at one time in greater quantity than the other, so it must fall in relative value to that other. The actual facts utterly contradict this axiom.... It will be admitted that this table does not in any way bear out the theory that the greater supply of the one metal over another causes its decline in relative value.... In 1810 the production of silver [relatively to gold] was eleven times as high as in 1851 and 1860, and yet no change [in the relative values] took place.... Can anything be more conclusive as to the utter fallacy of the supposed 'mathematical' principle?

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

Part I, Chapter IV, Change of the Legal Ratio by the Act of 1834
I.IV.22

It is quite clear, however, that had the ratio of 1:15.6 been adopted in 1834, instead of a counterfeit bimetallism at a ratio of 1:16, the same results would have ensued in the former case as in the latter. The gold discoveries so altered the relative value of gold to silver—exactly reversing the situation in 1780-1820—that the system would again have been left on one leg, and that a gold one. A glance at Chart VII will show that after 1850 the ratio of gold to silver moved in the opposite direction, and, instead of approaching 1:15.6, it fell to between 1:15½ and 1:15. In short, a purely bimetallic scheme in 1834 could not have succeeded in retaining both metals in concurrent circulation, owing to the impossibility of forecasting the future supplies of the precious metals, to say nothing of anticipating the changes in the future demand for them. In attempting to settle upon a legal ratio which will correspond with the market ratio for any length of time, a problem of the nature of perpetual motion is encountered. Calculation must be made not merely as to the future value of silver, but also as to the future value of gold. Neither of these things is possible. The value of each metal depends on its own demand and supply; so that for the two metals there are four independent factors to be considered. It is absurd to suppose that, if there should be a change in one of these factors, there should ipso facto be changes in the three other factors of such a character as to neutralize the change in one. The situation is like a table resting on four legs. Two of these legs at one end may represent the demand and supply of silver, and the two at the other end the demand and supply of gold. The first two fix the height of the table at one end relatively to the height at the other end; moreover, a change in one leg will cause a destruction of the general level of the table, not to be counterbalanced except by an accommodating change in each of the other three. But it is impossible that these changes should be either in a direction or extent that should exactly offset the effect of an interfering change in but one factor. It is well worth notice, too, that changes of this description were going on in the values of both gold and silver in the years when there was no complaint that discrimination *44 was exercised against one metal or another.

Part II, Chapter VIII, The Production of Gold since 1850
II.VIII.9

If, then, it be true that men in trade have a greater desire for gold than for silver as money, this is the cause of a demand for gold; since demand is a desire for a commodity coupled with purchasing power. This desire for gold is the desire for it as a medium of exchange. *4 That is, if men of business are left to seek the metal they naturally prefer, gold will be chosen. Now, however, the law of a land, which fixes a legal-tender value of a given amount upon one or the other metal, can, through the operation of Gresham's law, bring into circulation the cheapest metal, whether the community has a preference for it or not. But whenever the state follows the wishes of its people, if it is a commercial state, it will be found that there is a very strong tendency among its population to the adoption of gold in preference to silver. In other words, although law can override popular wishes in this respect and decide that the cheapest metal shall be used, the natural forces governing demand still exist, and will, sooner or later, make themselves felt. It is quite unlikely, therefore, that there will be any falling off in the demand for gold for money uses. The only question, as all must admit, is rather, whether the supply will be sufficient or not. Law can create a demand for the metal, which would not naturally be chosen, only by overvaluing it in its legal ratio, and thus making it profitable to drive the preferred metal from use. The gain of the money-changer can be absolutely depended upon to bring this about. But if both metals were put upon an equal basis at the Mint—if such a thing is possible for any time—it will be found that gold is preferred in large payments and silver for small payments. The natural convenience of a trading population demands this. A comparison of the countries which use silver—China, India, and semi-civilized countries with the important commercial states—England, Germany, and the United States—which use gold, affords a striking illustration of this proposition.

