Honest Money

by Arthur Isaac Fonda

With these explanations of the diagrams, and the limitations of the tables from which they were platted, we can proceed to consider their points of resemblance and what they teach.

It is evident from all of them that a great decline in average prices has been going on, almost continuously, since 1873, in the various commercial countries. This is a fact conceded by all students of prices.

What is equally apparent, however, but does not seem to be so generally appreciated, is the violent fluctuation in prices, or in the value of gold, from one year to another, amounting in many instances to from 5 to 10 per cent. in a single year, and, during the war, to much more. Doubtless if the tables had shown the fluctuation of prices by months or days, instead of the averages for each year, a much greater variation in the value of gold would have been apparent at times, and within a shorter period than a year. Furthermore, the prices of staple commodities (and most of the commodities in all the tables are staples), while representing correctly the character of the changes in price of all commodities, would naturally not vary as much as the prices of many more speculative articles of commerce. It is probable, therefore, that gold has varied in value to a greater extent, and within shorter periods, than is shown by the diagrams.

It would be impossible to trace all the various causes that have produced these changes in money value, but a few of the more prominent ones may be indicated as showing their great variety and force.

From 1840 to 1849 a great decline in prices is noticeable, similar to the decline that we know has been going on in the last twenty years. This is doubtless due in both cases mainly to increasing demand for money, caused by growing population and expanding commerce, and which the supply of gold and silver or substitutes therefor did not keep pace with. From 1850 to 1857 prices generally rose, owing to the increased gold production in Australia and California, aided doubtless by the increased use of credit which rising prices always stimulates. The collapse of this credit in the panic of 1857 sent prices down again. The slow recovery from this condition was greatly enhanced by the breaking out of the Civil War, during which thousands of men were destroying instead of producing, thus raising the prices of nearly all commodities by decreasing the supply and increasing the demand relative to gold, while meantime the demand for gold was lessened by the use of paper money in this country. The disbanding of the armies at the close of the war, and the return of labour to productive enterprises, lowered prices rapidly during 1867, 1868, and 1869. From this depression they recovered almost as rapidly in the era of development from 1869 to 1872, the large production of silver from the Nevada and other discoveries during that period assisting greatly in this recovery, and the usual extension of credit at such times also contributing. This credit collapsed in the panic of 1873, and the demonetization of silver by several European nations about the same time prevented any increased production of silver from affecting the decline which then set in, and which has with one or two reactions been continuous ever since.

In the light of the facts, shown by these diagrams, any claim for even approximate stability of value for gold, or for the money as a whole on the gold basis, under the systems now in use, is preposterous. Moreover, the change has been, of late years, of the worst kind,—an increase of money value. If it were steady, its effects could be calculated and discounted to some extent, but caused, as it is, by a variety of forces of varying strengths, the increase is at some times wholly nullified, or even turned to a decrease, by extensions of credit, while again it is doubled in effect by the withdrawal of such credit.

The reason for this great decline in prices, or the increased value of gold, is not far to seek when we consider the relative strengths of the forces acting on gold value. Population, wealth, and diversity of occupations have all increased greatly over the whole civilized world, requiring a much greater amount of money to do the business of the world. There has been, to be sure, as an offset to this, a considerable increase of banking facilities and some greater use of credit paper in its various forms; but all these were in large use prior to 1873, and their increase can hardly have been so great as to meet the demands of growing commerce. Furthermore, of the other forces tending to raise the value of gold, the annual product of that metal has not increased materially, though the demand for it for other than money purposes has increased largely, leaving a less increment to neutralize the waste and to increase the supply of it. And lastly, many countries, as we have seen, about the year 1873 so changed their monetary laws as to use a much greater amount of gold, and a less amount of silver or paper. The United States alone, it is estimated, now uses about $600,000,000 of gold coin, while in 1873 it used practically none.

The effects of this increase in the value of money have been—as the effects of falling prices always are—detrimental and disastrous in all gold-standard countries, to an extent that cannot be measured. Offset at times by increased use of credit, enterprise and industry have been able to rise to a success that an honest money would make their normal condition, only to be dashed down again by the collapse of credit with nothing to take its place.

Silver-Standard Prices.

There is a quite prevalent belief that the value of silver has fallen greatly since 1872. This is a natural sequence to the belief that gold has been stable in value, as the gold price of silver has declined from $1.32 per ounce in 1872, to $0.82 per ounce in 1892 (and since then the decline has been much more). This fall of about 38 per cent. must be deducted from the rise of from 24 to 41 per cent. (according to the different authorities) in the value of gold, in order to show the true change in the value or purchasing power of silver. It is evident, therefore, that the value of silver has been much more nearly constant than that of gold.