The History of Bimetallism in the United States

Laughlin, J. Laurence
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First Pub. Date
New York: D. Appleton and Co.
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4th edition.

Part I, Chapter III

Cause of the Change in the Relative Values of Gold and Silver, 1780-1820


§ 1. The problem before us in this chapter is economic as well as historical. Having seen in the preceding chapter the effects of a change in the relative values of gold and silver upon our monetary system, it will now be necessary to find an explanation of the causes which produced this change.


The position has been taken by some writers that the divergence of the market from the Mint ratio, in the period we are speaking of, was, in fact, a rise in the value of gold relatively to silver, not a fall in the value of silver relatively to gold. The cause of this increased value of gold, they assert, was due to the demand of England for gold with which to resume specie payments in accordance with the act of 1819. In the well-known and elaborate reports*46 of Mr. Campbell P. White to Congress in 1832 we find the theory well developed:

There were certainly no indications that gold was rated too low in our standard of 1 to 15 earlier than 1821, when the English demand commenced. The fact of concomitance in events is not relied upon as a proof of effective agency; but a great demand for gold and an increased relative value for gold being coeval circumstances, and in accordance with the universally admitted principle that a new or sudden increase of demand will enhance prices, it appears to be a natural and rational inference that the British demand for gold was the cause of increasing the value in respect to silver."


Year. Gold

1815 109
1816 91
1817 117
1818 132
1819 112
1820 103
1821 94
1822 88
1823 89
1824 88

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."


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 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.


Granting, however, all the influence which Mr. Horton ascribes to the English demand, it will be observed that he locates*51 the effect on prices of the increased value of gold in the years 1821-1824. But, from the evidence we have already collected, there is not a shadow of a doubt but that the change in the value of silver relatively to gold was felt in the United States before the war of 1812, and that, as Raguet says, gold had disappeared from circulation by 1818. Therefore, even without questioning all that Mr. Horton claims in regard to the effect on prices of the English demand for gold, it applies to a period (1820-1830) which lies outside of the time (1810-1820) when the disturbing causes we are now discussing were operating to drive gold out of circulation in the United States. Inasmuch as the change in the ratio between gold and silver was apparent in the period from 1810-1820, the cause of the change must therefore have been one which could have had nothing to do with the English demand for gold which took effect later, in 1820-1830. In short, some other cause*52 than is assigned by Mr. Horton was at work to produce a divergence in the values of gold and silver, which certainly had a marked effect before 1816, the year when silver was made a subsidiary metal in the English coinage, and long before England began to collect any gold whatever for her resumption of specie payments in 1819-1822.*53 A glance at Chart I will show, even if we take the untrustworthy figures of White, that the change in the relative values of gold and silver had occurred so long before the English demand could have produced an effect that Mr. Horton's position seems to me entirely untenable.


Mr. Horton, however, goes still further, and asserts*54 that there was a rise in the value of gold, "because," he says, "as far as I can ascertain, the change of ratio was really a rise of gold, not a fall of silver. I am aware of no evidence that the general value of money as shown by averages of prices was less in 1820-1830 than it was in 1770-1780. Whatever scanty researches on this subject have come to my knowledge indicate a lower range of prices in the former than in the latter period." So far as the periods concern us, the comparison should be made between 1780-1790 and 1810-1820, since the ratio between gold and silver had distinctly changed in the latter period; and the former period gives a just means of comparison because it includes the fairly quiet years before the great continental wars with France. It will be our part, then, to discover, so far as possible, what change prices underwent in this period; but before doing so it will be best to explain briefly the economic principles on which relations of prices and money depend.