II.VIII.13

§ 6. Now what was the effect upon the relative values of the two metals of suddenly doubling the quantity of gold, without anything like a proportional increase of silver? First of all, gold fell in value, both in regard to silver and to all commodities. The ratio between gold and silver, which had risen from 1:15 to 1:16, now showed the effect of the cheapening in gold by dropping to 1:15.3 for a time. This was the first effect. But a second effect soon became visible. The cheapened gold began to drive out silver from the currencies of the United States and Europe, because, at former ratios fixed before the gold discoveries, gold was overvalued at the mints, and so by Gresham's law came into circulation as the sole medium of exchange. But the matter worthy of most attention is that this exchange of gold for silver was seen and watched, not only without opposition, but even with satisfaction. Had there been a similar flow of silver into the place of gold, there would have been no such complacency. Here, again, is the preference for gold which we find so constantly present. The effect of this movement was, of course, to prevent gold from falling in value as much as it would otherwise have done; and to withdraw the previously existing demand from silver for use as a medium of exchange in Western commercial nations. The very cheapness and abundance of gold increased the demand for it for use as a medium of exchange, and ipso facto diminished the demand for silver. The world could choose between the two. There was silver enough; but, as soon as gold became plentiful, there was no doubt for a moment which metal was preferred. It was in the same spirit in which the modern world made choice between the railway and the stage-coach as a means of transportation. Wherever choice was possible, the best and most convenient means of locomotion was taken. The same idea has been expressed by Mr. Cairnes *6 in the following words:

"If anything unfits one commodity for measuring the value of another, it is the circumstance that they may both be applied to common purposes. No one would think of measuring the fluctuations in wheat by comparing it with oats, because, both grains being employed for the same or similar purposes, any change in the value of one is sure to extend to the other. When, e.g., the wheat crop is in excess while the oat crop is an average one, it always happens that a portion of the consumption, which in ordinary years falls upon oats, is thrown upon wheat, the effect of which is at once to check the fall in the price of the more abundant grain, while, by diminishing the need for the other, it causes it to participate in the decline. The influence of the increased abundance of one commodity is thus distributed over both, the fall in price being less intense in degree in proportion as it is wider in extent. Now this is precisely what is happening in the relations of gold and silver. The crop of gold has been unusually large; the increase in the supply has caused a fall in its value; the fall in its value has led to its being substituted for silver; a mass of silver has thus been disengaged from purposes which it was formerly employed to serve, and the result has been that both metals have fallen in value together, the depth of the fall being diminished as the surface over which it has taken place has been enlarged. The scene on which this interchange of gold and silver has hitherto been exhibited on the largest scale is the currency of France, in which, owing to the existence of a double standard,... one or the other metal is employed according as its worth in the markets of the world happens to vary in relation to its valuation at the French Mint."
Part II, Chapter IX, India and the East
II.IX.9

These conditions were materially affected by the "cotton famine" in England, which began after the cessation of cotton shipments to Europe from the United States during our Civil War. India was pushed to supply the demand for cotton in these years, and this created an abnormal excess of payments to India in the international exchanges, which of course led to larger shipments of silver than ever. This effect lasted from 1861 to 1866. Large exports of gold were made from London to the Continent in order to purchase the silver which English merchants needed for Indian remittances; and silver was also shipped directly from France to the East in large sums.

II.IX.20

The total production of gold from 1850 to 1876 was about $3,000,000,000; of silver, about $1,200,000,000. Thus far we have seen that France added about $350,000,000 of silver to the supply, and that India took somewhat more than $,1,000,000,000. Of the new gold, France in the same time coined about $1,160,000,000, and India imported $440,000,000, leaving about $1,400,000,000 of gold to be accounted for. Not all the excess of the production of gold over the former average production was absorbed by the action of France and India. Making large allowances for consumption in the arts, and for increase in their currencies by gold-using countries, a very large part of this $1,400,000,000 of gold remains as a potent, and, to my mind, the chief factor in bringing about a disturbance in the relative values of gold and silver. The absorption of gold by France from 1853 to 1865 limited the demand for silver in its function as a medium of exchange. If the still remaining quantity of gold tempts some other country to take advantage of the abundant gold supply to improve its currency by taking the better medium instead of the poorer—that is, the gold instead of the silver (we are speaking of the preference for gold whenever choice between gold and silver is possible)—then we shall see the field for the employment of silver still further contracted, and the demand for silver withdrawn, because the needs of the community are better served by the other metal which the prodigality of nature has poured upon the world since 1850. In the next chapter we shall see how, in consonance with this supposition, the new gold usurped the place of silver in another country, and left the latter to find a sale in a market already somewhat sated by a full supply.

