11. Silver is much inferior to gold as a metal for Money, for this main reason, that it has proved itself much less steady in its general value; and its value is less steady, because it is subject to greater changes in its Supply and greater variations in its Demand. As an example touching Supply, we cite the fact, that the annual silver product of the world doubled in the third quarter of this Century, rising from an average of $40,000,000 yearly, 1851-61, to $80,000,000 in 1875; and that Nevada alone yielded in 1876 as much as the whole world yielded twenty years before. Then, too, Demand, that is, effective public opinion, does not hold to silver as it does to gold for a standard of Values. The action of England in 1816, of the United States in 1853, of Germany in 1871, of Scandinavia in 1874, and of the Latin Union in 1876, in legally making gold the sole standard of Services and silver subsidiary to that, of course affected more or less the Demand for silver as Money, and thus varied its value. We have at hand the data to demonstrate the effect of these two causes combined: the average price of silver in gold from 1833 to 1874, in the London market, which is the bullion market of the world, was for the 40 years just about 60 pence per ounce, never falling below 58½ and never rising to 63. At 60 pence per ounce (444 grains of pure silver, standard English silver being .925 fine) the ratio of gold to silver is 1:15.716. But between May, 1875, and July, 1876, when both the above causes had come into full action, silver dropped in the London market to 47 pence per ounce, a fall of 21%, and a ratio of gold to silver of 1:20. The price gradually rose again to about 53 pence per ounce, and remained in that general neighborhood till 1882, between which date and 1890 the sagging process went on to the general result of 25% discount as compared with the old average of 60 pence in gold per ounce of silver.
These facts settle the question adversely to the fitness of silver to become an independent Measure of Values. When, however, it is designed that gold and silver shall circulate together in some numerical relation to each other as Money, it becomes needful that Government shall fix as well as it can, not the general value of either but the relative value each in each for the time being. But this specific value, too, goes on to regulate itself independently of government edicts. No matter how well the work is done at first by ascertaining the actual ratio in which they are exchanging in a free market, it will certainly require revision from time to time. This is what is called Bimetallism. The reader will now perceive the fundamental and ineradicable difficulty with the bimetallic system, which has led by bitter experience nearly all the European nations to abandon it. It especially becomes us to understand how the United States have fared in a century's attempt to keep in equilibrio as a conjoint and legal Measure of Services both gold and silver in a fixed numerical relation.
Alexander Hamilton as the first Secretary of the National Treasury, entering upon excellent preparatory work done both by Robert Morris and Thomas Jefferson, guided the action of Congress in establishing the Mint in 1792, and really determined the weight and fineness of the first federal coins and their relative value each in each, the silver coins being struck in 1794 and the gold ones in 1795. The silver dollar was copied from the Spanish milled dollar of commerce, which contained 371.25 grains of pure silver, and that has been the exact content of our national silver dollar from that day to this. The halves and quarters and dimes were exactly proportioned in weight and fineness to their units. Hamilton supposed that gold was then worth in Europe 15 times as much as silver, and advised consequently that the gold dollar should contain 24.75 grains pure, and that both dollars should be alloyed at the English rate of 1⁄12, thus making the silver dollar weigh 405 grains and the gold dollar 27 grains; but Congress, while enacting the gold dollar just as the Secretary recommended, preferred to alloy the silver dollar by 44.75 grains instead of 33.75, thus making its weight 416 grains. Alloy is of no account in value.
From the ratio of 1:15 fixed by the act of Congress in accord with Hamilton's opinion as to the relative value of gold in silver to be maintained in the coins, unforeseen and important consequences followed, since that was not the true ratio of their value at the time in the markets of the world; an ounce of gold was worth more at that time than 15 ounces of silver, and, accordingly, was worth more out of the coinage than in it, and was therefore exported in preference to silver in payment of foreign balances, especially after France had changed the relative legal value to 1:15½, which happened in 1803; and of course the gold refused to circulate here under those circumstances, being undervalued in the coinage, thus giving a neat illustration of the economical law to be unfolded under the next numerical heading, namely, that the cheaper money will always push the dearer out of the circulation. Not till 1834 was the attention of Congress so strongly drawn to this fact and consequence, as to secure an enactment to remedy it; and this coinage law of 1834 rated gold to silver as 1:15.98. The weight of the gold dollar was at the same time reduced from 27 to 25.8 grains, and the alloy increased from 1⁄12 to 1⁄10. These changes of 1834 increased the relative legal valuation of gold in silver 6.53%. But this in turn was going too far in the opposite direction; gold was not worth 1:15.98 in the bullion markets of Europe; France was holding steady her ratio of 1:15.50; and, consequently, the commercial current of the metals was now reversed, silver passing in preference to Europe to liquidate the balances of trade, and gold beginning to come to the United States, where it would buy more than 3% more silver than in Europe.
