HG 556 S68s A A 5 9 3 7 8 9 Soderholm The Silver Question m * i * i * 4 * Silver Question By J. N. SODERHOLM. CHICAQO: THE REQAN PRINTING HOUSE, 1896. i -0_ THE Silver Question BY J. N. SODERHOLM. CHICAGO: TtU; KtGAN I'klNTING HOUSE, 18t6. COPYR IGIIT, 1896. ^ CONTENTS. Page- • 5 Preface Introduction 9 Money i6 Retail Transactions 21 Wholesale Transactions 25 Cost of Production and Prices 29 Cost of Production of Gold and Silver 32 Do We Need More Money ? 41 Bi-Metallisni 51 What Would Happen if We Adopt the Ratio of of 1 6 to I ? 58 Conclusion 06 4 r^f^j S7390 TREFACE. A quarter of a century of discussion and agitation seems to have bronglit about an ap- preciable change in the sentiment of the peo- ple on the silver question, all over the world, and particularly in this country. The insuffi- ciency of the supply of gold and the evil of falling prices consequent upon the constant discriminations against silver, have at last stirred the public, who now look for a remedy ill the lemonetization of the white metal. We have in this country practically three monetary parties, to wit: 1. Those who want the unlimited coinage of silver and gold at the ratio of 10 to 1. 2. Those who want our metallic money to consist of gold and silver of full value, or who want true bimetallism. 3. Tliosc wlio want (lie gold standard. 5 What would bo tlio consoquence of tlio adoption of iinliniitod coinage at 10 to 1 can be reasonably calculated. ITow and to what extent the bimetallists could add full value silver money to our circulation without dis- turbing the gold. is a question upon the satis- factory solution of whi( h depends the concili- ation of the gold standard party as well as of the ardent friends of silver. If this country alone is to undertake, or to start, the restoration of bimetallism, or of sil- ver, it must adopt a policy which would sat- isfy the following conditions: 1. Not to disturb materially our j)resent monetary system. 2. Not to add to our coinage such a quan- tity of silver as to drive out any of our gold. 3. To make the silver money good the world over. 4. To make the new silver dollar of same size as the old silver dollar. 5. To make the coinage unlimited. G. To coin silver from any part of tlit^ world. 7. To fix the price of silver — barring the exchanges — for the whole world. 8. To cause the government no loss ex- cept the cost of coining. If a measure fulfilling all the above men- tioned conditions can be framed, I think it would follow: 1 . That our present gold raonometallists would offer no objection to the adoption of bimetallism. 2. That in the course of a very short time the truth of the principles of bimetallism wcnild again have been practically dem- onstrated. 3 . That in the near future other countries, ono after another, would hasten to adopt bimetallism, Axliicli would soon become general or universal. 4. That, within a few years, possibly be- fore the rlose of this century, bimetal lisiii, with free and unlimited coinage of silver and gold nt the old ratio of 15 1-2 to 1, or 10 to 1, would be firmly estab- lished. Such a measure can be framed. I am satisfied that the adoption of unlimited coin- age of silver and gold at the ratio of 16 to 1 would fill the bill. But in adopting un- limited coinage we might placate opponents by gradually increasing the gold in reserve ^■'for the greenbacks and by charging, until further, on the coinage of silver a seigniorage which would tend to limit the introduction of the white metal. IXTPiODUCTION. The silver question of to-day is not the sil- ver question of five years ago, nor was the silver question of five years ago the silver question of twenty years ago. The downfall of silver has been gradual, one nation after another discontinuing the coinage of the white metal for the purpose of unlimited legal tender money, until at present it would seem as if we had reached the bottom, and as if — providing silver is to be rehabilitated — the time had now come for rehabilitation, or at least for the beginning of an upward move- ment which in the course of a short time would culminate in the complete restoration of silver, the re-establishment of bimetallism at the ratio of 15 1-2 to 1, or IG to 1. Tf, wlien (Icriiiany had adopted the single gold sfaiidai-d, slic liad not been in such a 10 liurry to accumulate gold and dispose of her silver, I tliiuk bimetallism would not have been seriouslv endangered. But while France had to pay the war indemnity, and Oermanv flooded the market with silver, which more or less directly found its way to the French mint, the capacity of the latter was so overtaxed that before the closing of the same there was in stock for coinage so much silver bullion that it would take a year to coin it. The bullion certificates is- sued by the mint could be discounted, but, naturally, the value of silver bullion was re- duced by the discount on the certificates. If the change of standard in Germany had ex- tended over a period of ten or fiftt^en years the price of silver would not have fallen sev- eral per cent, France would easily have been able to bear the burden of the German innova- tion, financiers of other countries would not have been frightened, bimetallism would have been preserved, and the whole world would have been benefited. 