Note:
Writing in 1860, Mr. Cairnes said: "We are aware it has been maintained that the value of silver, so far from having fallen, has really risen during the last few years, in proof of which we are referred to the increased demand for it for Oriental remittance. That silver has risen in its gold-price owing to this circumstance we admit, but we deny that this is a proof of a rise in its value, any more than a rise in the gold-price of any other commodity would prove a rise in its value at a time when the supply of gold was rapidly increasing. During the last two years (1858 and 1859) the demand for silver in the East has been affected a good deal by requirements connected with the Indian Mutiny; but, if we investigate the causes of the extraordinary demand which has characterized the last four or five years, we shall find that they are in a principal degree traceable to the increased production of gold, operating through the expenditure of enlarged money incomes in England and the United States on Oriental productions; and that thus the increased demand for silver, which is alleged as a proof that silver has risen in value, is in reality a consequence of the large amount of gold available, for its purchase."—"Essays," pp. 142, 143. Mr. Cairnes was thus of the opinion that the imports of silver after 1850 were abnormal, and, by inference, would decline gradually with the absorption of the new gold.
Part II, Chapter XII, Cause of the Late Fall in the Value of Silver
II.XII.6

§ 2. In the reasons heretofore assigned for the fall in the value of silver, nearness to the events, in my opinion, has acted to magnify immediate causes and obscure distant ones, or those acting under a general progress of events. Such an objection, it seems to me, is to be urged against the conclusions reached by the Committee of the House of Commons which reported on the "Depreciation of Silver" in 1876. Inasmuch as these conclusions have been quite generally received, it may be just to include them here before passing on to any criticism

"Your Committee are of opinion that the evidence taken conclusively shews that the fall in the price of silver is due to the following causes:
"(1) To the discovery of new silver mines of great richness in the State of Nevada.
"(2) To the introduction of a gold currency into Germany in place of the previous silver currency. This operation commenced at the end of 1871.
"(3) To the decreased demand for silver for export to India.
"It should be added:
"(4) That the Scandinavian governments have also substituted gold for silver in their currency.
"(5) That the Latin Union, comprising France, Belgium, Switzerland, Italy, and Greece, have since 1874 limited the amount of silver to be coined yearly in the Mints of each member of the Union, suspending the privilege formerly accorded to all holders of silver bullion of claiming to have that bullion turned into coin without restriction.
"(6) That Holland has also passed a temporary act prohibiting, except on account of the Government, the coining of silver, and authorizing the coining of gold.
"It will be observed that two sets of causes have been simultaneously in operation. The increased production of the newly discovered mines, and the surplus silver thrown on the market by Germany, have affected the supply. At the same time the decreased amounts required for India, and the decreased purchases of silver by the members of the Latin Union, have affected the demand. A serious fall in the price of silver was therefore inevitable." *78
II.XII.8

Indeed, the Committee only touched upon the true explanation when, leaving the question of supply and taking up the question of demand, they assert: "The fact is that, as was correctly pointed out by Mr. Giffen in his evidence, the changes have been in the uses of the metals. Gold has come more generally into use than before, and, indeed, the condition of trade and the situation of various countries using gold and silver respectively have entirely changed." *81

II.XII.19

Of course, the natural result of this neglect of silver as a medium of exchange is to turn all eyes toward gold, and to consider whether there is enough gold for all countries should they all adopt the single gold standard. I shall not attempt to answer that question here. My object now is only to discover what has been the cause of the late fall in the value of silver; but a résumé of the series of events which I have described in Part II as acting on the value of silver may profitably be arranged in the following form [000,000 omitted]:

Date.EVENTS.GOLD.SILVER.
Demand.Supply.Demand.Supply.