§ 2. Value, we know, is a ratio. The value of an ox, estimated in sheep, is the number of sheep for which the ox will exchange. If one ox exchanges for twenty sheep, an ox is twenty times as valuable as one sheep, or a sheep is one-twentieth as valuable as an ox. So with gold or silver. When the number of grains of silver in a dollar is exchanged for goods, value of the silver is expressed in the quantity of other things for which it will exchange, as, for example, two bushels of oats. On the other hand, the value of the oats is the quantity of silver they will purchase. Value, it is thus seen, is a relation. There must always be some other thing with which to compare the given commodity. For instance, in comparing silver with gold, the value of silver relatively to gold is the number of grains of gold for which a fixed amount of silver will freely exchange. If at any time more silver than before is needed to buy the same quantity of gold, this means that either silver has fallen in value relatively to gold, or that gold has risen in value relatively to silver. Now, however, if gold had remained nearly stable in its power of purchasing other commodities in general—that is, bought about the same amounts as before of various things other than silver; and if more grains of silver were needed than before to buy a given number of grains of gold—then, of course, it would be said that silver had fallen not merely with regard to gold, but to commodities in general. But, on the other hand, if silver fell in its value relatively to gold, and all other commodities likewise fell in relation to gold, then, of course, it will be said that gold has risen in value not merely with regard to silver, but to commodities in general. The amount of money, such as gold and silver given for an article, is its price. If gold rises in value, less of it is needed to buy other goods, therefore prices fall. In other words, if gold prices fall, the value of gold, provided we leave credit out of question, has increased relatively to commodities in general. With this brief exposition we may now go on to the study of our facts.


§ 3. It is incumbent on us, first, to discover whether, in the period from 1780 to 1820, gold gained or lost in its general purchasing power over ordinary goods. That is, whether gold prices rose or fell in 1810-1820, as compared with 1780-1730. But we must keep in view that prices are the result of two factors—(1) the amount of money taken in connection with its rapidity of circulation, and (2) the extent of credit and speculation. Every one knows that credit is purchasing power, and that prices rise and fall wholly through the use of credit in seasons of an expansion or depression of confidence. The fall of prices which takes place after a commercial crisis is due more to a collapse of credit than to any contraction in the actual quantity of the money-factor. If, in studying this question, we suppose that the play of credit should be considered as about equal in the two periods for comparison, 1780-1790 and 1810-1820, then we may fairly draw an inference as to the purchasing power of gold from tables of prices. On no other basis can the conclusion as to the value of gold be worth anything. In fact, for this reason, ordinary inferences from tables of prices are misleading in the extreme. For the present comparison the prices for this period have been arranged by Prof. Jevons*55 and reduced to a scale of 100, which represents the prices of forty commodities in 1782. The results are presented herewith in Chart III, to which has been added the line representing the index-numbers computed by the "London Economist." The latter are based on the figure 2,200, which is the sum of the scales of 22 articles, each by itself having 100 as a basis. The average prices of 1845-1850 are taken as the standard (2,200), and the movement of the line shows the subsequent departure of prices from that basis. This completes a chart of the movement of prices to the present day; although it is to be regretted that the prices are not calculated in the same way, both by Mr. Jevons and the "Economist," thus presenting a continuous table without the break since 1850.

Chart III. Click to enlarge in new window.

Period. Average

1782-1792 90.5
1810-1820 118.9
1820-1830 92.5

In the figures given by Prof. Jevons we have the following results condensed in the accompanying table. So far as these figures prove anything, when we compare the period in which our ratio of 1:15 was established by Hamilton with the period from 1810-1820, during which gold disappeared from the United States, it surely can not be said that gold prices fell (thus indicating an increased value of gold). Although our concern is not with the years from 1820-1830, yet even in this period we do not find that prices were lower when compared with those of 1782-1792. And in Mr. Horton's discussion it will be observed that he only wishes to show a fall of prices in 1821-1825. I can therefore believe that the English demand had only a temporary influence on the value of gold, and that the purchasing power of gold depended upon the demand of the commercial countries taken as a whole, and not upon that of England alone. I must also believe that a change in the relative values of gold and silver was sufficiently made out as early as 1810, and that it had its effect in driving gold out of circulation in the United States before 1820. Moreover, as we have not been able to find that the general purchasing power of gold (as expressed in the figures referred to by Mr. Horton) in 1810-1820 was less than in 1782-1792, we can not believe that gold had risen in value (in the former period). Therefore it seems to be inevitable that there was a fall in the value of silver, not merely with reference to gold, but with reference to commodities in general. On the contrary, we have seen, by the tables given herewith and by Chart III, that gold prices in the period just preceding 1820 were, if anything, higher than in 1782-1792. That is, so far as these prices go for anything, it was rather to be said that gold had fallen slightly, rather than risen, in its purchasing power, or, in other words, had fallen in its value relatively to other goods.