11 But the principles of bimetallism were not understood. The statesmen of the time had imbibed their wisdom from the teachings of John Stnart Mill: a double standard was a pln'sical impossibility. And so one country after another closed .its mints against further coinage of siher, and for every new demoneti- zation the difficulties for the balance of the world to restore* the old order of things be- came greater. Yet even in 1870, on the re- sumption of specie payments, this country wduld in all probabilitv have been powerful enough to re-establish bimetallism by adopt- ing unlimited coinage of silver and gold at the ratio of 10 to 1. Such action would un- (|uestionably have restored, at that time, the value of silver. It would most probably have l>rought back the Latin Union to its old pol- i< y, stopped further demonetizations, encour- jiged ()tlH'r countries about to resume specie jtayments to adopt the double standard, and thus Kolvetl I lie whole question. The Bland- Allison bill iiiii;lit possibly have brought 12 about a similar result il the secretary of the treasury had not discriininatecT a2;ainst the iiiaximum coinage of |4, 000,000 of silyer a month, for at that time such maximum coin- age would probably have been equivalent in effect to the adoption of unlimited coinage. As the Bland act was administered, however, it certainly fell short of supplying the requi- site remedy to restore bimetallism. When, later, the Sherman act was passed, the appre- ciation of gold had proceeded so far that the bill, again leaving discretion to the Secretary of the Treasury, could not restore bimetallism. After the closing of the Indian mints mat- ters have become worse, and the solution of the silver question has become still more difficult. What might have been an efficient remedy in 1871 could not have been ap- plied in 1870. What might have been effec- tive in 1879 would have been of no avail in 1890. And if bimetallism is adopted now the method of adoption must be made to fit the circumstances of the day and the possible 13 events of the morrow. No wonder Jhat our greatest statesmen, feeling all this and thor- oughly cognizant of the changes that have taken place, cannot to-day advocate measures (jf which they would have approved twenty years ago, or even five years ago. What will come next in the history of the battle of the standards? Kussia is establish- ing the gold standard. She certainly does not possess gold enough for this purpose A\ ithin her own frontiers. She will draw on the gold supply in other countries, and the yellow metal will continue to appreciate. And there are other countries which may adopt the gold standard or may have to increase their proportion of gold. What if England decides to push the coinage of gold in India? W'hnt if this country should decide upon a l;irgei' i-eserve for its greenbacks, and if our Icinks should come to the conclusion thai they must keep larger reserves than they now do, and more of gold? ^Vllile the population iii- recious metals were ever used for ornaments, the original purpose for which the metals were intended, was more or less lost sight of. When famine visited Canaan money was sent to Egypt to buy corn. Money had been saved and stored for such an eventuality. And un- til recent times wise men taught their people to lay up stores of precious metals as being the essence of the wealth of nations. The fact that money, or originally the ma- terial for ornaments, could save a man from starvation, roused human invention and in- genuity. XoAA' wants were created and satis- fied. The merchant brought the superfluities and peculiaiities of foreign countries and ex- changed them foi' money. Factories grew up, (•(nniiKxlilles wci-e produced and offered by coiiipelitoi's in (he iiiaille would use less money than the working- man who earns |2. The money is spent with the butcher, the grocer, the dry-goods man, the landlord, and many others. How long a time does it take for it to circulate through these hands and then through the bank to [•eturn to the party who pays the working- iiiiin? Suppose pay-day to be once a week, md that the %\1 then received are spent suc- •essivelv during the week and return to the 'Uiployer in that time. Then all the circu- hilijig iiK'diiiii! i'<'(iuii-('(l by tlie workiugmau is ."S?12, and willi this amouni he transacts liis 21 22 business, which in a yaw amonnts to 52x12, or |G2], which is all cash business. I think it far more likel}', however, that the circu- lating period would be two weeks, and the amount of circulating medium required would be |24. A man who earns f 100 a month and is paid once a month, will spend his money gradually during that time, and will need more circu- lating medium than the man who earns 12 a day. Those who have still larger incomes no doubt need a still larger circulating medium. And those