1816England established single gold standard[$125]
1850-64France exchanges silver for gold1,163$345
1867International Monetary Conference favored single gold standard
1871-73Germany exchanged silver for gold414141
[270]
1852-75India absorbed both gold and silver440$1000
1874Latin Union suspended coinage of silver
Denmark and Scandinavia9
1871-76Production of silver in United States in excess of previous average production, 1871-76100
Total
$2,017


$1,000

$595

Addition of gold, 1850-1876$3,000
Addition of silver, 1850-1876$1,200

Note:
The amount of $125,000,000 claimed by Mr. Horton as constituting a new demand I do not admit as such; but I insert it in brackets in the table as a matter which has been considered as a new demand. Likewise, in the case of Germany, I insert the whole possible supply of silver in brackets. I need scarcely add that this table does not attempt to do more than approximate to the actual state of things about 1876; but yet I believe it gives the general situation with sufficient exactness to serve our purpose.

Part II, Chapter XIII

Part II, Chapter XIII, Continued Fall in the Value of Silver since 1885
II.XIII.21

This was not a large sum of gold, but fear was expressed that a new demand of this sort would excite anxiety, even if it did not produce a disturbance in the money market. In the years 1880 and 1881 the United States was importing gold to the amount of about $100,000,000, while the annual production was somewhat smaller than usual. Prices, however, showed no "appreciation of gold" in this country, at least during this operation; *105 prices being, in fact, higher in 1880-1883 than before, and so gold was cheaper. The gold for Italy, however, was secured so skillfully and quietly that it had hardly any appreciable effect. "Sometimes the influence of the operation appears in the fact that gold on the way from Australia to an English port is intercepted on its passage. Sometimes a report comes that a supply has been drawn from an out-of-the-way foreign bank, where the existence even of any stock on a comparatively large scale had scarcely been imagined." *106 Various countries furnished amounts of gold, *107 Italy herself providing the largest quota. By the end of 1881 150.5 million lire of gold and 16 million lire of silver had been paid in. Installments were regularly paid in throughout 1882; on January 31, 1883, the syndicate closed its account with the Italian Government; and on March 1st it was dissolved after declaring a profit of a little over 1 per cent. *108 As the success of the scheme appeared certain, the premium on gold fell; and a royal decree of March 1, 1883, appointed April 12th as the day for the resumption of specie payments. On and after that date no pressure for specie was felt, and in operation the plan achieved a triumphant success. In 1886 "the total stock of metal actually in hand after three years of specie redemption" was "291.13 million lire." *109

II.XIII.23

§ 5. The chain of events looking to the abandonment of silver and the adoption of gold did not by any means end with the action of Italy. The place which Austria occupies in this chain is admirably expressed by an Austrian economist: *111 "Until very recently few Austrians would have dared to believe that their country, which they had heard characterized as burdened with debt, creditless, deficient in capital, feeble, should be in condition to supply itself, in a time of general demand for gold, with the great quantity of the precious metal necessary for securing the gold standard. Ten years, or even five years earlier, there had seemed scarcely a prospect that we should be able to supply our necessities. But the condition of the market had changed. The 'gold blanket' which, according to Bismarck, was found to be short, has since, throughout Europe, grown broad in all directions. The great banks were able steadily to increase their stock of gold. Discounts fell, showing that the money markets were well supplied; at the same time the news from the gold-producing countries was growing more favorable, the annual output was increasing, and approached the largest production which had ever been known in the years of greatest abundance. Those European countries which had decided to adopt a gold standard, or (as, e.g., the Latin Union) to reorganize their double standard with gold as a basis for calculation had for the most part concluded their operations, or at any rate brought them nearer a provisional conclusion. This gave an opportunity for additional states to supply themselves out of this abundant output, and among the European countries yet remaining it was undoubtedly Austria's turn next. The writer of economic history will at some future time be able to take a clear survey of the process by which, from 1850 on, the channels of circulation were filled with gold—gradually, now here, now there; first partly, then completely; first temporarily, then permanently; the states following each other in a more or less definite order, which was conditioned by the degree of industrial development and of wealth, by inherited currency laws and customs of reckoning, and by accidental circumstances; and although broken in some cases by precipitate action, this order was governed, on the whole, by a sort of tacit understanding. Austria, which had long voluntarily held back, might therefore well feel that it was her turn to act."