It does not appear from Mr. Jevons's figures, then, that the value of gold had risen by 1820 as compared with 1782-1792. Some confirmatory testimony is offered by Dr. Edmund Schebek in the tables*56 of prices of a few articles in Continental markets:

PERIOD. Average price. Compar- ison with the fore- going period. Average price. Com- par- ison. Average price. Com- par- ison. Average price. Com- par- ison.

Fl. Kr. Per c. Fl. Kr. Per c. Fl. Kr. Per c. Fl. Kr. Per c.
1751-1760 1 84.74 -4.70 1 40.85 -8.87 1 19.61 -5.18 1 48.40 -6.16
1761-1770 1 89.10 +2.35 1 36.36 -3.19 1 08.63 - 9.18 1 45.07 -2.24
1771-1780 2 09.70 +10.89 1 57.38 +15.42 1 21.91 +12.22 1 62.99 +12.35
1781-1790 2 31.12 +10.17 1 79.12 +13.81 1 33.20 +9.26 1 81.14 +11.13
1791-1800 2 54.95 +10.31 1 83.90 +2.67 1 48.06 +11.16 1 95.63 +7.99
1801-1810 4 71.61 +84.98 3 53.07 +91.98 3 02.81 +104.53 3 75.82 92.11
1811-1820 4 38.17 -7.09 3 10.60 -12.03 2 53.76 -16.18 3 34.16 -11.08
1821-1830 2 87.97 -34.28 2 10.83 -32.11 1 62.14 -36.10 2 20.31 -34.07


It is to be kept in mind, however, that these were articles which would be in particular demand during the Napoleonic wars on the Continent. But the comparison of the average prices for 1781-1790 with those for either the period 1811-1820 or even 1821-1830 shows a marked rise of prices in the later periods. Still this does not furnish very strong proof that the value of gold had not risen relatively to grain, because Dr. Schebek has reduced all the quotations to silver prices. Therefore, there is a probable induction*57 to be made from the table, so far as it goes, to the effect that since silver prices had risen, the value of silver had fallen in its purchasing power in grain; for if more silver is needed to purchase grain than before, the value of silver has fallen relatively to grain.


§ 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.


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.


Inasmuch as the question here involved is one of a relation between the values of gold and silver, and of relative changes in the production and supply of the two metals, I have computed from Dr. Soetbeer's tables*59 of the production of the precious metals the following figures, intended to show the annual production of silver relatively to gold (by weight) since the discovery of America:

PERIOD. Average yearly production of silver
in kilogrammes.
Average yearly production of gold
in kilogrammes.
Number of times
the average yearly production of
silver was greater
than that of gold.

1493-1520 47,000 5,800 8.1
1521-1544 90,200 7,160 12.6
1545-1560 311,600 8,510 36.6
1561-1580 299, 500 6,840 43.7
1581-1600 418,900 7,380 56.8
1601-1620 422,900 8,520 49.6
1621-1640 393,600 8,300 47.4
1641-1660 366,300 8,770 41.7
1661-1680 337,000 9,260 36.4
1681-1700 341,900 10,765 31.7
1701-1720 355,600 12,820 27.7
1721-1740 431,200 19,080 22.6
1741-1760 533,145 24,610 21.6
1761-1780 652,740 20,705 31.5
1781-1800 879,060 17,790 49.4
1801-1810 894,150 17,778 50.2
1811-1820 540,770 11,445 47.2
1821-1830 460,560 14,216 32.4
1831-1840 596,450 20,289 29.4
1841-1850 780,415 54,759 14.2
1851-1855 886,115 197,515 4.4
1856-1860 904,990 206,058 4.4
1861-1865 1,101,150 185,123 5.9
1866-1870 1,339,085 191,900 6.9
1871-1875 1,969,425 170,675 11.5
1876-1880 2,500,575 172,325 14.5


To accompany this table I have constructed Chart IV, which contains two lines—one representing the value of silver*60 relatively to gold, the other the quantity of silver relatively to gold which has been produced annually in the same periods.