Avho have a very small income will need only a small amount of circulating medium. How much circulating medium do the peo- ple of this country need to transact the re- tail business of their daily wants? We have about 23 millions of bread-AAinners who sup- p/>rt about 70 millions of souls. If the aver- age circulating medium for each producer were only |10 the total would be |230,000,- 23 000. This would iiioau an average circula- tion per capita of about *3. If the average circulating medium needed bv each worker was PO the total would be .f 090,000,000; |40 for each would make |920,000,000 and repre- sent about §13 per capita. Something like this latter amount is prob- ablv needed to transact the retail business of this country, which is practically all cash or paid by cash money soon after the debt has been incurred. For want of statistics it is necessarily diffi- cult to state the amount of the total annual retail trade of the country. But everybody can understand that there is a relation be- tween this annual total, the total of the circu- laliuii- medium nccessarv to transact the trade, and the number of the periods of cir- culation during the year. If the circulating HHMlium is diminished the value of the goods sold is dimiiiislicd. Som(» jx'opic arc of ojiinioii thai only a few percent of t Ik- hiisincss of I he woi'ld is done by 24 actual use of mouoy. This is an error. If the circulating niodium is equal to 5 per cent of the amount of the annual business, the number of the periods of circulation during the year must be twenty. The same five dol- lar bill makes its trade circuit twenty times and pays cash for 100 dollars' worth of goods. WnOLESALE TRAXSACTIOXS. The clearing house exchanges of the coun- try amount to about §00,000,000,000 a year, representing Avholesale transactions, trans- fers of stocks, bonds, real estate, and so forth. This enormous amount is settled between the banks principally by exchanging their cus- tomers' checks and drafts, and very little cash money is used in adjusting the compara- tively small balances. Strange enough the idea has grown up and become popular that 1 his clearing house business is credit business, not to sav actual barter, bv which wheat is exclianged for cotton, iron for lumber, stocks foi- real estate and so forth, and that in all tliesc wholesale transactions money cuts so small a figure that it cannot possibly have any innuonce on prices. These ideas are wrong. Xo business can be more strictly 25 26 cash than the exchanges made by the banks tlirongh the clearing honses, for every cheek and draft is, as a rule, covered by cash money in the banks on which they are drawn. What the clearing house does is not to extend any credits to wheat dealers or iron manufacturers or to facilitate any kind of barter, but simply to save the trouble of counting and trans- ferring the cash money. When the grain dealer draws a check to pay for a cargo of wheat he knows precious little about the do- ings in the iron and cotton market, but is per- fectly acquainted with the cash balance in his bank. The reserves in the banks furnish the cash money necessary to carry on the wholesale transactions of the country, but the period of circulation in the wholesale business is so short that a comparatively small amount of money will turn over an immense quantity of trade in the course of a year. If the bank reserves in the country amount to |000,- 000,000 and represent the money necessary 2t for the wholesale transactions of |G0,000,000,- 000 a year, the i)eriod of circulation would be about three days, and the reserves would per- form their service of exchanging goods for cash one hundred times in the 3'ear. The banks receive deposits of money and loan out some of it. The amount of reserve kept is principally determined by the prob- able needs of the depositor, though a mini- mum reserve may be fixed by law. Generally the banks keCp a larger reserve than is ac- tually needed by the customers, and this is particularly the case in times of uncertainty and depression, when idle money is accumu- lated in the bank vaults. When the banker becomes suspicious of the "times" he cuts down his loans and increases his reserve. Thus money is drawn from the outside or re- tail circulation, wages and i)rices fall, less money is needed for the wholesale business, Mild the actually idle ixdlion of the bank re- serves is llie only lliiiig tli;i< is going up. Sonic people (liink lli;i( llie volume of 28 11101103' ba.s iiotbiiig to do with prices of com- modities, because wlieii prices aud wages are falling iiiouey is more abundant and "cbeap." Tbese people overlook the fact tbat it is tbe abundance of idle money in tbe bank vaults or elsewhere that causes the scarcity of money among the people. If the bank reserves were thus increased 1100,000,000 draw^n from the outside or retail circulating medium, what would be the con- sequence? If the period of circulation had been about eighteen days or one- twentieth part of a year the reduction in wages and in- comes, or in prices — if the total quantity of commodities remained the same — would rep- resent 12,000,000,000 a year. In such a case, however, experience has proven that produc- tion aud trade are reduced, and that, there- fore, wages and prices would not fall quite in proportion to the reduction of the circu- lating medium. Povert}' and falling prices usuallv walk hand in hand in similar cases. COST OF PRODUCTION AND PRICES. From time to time it has been asserted tliat the fall in prices in recent j-ears is to be at- tributed to a reduction in the cost of produc- tion of commodities, and not to the demone- tization of silver. The assertion is a fallacy.