II.XIII.36

§ 6. The movement of silver to India in recent years furnishes no grounds for changing the conclusion reached in Chapter IX, that the Indian demand for silver has had but little influence in regulating the market value of silver. The revision of Chart XII makes it clearer than ever that the line indicating the ratio of silver to gold not only has no correspondence with the line indicating the imports of silver into India, but that the two have gone in opposite directions. While India has been importing increasing quantities of silver since 1880-'81, the value of silver steadily fell for years, then rose during the silver speculation of 1890, and finally took a plunge downward out of sight. The exports of silver to India are one of the forms of demand for silver; but in view of the large supply and of the lessening demand in other directions, the needs of India for a relatively small amount (perhaps $50,000,000 or $60,000,000) does not suffice to maintain its value in the market.

Part III, Chapter XV, Operation of the Act of 1878
III.XV.19

§ 4. As early as 1884 the Treasury was involved in difficulty due to its purchases of silver. This mechanical and forced coinage of fixed sums of silver each month, irrespective of the desires of the business community or of the needs of exchange, was flying in the face of the principle of demand and supply. The legislators in 1878 had omitted to repeal the law of demand and supply. Just as silver rose in the Treasury, alarm was felt by the world of trade. If silver were paid by the Sub-Treasury in New York, as we have before explained, it would be a virtual confession that the Government's stock of gold had become exhausted, and the silver standard had arrived. It boots little that the danger was postponed; the fear was always there.

Part III, Chapter XVII, Cessation of Silver Purchases, 1893
III.XVII.3

A perfect standard of value, as every economist knows, is unattainable. Neither gold nor silver is a perfect standard, because price is a relation; and this relation may be altered either by causes affecting the money side, or by causes affecting the goods side of the comparison. Gold and silver have in fact been used as standards in default of better ones; silver having been mainly so regarded up to 1850, and gold having been largely so employed since 1850. Prices, with which every man of affairs has to deal, are affected by all the various influences touching not only the goods side, but the money side of the ratio. Prices, consequently, are modified (1) by an increase or diminution in the supply of money, (2) by an increase or diminution in the demand for the money material, or (3) by an increase or diminution in the cost of producing the goods exchanged against money. It is evident, then, that there are many natural and unavoidable causes at work on both gold and silver to modify their relation to goods, and thus to affect prices. Changes in prices are sure to arise from the numerous causes here set forth, over which legislation can have no control. The business community has enough to do to watch for and guard against changes arising from natural causes affecting the demand and supply of money and the vicissitudes of cost of production. It has not only a right to be saved from legislative artificial changes in the standard; but it will be incensed beyond endurance if such legislation is the result of political intrigue and campaign bargains. It is ready to demand in a very ugly humor that it shall no longer be worried by unnatural legislative changes in the common denominator itself.

III.XVII.4

But, more than this, gold is not the same kind of article as silver for monetary purposes, and the forces affecting the value of gold work differently from those which affect the value of silver. Gold is heavier than silver: gold is thirty times as valuable as silver, weight for weight: gold is needed for large denominations of coin; silver for small denominations. Therefore, for monetary uses, gold and silver are not homogeneous; a demand for money in general can not be satisfied indifferently by either gold or silver, since monetary needs differ among different people. Gold and silver are not interchangeable as money, any more than corn and wheat are interchangeable as food: both corn and wheat may serve as food, but corn-meal and flour will never be the same, will never equally please all palates, and will never be in demand equally the one for the other. The difference between gold and silver is still more pronounced. From the simple fact that gold is a metal different from silver, the conditions affecting the demand and supply of gold are different from those affecting the demand and supply of silver. The main supplies of gold come from regions other than those which furnish silver: the largest deposits of gold have been found in California, Australia, South Africa, and parts of the Rocky Mountains; while the largest finds of silver have been in Mexico, South America, and Nevada. From this brief summary of facts it must be evident why a standard of silver must inevitably be wholly different from one of gold. From the point of view of the function of money as a standard, every one must admit that the two are not homogeneous.