Three years after the above changes, that is, in 1837, the standard of 9⁄10 fine instead of 11⁄12 was applied by law to silver also, and this altered fineness made a change in the weight of the silver coins necessary, if the ratio of 1:15.98 was to be maintained between the gold and silver. Accordingly, the weight of the silver dollar, and of two halves, four quarters, and so on, was reduced from 416 grains to 412½, that is to say, less alloy was put into the silver coins, but the fine silver to the dollar was kept just as it was, namely, 371.25 grains. Since 1834 there has been no change in the gold dollar and its multiples, and since 1837 there has been no change in the silver dollar-piece, and the legal ratio of value between gold and silver in our coins is still 1:15.98, since the silver dollar of 1878 and onwards to 1890 corresponds in weight and fineness with the dollar of 1837.
Still, notwithstanding the pains taken and the changes made from time to time to keep the two metals in legal equilibrio, there never has been any considerable period in the century now drawing to a close, during which gold dollars and silver dollars have circulated freely and indifferently in the United States. Sometimes it has been the one kind, and sometimes the other kind, but never both kinds at the same time. The present writing is in the spring-time of 1890: both kinds of dollars are legal tender for all debts public and private in the old-time ratio; the national Government professes to be indifferent whether it pay out gold or silver in redemption of its paper-moneys, but after all, with the exception of the Pacific States and a few special branches of business in the cities of the East and of the Middle, gold coins are not now in common circulation, the bank drawers crowded with silver dollars feel little of the weight and see little of the shine of the gold coins, and if any of these chance to be paid out to ordinary bank-customers they are pretty certain to return in speedy deposit. The theoretical bimetallism of the United States has been a practical though alternate monometallism with various incidental and concurrent disadvantages and losses.
By 1853 these disadvantages of a long-attempted double Measure of Services made legal tender for all debts had become plain enough to everybody, for experience had demonstrated that the Value of gold and silver each in each was not constant but constantly variable; and Congress then wisely determined to make Gold alone the legal tender, except in sums below $5. In connection with this great change in the coinage, a lesser one was introduced at the same time, namely, to reduce the weight of the silver half-dollar and its subdivisions, so that their nominal value in the coinage should be considerably above their metallic value, and their exportations be thus prevented. Accordingly, the half-dollar was reduced in weight from 206¼ to 192 grains, and the smaller coins proportionally. This was in imitation of the English legislation of 1816, and brought into this country a subsidiary silver coinage, which still continues, and of which a nominal dollar's worth weighed 6.91% less than the Silver Dollar, which was not mentioned one way or the other in the law of 1853, but which was then worth about three cents more than the gold dollar, and was of course wholly out of circulation.
Through the influence of the late Samuel B. Ruggles, these subsidiary silver coins were brought in 1875 into harmony with the silver-system of France and the Latin Union. Their five-franc silver piece which is also 9⁄10 fine, weighs just 25 grams or 385.8 grains; a dollar's worth of our subsidiary silver, as we have just seen, weighed 384 grains; and it was, therefore, needful to add only a slight fraction of weight to our smaller silver coins in order to knit a real connection between them and much of the European silver. Two halves, four quarters, ten dimes of our silver since 1875, are debased in weight (not in fineness) 6.47% as compared with the standard silver dollar. A more important coinage connection with Europe was knit through our first five-cent nickel pieces, each of which weighs just five grams, and five of which laid along in order measure exactly a decimetre in length. These were the first official applications of the Metric System on the part of the United States. The nickel pieces, both the five-cent and the three-cent, are 75 parts copper and 25 parts nickel; and the one-cent piece is 95 parts copper and 5 parts tin-zinc. Debts of 4 cents can be legally paid in one-cent pieces, of 60 cents in three-cent pieces, of 100 cents in five-cent pieces, of 500 cents in subsidiary silver, and of any amount in gold coins or in silver dollars.
12. A money inferior in general value will, so long as it circulates locally, drive a superior money out of the circulation. This proposition is a fundamental and universal one in monetary Science. The only exception to it is found in token-coins, and in subsidiary silver so far as that has the token-quality, that is, so far as its nominal is above its bullion Value. The main motive in coining tokens is to make sure for its own local uses of a nation's small change. Token-money is worthless for export, is only designed for the smaller exchanges, is legal tender only for very small sums, and is acceptable only on local and conventional grounds. The exception aside, the above proposition is a pervading and controlling Law of Finance and has been illustrated over and over again in every Age and Nation. It is as solid as the substance of truth can make it, although it looks at first sight like a paradox. We naturally think that what is excellent all round tends rather to displace what is inferior in spots, but with Money the exact reverse is the law; and the perfect coin of full weight, instead of driving out the light and the debased pieces, is always itself driven out of the circulation by them.
The reason for this becomes obvious the moment we ponder the nature of Money. Money is always a Valuable, taking on in addition under Law or Custom the function of serving as an instrument of Exchange. As money, nobody wants it except to buy with, and so long as the Government and the community treat light coin and full coin as of equal value, receiving them indifferently in payment of debts and of taxes, it is clear that nobody will give in payment of debts and of taxes that which is really worth more so long as that which is really worth less will go just as far. The inferior pieces will abide in a market where they will fetch just as much as the superior pieces, while the superior pieces will take on a form or migrate to a place in which some advantage can be gained from their superiority. Thrown into the crucible, or exported in commerce, this superiority immediately manifests itself; and therefore into the crucible or into the channels of foreign trade it might be confidently predicted beforehand that such money would be thrown, and all experience testifies with one voice that exactly those are the destinations of such money.