- A reduced cost of production does not lower average prices. Prices represent the value of comuiodities expressed in money, and as long as the quantities of commodities to be exchanged by a given quantity of money re- main the same, the average prices must re- main the same, and there can be no exception from the rule. Suppose that one-half of the commodities in the world, hitherto exchanged by one-half of the money, is reduced in cost of production by one-half. The prices could be reduced one-half, and only half as much money as before would be needed to exchange 29 30 the coitimodities in question. Onc-iiuaiter of iho world's monoy could bo dropped in the sea, so to say. But it isn't dropped in the sea. It goes to swell the prices of all commodities. Those commodities which are not reduced in cost of i)roduction will go up in price, and those commodities which are actually reduced one-half in cost of production will not be re- duced one-half in price. The proportion of prices will be regulated according to the pro- portionate cost of i^roduction of commodities, but the average of prices evidently remains the same. Again, suppose all commodities are all at once reduced one-half in cost of production, or, in other words, that weary mankind in one hai)py moment discovers how to produce what is uoAv produced in half the time that was for- merly needed, is it not simply ridiculous to suppose that prices would be reduced one- half? Everybody ought to be able to see that prices would remain the same as before. A reduction in the cost of production on- 31 ubles us to produce more commodities, and iu order to be able to exchange all commodi- ties at the same average price as before, we need more money. If we are progressive in I he arts of production why should we not be equally progressive in the science of monev? COST OF riiODUCTION OF GOLD AND SILVER. Gold is at present received freely and coined in unlimited quantities at the mints of most countries. When the «^old miner starts into business he probably expects to strike a bo- nanza, but if he does not succeed in this, he is likel}^ to continue mining anyhow, as long as he makes a reasonable profit, and even if he does not succeed in making a reasonable profit the probability is that he will continue until he is broke. He will have to stand cer- tain expenses, but the return for his outlay is most uncertain. Accident plays a great part in the discovery and production of gold, but at the same time there is another circum- stance which will partly determine to what extent people will go into the mining busi- 32 33 nesSj and that is the value of gold — how much gold can buy. The piices of commodities de- teriiiiued by the stock of money in the world — gold, silver, and paper mone}' — will guide in this respect, and it is natural that when l)rices are falling, and money is appreciating in value, greater efforts should be made to find gold than when prices are rising and money is dei)reciating in value. The produc- tion of gold and its addition to the stock of mone}' has in itself the tendency to raise pi-ices and in the end to luit a limit to the production when prices had gone so high, and the value of gold had fallen so much that it would no longer pay to produce the metah Thus there is at least a semblance that the outj)Ut of gold would follow the same law as ilie output of pig-iron, and be determined in (lie long run by (lie cost of production. But wlicu wo <-oiisi(l<'!' lliMl the stock of money in the worhl is in r«iniHl figures .*;10,()()(I,()()(),0(M) — gold, silvci-, ;iii(l nn«-o\('i('(| ])ii])er — and liiiil IIm' ;ninii;il |ii-n(|nrii(in of gold is nlxMit 34 1150,000,000, of which probably onlyJT^jOOO,- 000 is added to the stock of money, while the other $75,000,000 will be used in the arts, and lo make good the wear and tear of the coins in circulation, Ave find that the increase in the stock of mone}' from this source is only about three-fourths of one per cent — far from enough to fill the increase demanded by a growing population and by what should be a progressive age. The value of our annual gold product simply conforms to the value of the world's stock of money, and it does not matter a particle whafit has cost to produce it. If gold rained down from heaven at the limited rate of |150,000,000 a year, and we used it for ornament or added it to our stock of money, what difference would it make? Would its value conform to the