If the two dollars reached a parity at their coinage ratio before all the gold was exported, the country would have not only a bi-metallic standard, but would practically force such a standard on the rest of the world, as long at least as the gold supply held out. If foreign nations returned also to the free coinage of silver, they would either have to change their ratio to agree with ours, or, if they kept their present ratio of 15½ to 1, the silver would gradually leave us in exchange for their gold.
The fear of a sudden fall in the value of the dollar, as a result of free silver coinage, is not justified. The value of the dollar would fall gradually as the volume of the money increased,—as would be made manifest by gradually rising prices,—except that this fall would be more or less counteracted at the start by a hoarding of gold, which would decrease the supply of money, and perhaps by a disturbance of credit, which would increase the demand for it. The first effects might be, therefore, an increase instead of a decrease of money value.
It would probably not make so very much difference whether bi-metallism or the single silver standard was the final result. The value of the dollar would not be greatly different in the two cases. Before we reached a silver basis we would have exported some five or six hundred millions of gold, and bought its equivalent in silver, securities, and commodities, and the result would necessarily be a great advance in the value of silver, and a corresponding fall in the value of gold,—the reverse, in fact, of what happened when Germany and other nations changed from a silver to a gold basis. Whether, therefore, this country were able or not to restore the parity of the two metals at the present coinage ratio, the departure from such parity would not be nearly so great as it now is. Provided that the volume of the uncovered paper money remained the same as now, and that, when the change was finally accomplished, credit were used to the same extent as before, the value of the dollar would be somewhere between the present bullion values of the gold and silver dollars, and probably nearly as high if the result were the single silver standard as it would be if bi-metallism were accomplished.
The merits and demerits of the plan may be summed up as follows:—
The change would necessarily cause a great disturbance of business, which might result, at first, in a lowering of prices, but would eventually result in a gradual but considerable increase of general prices, and a stimulation of industry.
Debtors would be benefited considerably, and creditors wronged considerably, especially in short-time obligations; though the long-time ones—those that had run for a number of years—would not be affected so much.
Once established, the money value would probably be less variable than gold has been, and rather more variable than silver has been in the past, but this could not be said with certainty, as the money value would continue to be the result of a variety of forces, of which no one could predict or control the strength.
The inconvenience of so bulky a metal in large amounts would almost necessitate its deposit in vaults and the issue of paper money in its place for actual circulation. If this paper were issued only to the amount of the silver deposited, it would be a most uneconomical system, since the greater part of the silver might evidently just as well be in the ground from which it was dug, so far as any real use was concerned. If paper were issued in excess of the silver deposited, it would not make a market for very much more silver than we now use, and the value of silver would be raised but little.
The value of the money would therefore depend largely on the use that was made of paper in connection with it. Without some control of the volume of the money besides the control the supply of silver would give, its value would continue to fluctuate at all times, and greatly so in times of panic, as it always has done. With proper control the silver is wholly unnecessary, as its only use is to limit the volume of the money, and this can be done far more cheaply and efficiently in other ways.
Little need be said of the "Greenback" or fiat money proposals, so prominent some years ago, though they are seldom advocated now. Their only merit was a dim perception of the fact that gold and silver are not necessary to a money system. Their errors were that they failed to provide any standard by which money value could be tested, or any control had of its volume. They also failed to recognize the fact that money value is wholly dependent on money volume.