Chart IV. Click to enlarge in new window.


The upper line, in the beginning of the chart, shows that, on the discovery of America, about eleven ounces of silver bought one ounce of gold; while silver has changed its relation to gold so much in the intervening time to the present time, that more than eighteen (now even requiring twenty) ounces are now required to buy one ounce of gold. The one exception to this steady downward tendency was in the period from 1710-1780, in which silver showed a tendency to recover its position relatively to gold; that is, in this period there was an upward movement of the line, which represented an increasing value of silver relatively to gold. This, however, does not of course imply that gold remained stationary in value. For the increased amount of gold produced to within a few years also has lowered its value 300 or 400 per cent relatively to other articles since the discovery of America. Any casual reader of history knows that a given amount of gold in the middle ages had then a much greater purchasing power than it has now.


The other line shows two considerable variations since the discovery of America—one in the period 1545-1680, and another in the period 1781-1820. Inasmuch as this line indicates the relative quantities of the two metals produced in each year, the line will rise whenever more silver than gold is produced, or whenever the gold product falls off (even if the silver product remains the same); and the line will decline whenever the silver product falls off relatively to the gold, or whenever the gold product increases (even if no change takes place in the production of silver). The line, therefore, indicates relations, not quantities. For example, the chart shows that 56.8 times as much silver as gold was yielded by the mines annually in 1581-1600, and 50.2 times as much silver in 1801-1810. But still the annual production of both metals was very much larger in this last period than in the former, although the number expressing the relation is less in the second case than in the first; for in 1581-1600 the annual production of silver was 418,900 kilogrammes, and of gold 7,380 kilogrammes; but in 1801-1810 there was produced annually 894,150 kilogrammes of silver and 17,778 kilogrammes of gold. And yet the line did not rise so high in the last period as in the former.


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.


It is to be remarked, also, from an examination of Chart IV, that the fall in the value can become generally apparent only after the annual supply, joining with the supply previously existing, has had the effect to increase the total supply, with which alone comparisons of commodities are to be made; so that only as the level of the total supply in existence rises (not the actual amount of the annual supply itself) can the change in value show itself. In other words, the change in relative values (of durable articles, like gold and silver, of which there is always an existing stock) must always follow, not be contemporary with, the change in the relative annual supply. An illustration of these principles can be seen in examining Chart IV. The fall in the value of silver was comparatively slight until 1620, although a large excess of silver over gold had been produced since 1545; and the effect of the silver production does not show its full effect until 1660, and even leaves its mark as late as 1701-1740. The effect of a production of silver, very large in comparison with that of gold, on the relative values of the two metals at this time, therefore, can not be denied, it seems to me, for a moment. The influence was the more considerable because of the disproportion between the large new production of silver and the comparatively small supply of silver then existing.


We are now in a position, at last, to discuss the causes operating to affect the relative values of gold and silver in the later period of 1780-1820, during which it happened that Hamilton was founding a bimetallic system in the United States, and was seeking for a satisfactory ratio. As has been said, a reference to Chart IV will show that the line indicating the relative product of the two metals has made only two great movements upward in the last four centuries. The first one we have just discussed, and history has generally admitted all the results as to the value of silver that have been here attributed to it; but, naturally enough (perhaps because fit materials for study, have been wanting until of late), no sufficient account has been taken of the second great movement in the history of the precious metals from 1780 to 1820. Jacob*62 was too close to the events when he wrote to grasp the whole situation. But of this period, as extraordinary in its way as the period of 1560-1660, Horton remarks*63 "History has nothing to say." In short, the changes in the relative production of silver and gold from 1781-1820 are on so enormous a scale as to be comparable only with the changes which occurred immediately after the discovery of the American silver mines. By changes I mean the immense preponderance of the silver over the gold product. In the earlier period the mass of new silver acted on a comparatively small existing stock, and brought a fall in value of 36 per cent. By 1780, however, the total quantity of both gold and silver in existence was largely increased by the whole annual production during the exceptional period in the sixteenth and seventeenth centuries. Turning to the period from 1780-1820, it is seen that a very great excess of silver over gold was produced. But the situation was a different one from that when a similar occurrence took place in 1560-1660. The existing stock had been enormously increased by 1780, and the annual supply of new silver, therefore, naturally bore a less ratio to the existing stock than did the annual supply to the whole stock in 1560. And even a greater annual production of silver in 1780 would have produced a less effect on the value of silver at that time than the annual supply in 1560 produced on the value of silver in the sixteenth century. Therefore, even if a greater amount of silver was mined in 1780-1820 than in 1560-1660, we must expect to find that it produced a less change in the former, than actually occurred in the latter, period. This is a matter capable of homely illustration. If a pailful of water be poured into a tub, the surface-level of water will rise on the sides of the tub higher than it would have risen had the pailful been poured into a village pond, because there was a greater quantity of water in the pond to be affected by the new water added. So in respect of silver. There was a greater quantity of silver already in existence by 1780 than in 1560 to be affected by the new supply.