value of our stock of nionev, or would it conform to the cost of production, which in this case would be nothing? Many learned economists, and particularh' the defenders of a single gold standard, are so imbued with the cost of pro- 35 duction theory that, if a lump of gold worth §150,000,000 was found, so to say, ready made, they would proclaim not onh' that that lump would have to obe^- their law of cost of pro- duction, and that it would be worth nothing, but that all the gold in all the world must follow the same law as the newly found lump, could not possibly be worth anything, and would have to be demonetized. And if they were inconsistent enough not to saj' such liard things about goM, they would certainly sav it about silver. What should we sav about the white metal and its relation to the law of cost of produc- tion? If silver were in the same position as gold, of course it would follow the same rules as gold, and would bear the same relation to the law of cost of production as gold does, r.iit silver is situated dilTcrentlv from what gold is, ever since the demonetization of sil- ver commenced. In some countries we have larjijf' stocks of silver in ciitulation, along with gohl, ill (111' r;i(i() of l.l 1-2 to 1, and 36 while gold aud other iiioiioy have appreciated considerably in value dnring the last twenty- three years, this silver nionev has likewise appreciated in \alue. In this country we have some |500,000,000 of silver circulating, or represented by circulating i^aper, at the ratio of 1(1 to 1, aud this silver money is ap- preciating in value in the same way, along with gold. In India the coinage of silver has been stopped, and while the money in that country consists only of silver, and thus since 1893 is either stationary or decreasing in quantity, it is evident that if there is any progress at all in the way of an increasing production of commodities, the silver money in that country must now be appreciating in value. But in those few countries where sil- ver is still coined without restriction the value of the new production conforms to the value of the money in circulation just as it con- forms to the market value for purposes of art. By restrictions in the use of silver for money, by refusing to allow the new silver product 37 ]»y unlimited coinago to conform to the vahie of the money in the world, the metal has been brought into this peculiar position. — The talk about our "50 cent dollar*' is really too ab- surd, for the very simple reason that we could not throw our $500,000,000 on the market for ornaments, etc., or on the money markets of Mexico or China, and realize anything like 50 cents for 371 1-4 grains. If all countries in the world were to sell their silver money for purposes of art — that is to say, a quantity of some .«;4,000,000,000, I really do not believe tliat it would be possible to obtain 5 cents per ounce. Those who have made up their minds that the silver money has to go, might reason- ablv talk about our silver dollar as our 5 cent dollar or 1 cent dollar. Those who want the silver monev to stav, and silver to be reha- bilitateil, are justified in speakinjg: of our sil- ver dollar as a dollar. Our gold money would be subject to the same laws of value if we treated it in the same way in which we have treated silver. If (lie world's .*;< 1,000,- 38 0(M),000 of nold was olTered to the goldsmiths to be used for ornaiiuMits, the value of it would not be 75 cents an ounce. Everything in this case depends upon the use to whicli we put our stocks of gold and silver. It would not at all be impossible for this and other coun- tries to decree that the silver dollar should henceforth circulate only as worth 50 cents. Such a measure would please many, who would consider that the right way to bring about an honest silver dollar, which would at last conform to the Tnarket price of silver. The only trouble is that such a process would bring with it a contraction of the world's money, and a fall in prices to such an extent that the "market value" of the new 50 cent piece wouJd not be more than about 35 cents. The idea of the cost of production regulating the value of the stock of silver money is worse than a case of the tail wagging the dog. Sup- pose the annual production of silver is |100,- 000,000, and that of this |50,000,000 were used for money. The money of the world is |10,- S9 000,000,000. The former amount is the tail, the latter is the dog. Years ago our states- men got it into their heads that the tail might be wagging the dog, and so they cut it off. Now tliey have discovered that the loose tail is wagging the dog. In connection with the above, I would make a remark about the mine owners' profit. A good many people object to the rehabilitation of silver on the ground that it would add enor- mously to the wealth of the owners of silver mines. These people, in the naiTowness of their views, would sacrifice the happiness of mankind for the pleasure of spiting a few suc- cessful mine owners. As a matter of fact, we have thousands of silver mines in this coun- try alone, and the vast majority of them have yiehhMl little or n(;thing, while the cost of working them has been very great. In short, sonic very good ant hoi'i lies have estinmted tliat on an average more than two dollars is expendcil foi- every dollar's worth of silver brought out of Hie gioiiiid. Silvei- iiiiiiiiig is 40 a spoc'iilatiou, iu ^vlli(•ll the profit naturally acenics to the few successful ones. If all the silver mining was to be done, say, on govern- ment account, it would very soon be found that the cost of production was too large to allow any silver mining at all. DO WE NEED MORE MONEY? Prices have fallen enormously ever since the demonetization of silver commenced. During the last quarter of a century trade has been depressed, though there have been a couple of revivals, between 1880 and 1882, and between 1890 and 1892. The old rule of a business crisis occurring every ten years seems to have been reversed, and instead of it we have now more or less of a continual, crisis, with little bits of revivals now and then. One oi the causes of this state of things is certainly the insufFiciency of money, bringing about the fall in prices. Nor can it be long before it is generally recognized that a continued fall ill prices must be a powerful obstacle in the way of progress and enteri)rise. Individu- als now rarely enter into any indus- 41 42 trial nudertaking ou their own risk, nnloss tlu'v cau pay for the whole plant, for experi- ence has taught them that a plant which to- day costs |100,000 will in five years not be worth 175,000, and that ten years hence it will be worth still less. If you were to build a factory for |100,000, and in doing so had to give a mortgage for |50,000, your property would be out of your hands after a certain time, unless the profits had enabled you to pay off the mortgage. For this reason indus- trial undertakings are more and more coming into the hands of corporationSj and the pros- pects for the individual are becoming slim- mer, and the ultimate result is that the in- dustrijil organizers become more cautious, and the number of unemployed grows larger. To what extent are our great railroad sys- tems affected by falling prices? Freight rates must be reduced like the price of any other commodity, and the income drops. The operating expenses may be reduced in pro- portion, but the interest on the bonds remains 43 the same, and eventually the road goes into the hands of a receiver. The worst conse- quence, however, is that railroad construc- tion is discouraged, no new fiohls are opened up, and it has even been proposed in Illinois that the state government shouhl undertake the responsibility of deciding whether a pro- posed new railroad would be needed or not, before granting a charter — this for the pur- pose of protecting the earnings of the old roads. The trouble is, there is no incentive to progress; there is stagnation, there is less employment, and there is less provision for the growing population — and all this because there is not enough money. The farmers probably suffer more than any other class of oiir citizens, except those who siilTcr by not being able to get any work. In this country a very large number of farmers li;iv«' mortgaged tlicir farms, some for the pur- pose of improving them, others because they roiild not i)ay the wtiole of ilu' purchase money when t hey bought. The falling prices 44 of farm produce liavc reduced the money value of that part of the ])rodiice which would oth- erwise have satisfied the mortgage holder. The mortgage will weigh heavier and heavier on the farmer, and in thousands of cases every year the farm is lost. The farmer becomes a renter, there is less inducement to till the soil, and for many the chances to become tramps are greater than ever. All these things produce uncertainty and lack of confidence among traders and others who from time to time speculate on the de- mand for goods and give orders to manufac- turers or wholesale dealers. Business is cur- tailed, production is cut down, work is scarce, and enforced idleness is plentiful. But if the country at large and the masses are losers, there are a few who gain by falling prices. Bond and mortgage holders and creditors in general are best off, and apparently gain what others lose. Falling prices are, indeed, a most powerful element in making the rich richer and the poor poorer. 