The real influence of the period from 1780-1820 on the precious metals can be appreciated only by a comparison with the well-known period of 1560-1660, when the production of silver relatively to gold was at its highest point. Chart V will show the relative quantities of both gold and silver added to the world's stock in those years. The disproportion between the production of gold and silver is visibly large, and it is not surprising that it caused a change in the relative value of silver to gold of 36 per cent.*64

Chart V. Click to enlarge in new window.


With this exposition of the metallic product in 1560-1660 compare the production of silver relatively to gold in 1780-1820, as shown in Chart VI, constructed on the same scale as Chart V; and, although the latter period extends over only sixty years while the former covers one hundred years, it will be seen that the total product in 1780-1820 was much larger for both metals than in 1550-1660, although the relation between the amounts is about the same. In short, this later period is fully as extraordinary for its excessive silver product as the better-known but earlier period. As will be seen by reference to Chart IV, this great increase of silver was chiefly due to the increasing richness of the Mexican*65 mines. Without doubt, although our statesmen had no knowledge*66 of what was going on, it was this great outflow of silver from Mexico which made silver so abundant in our circulation and filled the West Indies, with which we traded, with the cheapened metal. This was noticed in 1819 by Mr. Lowndes,*67 who says:

"The West Indies, which are probably our most considerable bullion markets, estimate gold in proportion to silver very little, if at all, below an average of one to sixteen. And this is done, although some of the most considerable colonies belong to powers whose laws assign to gold a lower relative value in their European dominions. This estimate, which was forced upon many of the colonies by the necessity of giving for gold the price which it commanded in their neighborhood, and particularly in the countries which formed the great sources of their supply, seems to indicate the fair proportion between the metals in the West Indies."

Chart VI. Click to enlarge in new window.


If the preponderance of the silver over the gold production in 1545-1660 caused a change in the relative values of the two metals of 36 per cent, it is not merely conceivable, but most natural, that a like preponderance in 1780-1820 should have had a similar effect. The actual change in the later period, however, was about 8 per cent. This fact, then, which I set out to examine, seems to me to be fully explained by the history of the relative production of the precious metals. Indeed, in considering the very great disproportion between the gold and silver mined in 1780-1820 as shown by Chart VI, the wonder is, not that a change in the value of silver should have resulted, but that the change should have been so small as is indicated by [less-than symbol, possibly spurious—Econlib Ed. Added as note March 2005 while processing this file]8 per cent. But this, however, according to a well-known principle of value, already given, must be due to the fact that by 1780 the existing stock had been so largely increased since 1550 that an extraordinary production in 1780-1820 was not capable of producing so great an effect as before, because of the greater mass to be affected.