45 A stock of money sufficiently large to main- tain a steady average of prices or an average Ihictnating as little as possible would evi- dently be conducive to greater prosperity, and a more just distribution of the good things in this world. For the sake of justice and progress we need more money. The latter half of the nineteenth century will sro to historv as divided into two dis- tinct and widely different periods. The first (■((UiuH'Uces with the gold discoveries in Cali- fornia and Australia, and culminates in 1873. It is marked by large accessions of gold to the world's stock of money — "giving wings to tiade" — by rising prices, by wonderful prog- • n-ss, liy uiiwonlcd enteri)rise and prosperit}', by i'aili'oaT('t', if any, by any new supply of gold, which latter has been needed, probably to its full extent, for resumptions or the adop- tion of the gold standard in various countries, or may be has not even been sufiflcient for such purposes. Kor need we flatter ourselves that the habits of the people have changed so con- siderably- in favor of notes instead of gold. The fact is, that the banks in general holding large reserves prefer to have some of it in notes, and for this reason the large increase in the note issues of the banks in question simply indicates a still larger increase in the bank reserves throughoutj^hose countries, and a corresponding contraction. As regards the banking department of the Bank of England, the reserve which fifteen jenrn ago was satis- factory at thirty or thirty-five per cent, is now kept up to seventy per cent. The chain of cause and effect is this: When silver was demonetized, or the coinage of it stopped, the stock of silver money in the banks 49 became more or less "imavailable.'' The gold reserves had to be increased. The scramble for the yellow metal commenced. Coutractiou aud uncertainty of trade fol- lowed. Traders and merchants who could do it, protected themselves by more ready cash, and this again caused increase in bank re- serves. At present the Bank of France alone has an "unavailable" stock of silver of $250,- 000,000, and on top of that it has an available stock of gold of .|390,000,000. When bimet al- lism is restored, but not until then, can a change be expected. When the stocks of sil- ver money in the world are made "available'' trade will be easy, the money reserves will be reduced, the circulation will be larger, prices will be steady, or may even rise, and prosperity will be at hand. While Euro])eiin l^anks have been increas- ing their stock n\' gold, ;ind Kiissin li;is 1 ii storing u]) gold in aulliipatioii of i-csuiiipl ion, 50 t\w govei'iinioiit of the United States has made no change in its provision for the gold reserve behind its greenbacks. Whik^ the Bank of France has a note issue of about 1725, 000, ()()(), backed by |250,000,000 of silver and |:JJ)0,000,- 000 of gold, or together |(U0,000,000— or, as some would make the comparison, deducting 1250,000,000 covered by silver, |4T5,000,000 of notes covered by |390,000,000 of gold, or about 82 per cent— Ave have 1340,000,000 of greenbacks covered by only |100,000,000 of gold, or about 20 per cent. If we had fol- lowed the same policy as Europe, by contract- ing our money and raising our gold reserve to 80 or 100 per cent, it is reasonable to sup- pose that there would have been no outward drain on the treasury. BIMETALLISM. Bimetallism is the imion of two kiuds of monometallism. How siieli a uuiou at auy time was broiii-lit about can easily be under- stood. One country had a single silver stand- ard, the adjoining country had a single gold standard. Along the border line between the t wo countries commodities sold on one side of I he line for a certain (juantity of silver, on the other side for a certain quantity of gold. If the rehitive value of gold and silver, or the ratio between the metals, happened to be I'airlv steady, what could be more natural than tliat tlic jx'ople along the border should be indilTereut to which metal they used as money at the ratio established by custom? Aner annum, and would amount to 2,28 pence per ounce, which would reduce the price of silver bullion in London to the figure 57.3G pence, and that was just about the price that silver commanded in 1874, just before the closing of the French mint. yow, on the other hand, suppose that gold Avas .flowing into France, and silver was ex- j)orted, say o^er London or Southampton to India, how would the case stand then? The price of silver in France, that is, of the silver <-oins, accoi-ding to the adopted ratio, was <»0.84 pence jx-r onnce. Tlie exchanges were snch soiiK'l inics lluil lln' cosi in bringing litest danger of any silver flood, because the period of circu- lation of money in those countries is exceed- ingly long; their commerce is small, and their monej^ is used chiefly for hoarding — to be brought out in times of famine and distress. Xor is it fair to suppofse that the great Eu- ropean nations would make this country a dumping ground for their silver, because, in the first place, the sentiment in favor of bi- metallism in those countries is sufficiently strong to prevent such a policy, and, in the second place, those countries could not stand the ruinous result which would inevitably fol- low the tremendous appreciation of gold, and fall in prices that would be called forth by such a policy. If silver was remonetized in this country we could thus calculate on a yearly addition to 61 our money of sometliiug like .$75,000,000 in sil- ver, but as this amount would also be an ad- dition to the world's stock of money we should have to share with the world, and should lose part of our gold. If we command about fif- teen per cent of the world's money, our net gain would probably be some |12,000,000 a year, that is to say, we would gain about $75,- 000,000 silver and lose §03,000,000 gold, which latter would go to Europe and other parts of the world, besides what gold we may have to furnish from our mines, as we might suppose, on first consideration. Such an outflow of gold would not, however, occur. Paradoxical as it would seem the current would at first and for some time be in the opposite direction. Gohl would actually come from Europe to this country. And the reason for this is very simple. As soon as we have restored bimetallism the value of silver is restored. This would make the silvei' ill IOuro})e "available;'' the scramble for gold would cease; the bank reserves 62 would diuiinish; more money wouul get into circulation, and some of it would come to us. Such would be the effect in Europe where one country after another would soon follow our exam})le. '* Some really terrible prophecies have been made as to the immediate future, if we adopt the unlimited coinage of silver at IG to 1. Here are some of them : 1. The instantaneous disappearance from circulation of all our gold, w^hich would at once be hoarded. 2. Our silver dollar would be worth onlv 50 cents. 3. The w^ages of the workingman would be worth only one-half of what they are worth now. 4. Commodities would double in price. 5. National repudiation and dishonor. Now% any man with one grain of common sense ought to understand that if gold dis- appeared, and if silver — and, of course, our 63 I>aper money also — fell to oue-lialf its present value, there would be a contraction of our stock of money from |1,500,000,000 to less than $500,000,000, and prices and wages would fall in one lick about G7 per cent. Surely the foreigner would come here with all the gold needed to restore prices. Such, at least, has been the rule as long as false proph- ets have existed.- Wouldn't the fellow who had hoarded his gold be glad to bu}^ wheat for 20 cents a bushel and sell it for export for 00 cents and make 200 per cent profit, and thus U't out his treasure into circulation? Wouldn't he do his country that favor for an extra pr(^fit of only 100 per cent, or 50 per cent, or 25 per cent, or 5 per cent — all extra? Or, may be, out of pure patriotism, he would <1() it just for the ordinary profit. There is notliing like a])pealing to jieople's feelings. And, as for the poor bondholder, why, he would get as many dollars as before, only now he can hiiv i'ov liiat monev three times as much wheat as he could before, and he can 61 sell it for three times as uiiicli money as he paid, by exporting it, and thus realize 15 per cent where he only got 5 before the na- tional repudiation. AVouldn't he do- some- thing towards whitewashing our national dishonor, and restoring the old order of things? Yerilv, it is tiresome to have to refute such a lot of balderdash. To be sure, an attempt may be made, and, no doubt, it will be made, to corner gold, but the only effect it can have will be to turn the exchanges in our favor, or bring gold here, if the circulation is appreciably affected. If the stock of gold in course of time becomes very low, and the country be practically on a silver basis, there may certainly be some manipulation of gold in fixing from day to day the exchanges with gold countries. If we restore unlimited coinage at the ratio of 16 to 1 we may in about ten years be on a silver basis, particularly if Europe persists in its present monetary policy. But much 65 may happen in ten years to prevent such an occurrence, and if France alone, in the course of a few years, would fall into line with the United States, the bimetallic territory would probably be more than sufficiently large to maintain permanently the ratio of 16 to 1, or 15 1-2 to 1. CONCLUSION. We have seen what would be hkely to happen if we adopt unhmited coinage of silver and gold at the ratio of 16 to 1: 1. Gold would at first and for some time come to us from Europe by the reduction of the European bank reserves. 2. Other countries would follow our ex- ample in restoring bimetallism, and the silver question would be solved for good. But in the extremely improbable event of no other country following our example for some time to come, we are still strong enough, or our country is large enough, to maintain bimetallism, or to keep both metals in circulation. For, in the first place, as we add silver to our circulation we may grad- 66 67 ually add gold to our greenback reserve to the extent of §246,000,000 beyond what is at present prescribed by law. And, in the second place, such a seigniorage might be charged as to j^ractically control the amount of silver offered for coinage. I might say something as to the disposition of such seig- niorage, but after the ratio of 16 to 1 lias once been adopted I hardly think we shall have any occasion to charge a seigniorage. Science and experience have amply jjroveii the usefulness of bimetallism. Justice and the needs of the people demand its restora- tion. UNIVERSITY OF CALIFORNIA LIBRARY Los Angeles This book is DUE on the hist date stanipe