This, then, is the explanation of the downward tendency of the value of silver relatively to gold in 1780-1820, as it appears from the results of my investigation.*68 I have found what I must think is a very substantial cause for the fall of silver, beginning its work in 1780 and reaching very marked results on the relations of the two metals before any measures whatever were taken by England to resume specie payments. In a word, chronology kills Mr. Horton's theory.*69


§ 5. The foregoing explanation, moreover, is the only one which will clear up other difficulties, and for this reason gives an additional presumption of its truth. The fact has been pointed to that the annual production of silver was falling off after 1810, and yet that it was exactly in the period of after 1810 that the fall in the relative value of silver to gold began to be very marked.*70 The inference from this is that it is absurd to suppose that the relative values of the two metals in this period could have been affected by the previous excessive production of silver. There ought to be no difficulty here. It must rain in Abyssinia before the Nile can rise in Egypt. Or, to refer to a former illustration, in showing that the annual supply can not regulate the value of gold or silver, the surface level of a pond is not fixed by the pailful poured in, but by the water already in the pond, together with the new supply—or, in brief, by the total existing supply. So with the value of silver. It was true the production*71 fell off after 1810. But the extraordinary new supply added since 1780 was only just beginning to show its full force on the previously existing stock. It may have stopped raining in Abyssinia, while the rising tide was still sweeping down the channels of the Nile many thousand miles below. In truth, there was in this movement of the value of silver another illustration of the fact that the effect on the value of money is not contemporary with, but subsequent to, the changes in production. Indeed, the general principles governing the value of the precious metals find in these facts, connected with our history, striking illustrations.


Having thus offered as my explanation of the cause of the divergence in the relations of gold and silver in 1780-1820 the excessive production of silver in Mexico and South America (which can be compared only with the period of 1560-1660), without having found that tables of prices showed any diminution in the purchasing power of gold by 1820 as compared with 1782-1792, I must conclude that the character of the change was that of a fall in the value of silver, and not of a rise in that of gold.


In the following chapter I shall proceed to discuss the means adopted by Congress to meet the inherent difficulty of balancing a double standard on a movable ratio. It is a feat which has never been successfully performed since the world began; but it is a matter of serious concern to find out the lessons of our own experience in the matter. It will be of interest to see whether we have learned anything from the events which overthrew Hamilton's system.

Notes for this chapter

"H. R. Report No. 278," 1833-1834, contains them all. For this extract see "Report," March 17, 1832.
"It was in the early part of the year 1818—when the subject of the resumption of cash payments by the Bank of England (which had been suspended since 1797) occupied the attention of the British public and prepared the way for the act of Parliament to that effect, which was adopted in 1819—that a change in the relative value of gold and silver in the market of the trading world first became generally apparent in the United States."—"Currency and Banking," p. 222. Bolles, following Raguet, says on one page: "Not until 1818, when the question arose of resuming cash payments by the Bank of England, did the fact clearly appear in this country that a change had occurred in the relative value of gold and silver"; but on the next page he asserts that "of the two metals it was apparent, even before the war of 1812, that gold was more desirable for exportation than silver."—"Financial History of the United States," pp. 502, 503.
"Report of 1878," p. 460, note. Cf. also ibid., pp. 701-709. In these pages Horton gives a short statement of his position in convenient form. In his volume, "Gold and Silver" (1877), pp. 74-98, he developed this theory more fully.
"Gold and Silver," p. 83.
Ibid., pp. 81, 83, 84.
"Silver and Gold," p. 83.
Gallatin also denies the validity of Horton's theory in the following words: "It is erroneously that the exportation of American gold coins, which commenced in the year 1821, has been ascribed to that extraordinary demand [in England for purposes of resumption]. That exportation has been continued uninterruptedly after that cause had ceased to operate, and, as will be seen hereafter, is due to the alteration from that epoch in the rate of the exchanges."—Quoted by C. P. White in "Report No. 278," 1833-1834, p. 42.
"The Resumption Act of 1819 continued the restriction of cash payment to February, 1820, and thereafter ordered the redemption by the bank of its notes, when demanded, in a quantity of not less than sixty ounces of gold (over $1,000) in gold bullion, at a discount for paper of about 3 7/8 per cent till October, 1820; from that date till May, 1821, at about 2 per cent discount; and thereafter, till May, 1823, at par, but still in bullion; while after the latter date all notes were to be paid in gold coin on presentation.

"The bank was, however, permitted to pay in bullion at higher rates in fixed periods, and in gold coin after May 1, 1822. A subsequent law permitted full redemption after May 1, 1822."—Horton, "Gold and Silver," p. 80.

"Report of 1878," p. 701.
First published in the "London Statistical Journal" in June, 1865, vol. xxviii, pp. 294-320, and reprinted in "Investigations in Currency and Finance" (1884), pp. 144-149.
"Collectiv-Ausstellung von Beiträgen zur Geschichte der Preise," Prague (1873), p. 102.
Another table from Dr. Schebek (p. 87) is given herewith, which warrants the same inferences:


PERIODS. Fl. Kr. Fl. Kr. Fl. Kr. Fl. Kr.
1751-1760 1 80 1 12 26 1 64
1761-1770 2 18 1 . . 35 2 4
1771-1780 2 30 1 44 24 1 46
1781-1790 2 29 1 28 29 2 10
1791-1800 2 25 1 31 38 2 64
1801-1810 2 37 2 45 54 3 27
1811-1820 3 11 2 98 100 4 92
1821-1830 2 71 1 71 44 2 94

"Report of 1878," p. 702.
See Appendix I.
For the figures, see Appendix II.
Cf. Cairnes's "Essays in Political Economy," p. 124.
"An Historical Inquiry into the Production and Consumption of the Precious Metals" (1831).
Mr. Horton has even quoted the figures of Soetbeer from 1761-1830, and strangely says they show no "change of relative quantity" sufficient to cause a rise in the value of gold due to consumption by the arts ("Report of 1878," p. 702).
"The entire foreign trade of the greatest commercial nation then in existence [in the sixteenth century] probably did not much exceed that which is now carried on in a single English or American port. The total tonnage of the united galleons which constituted the Spanish mercantile marine only amounted, a century later, as we are informed by Robertson, to 27,500 tons, little more than the tonnage of the Great Eastern steamship. Some of the most populous and wealthy communities of the present day had not yet begun to exist; and the whole quantity of the precious metals then in use was probably less than that which now circulates in some second-rate European kingdoms."—Cairnes's "Essays," p. 111.
The mines of Valenciana in 1760, of Catorce in 1773, and the districts of Zacatecas in 1710 and Guanaxuato in 1766, began the movement. "The vein of Biscaina, though it began to be worked at the beginning of the sixteenth century, did not become enormously productive till 1762, though in twelve years from that period the owner of it had gained a profit of more than a million sterling, with part of which he presented to the King of Spain two ships of war, one of them of 120 guns, and besides lent him upward of 200,000 pounds." Jacob, "Precious Metals," pp. 382, 383.
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.
Report of January 26, 1819. 3 "Finance," p. 399.
Secretary Ingham ("Report on the Relative Value of Gold and Silver," May 4, 1830) makes a point in 1830 that the comparative demand for silver had fallen off, and that this had produced a fall in the value of silver: "(1) That which has the most direct influence upon it is the revolution in the India trade; some of the chief manufactures of that country are no longer consumed in the United States, and England pays for her whole consumption of India fabrics in fabrics of her own manufacture. It was stated by Mr. Huskisson, in 1829, that in the commerce with India the difficulty was not, as formerly, to find precious metals to remit in payment of the balance, but to find returns from India to Europe. (2) The change adopted in the monetary system of England in 1816, by which payments in silver were limited to forty shillings, has also diminished the comparative demand." See also "Report of 1878," pp. 562, 563. There is no ground, I believe, for supposing that from 1780-1820 there was any change in the absorptive power of Eastern nations for silver at all commensurate with the change in the relative values of gold and silver. No such change in the comparative demand mentioned by Secretary Ingham is claimed for the period of 1780-1820. His point, therefore, even if substantial, applies to a period later than we have in view.
For another theory, that paper drove out gold, see chap. iv, § 1.
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.

After long years of peaceful mining the annual production of silver began to fall off by 1810, owing to the revolutions and intestinal wars in Mexico, New Granada, Peru, and Bolivia. The mines and mints often changed hands, and, as a consequence, the Mexican dollars coined from 1810 to 1829 were of various degrees of fineness, owing to the ignorant haste and carelessness with which the silver was mined and mixed with other substances; and they were accordingly discounted from 15 to 20 per cent. See Jacob, "Precious Metals," chap. xxv.

Part I, Chapter IV

End of Notes

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