The early coins were definite weights of gold, silver or copper, and in many countries coins still bear the names that indicate their original weight. Yet arbitrary rulers have often sought to cheat their subjects by issuing coins of lighter weight and baser metal. The French livre, now the franc, is one seventy-second of its original value. English coins were debased ten [pg 119] times between the years 1299 and 1601 to exactly one-third of their original value. The loss from such debasement falls almost wholly upon the poor, whose wages fail to buy the usual food and clothing. Henry VIII reduced the coins of his realm again and again, until it would have taken five years' revenue of Elizabeth's reign to restore the currency. Elizabeth chose to take the standards as she found them, but to establish an absolute degree of purity and fix by law the weight of each coin in the system. The standard of purity since maintained in England is 22 carats, or eleven-twelfths fine, and weights have been maintained in spite of several efforts to reduce them. Other nations have taken similar steps with varying standards of purity: .835 in the Latin union, .9 in the United States, and over .96 in most coinage of western Asia. In this way the standard of value for every citizen of a country is as clearly defined as the standard of weight, and every transaction in trade, with every account of such transaction, involves that unit.
United States coinage.—A brief statement of the system of coinage now established in the United States may illustrate the definiteness of the standards of value. The United States mint at Philadelphia and its branches at New Orleans, Denver, San Francisco and Carson have the sole authority for making coins. Any effort at coinage by outside parties is criminal. The mint receives the gold and silver by weight and assay of purity, melts and refines and mixes with alloy, to bring the mass to required fineness, nine-tenths pure, and casts the metal into bars called bullion. These bars are [pg 120] then most carefully assayed, and, if found of exact standard purity, are rolled and drawn into plates the thickness of the coins desired. From these plates disks are punched by machinery, each disk being weighed, and if found too light thrown aside, if too heavy reduced by filing, until every disk represents exactly the required weight of the coin desired. The disks then pass through a milling machine which raises the edges, and when cleaned by dilute acid and carefully dried, are stamped by a steel die with some device covering both surfaces completely. This effectually gives the seal of the nation to the purity and weight of the coin, and, since it covers the whole surface, prevents the possibility of reducing that weight without marring the coin.
United States standards.—The system of coinage in the United States since 1873 embraces standard coins of gold, silver, nickel and copper, but gold alone actually furnishes the standards of value, all other coins being at present subsidiary. Gold is coined for individuals free; that is, a certain weight of metal presented at the mint is assayed, to determine the exact weight of pure gold, and an equal weight of pure gold is returned to the owner in coin. Sometimes a slight charge for the expense of coinage is made and called seigniorage. At present no such charge is made, for the reason that when a nation bears the cost of coinage, foreign coins are kept from circulation, and its own coins are current everywhere.
The standard unit of value for the United States is 25.8 grains of gold nine-tenths fine, and this is called a [pg 121] dollar, although no coin of this weight is at present struck. In actual practice, the standard is shown in the ten-dollar piece, or eagle, weighing 258 grains. The half eagle (five dollars) and the quarter eagle (two dollars and fifty cents) indicate upon their face their relation to the principal coin. The double eagle, or twenty-dollar piece, is coined for greater convenience. These coins connect all the currency of the country directly with the market value of commodities in the world, through gaining their value directly from the market value of gold, where gold is bought and sold. Thus gold furnishes the standard of value with which all other values are compared.
Silver coins of the United States are made from silver purchased by the government. The dollar, adopted from the Spanish rix-dollar, itself derived from the German thaler, is by law a coin of 412-½ grains of silver nine-tenths fine. This silver dollar has a story of its own, which will be given later, and does not form a part of the system of 1873. The half dollar, the quarter dollar, and the dime, for fractional currency, are proportional parts of 385.8 grains of silver nine-tenths fine. These are about five per cent less in weight than the proportional parts of the silver dollar. The original purpose of this reduced weight was to prevent the consumption of these coins in ordinary uses by making them worth on the face a little more than their bullion value. These fractional coins are legal tender in the courts to the amount of five dollars. In nickel and copper coins no effort has been made for many years to maintain a standard of value, the amount of metal in any of them being [pg 122] far less in value than their face. They are legal tender only to the amount of twenty-five cents.
Fluctuation of standards.—In the study of the precious metals as the standard of prices, it is necessary to remember that the value of these metals, like that of all products of labor, is subject to considerable fluctuations. The very fact that gold and silver are durable metals, not easily consumed or readily worn away, tends to make the increased product in a series of years less and less valuable. While the ordinary increase in product may be provided for by increased demand through extended exchange, the very improvements in the machinery of exchange, especially the extension of general credit, operate in the opposite direction.
It is certain that the value of gold and silver within one hundred years after the discovery of America, when European nations took possession of accumulations among the inhabitants of Central and South America, diminished to a little more than one-fourth of the value previous to that discovery. It is estimated that the value of gold since the discovery of 1849, in California, followed by the opening of mines in Australia and South Africa, has been reduced to little more than three-fifths of its value in 1850. This estimate is based upon careful comparisons between what an ounce of gold in 1850 would buy of some hundred staple products, and what the same ounce of gold will buy today of the same hundred products. The test is a somewhat uncertain one, from the fact that many products are much more affected by improved methods of production than others, and changes of habits and customs among the [pg 123] people greatly affect the prices by changing demands. The combination of a large number of products being less likely to be affected than any one, the comparison is worthy of some confidence. Nevertheless, it is possible for two different persons, making different selections for comparison, to arrive at very diverse results. If the selected articles are those of ready manufacture where improved methods have most largely entered, the value of gold will seem to have increased; if, on the other hand, the selected articles are raw materials, in which the law of diminishing returns gives greater cost of production, the value of gold will seem to have diminished.
A test easily applied, though not absolutely correct, is in the amount of labor of the most common sort which an ounce of gold would pay for at the different periods compared. Careful comparisons show that an ounce of gold today buys more of all sorts of manufactured articles and more of most articles of food, though less of the better class of meats and less of labor, than ever before. This fluctuation in the value of gold has its chief importance in connection with long extended credits, though its influence is felt in other directions through a common system of accounts, in which the standard unit of some system of coinage is the sole basis of comparisons. If the standard unit is growing less valuable, in a series of years the book-keeper will show a constantly increasing total of wealth; if, on the other hand, it is growing more valuable, the books will show an apparent loss. Were a perfectly uniform standard possible, all interests would be best provided for.
Ratio of silver to gold.—More directly important in its effect upon exchanges is the unequal fluctuation of gold and silver when both are made the standard of value. That silver and gold are from independent sources, subject to variations of their own in product and processes of extraction, makes it impossible that they should sustain always the same ratio to each other in value.
A careful study of the subject by Professor Rogers shows that early in the thirteenth century one pound of gold was worth ten pounds of silver, at the close of that century would buy twelve and one-half pounds of silver, and in the middle of the fourteenth century bought thirteen and three-fourths pounds; but in the fifteenth and sixteenth centuries, after the new world was pillaged, one pound of gold bought from ten and one-half to twelve pounds of silver. In the seventeenth century fifteen pounds of silver went for one pound of gold, and in the eighteenth, fifteen and one-half pounds. Early in the nineteenth century the ratio was fixed in this country at sixteen of silver to one of gold, and that estimate was assumed to be essentially correct as late as 1877, when a pound of gold would exchange in the market for three and one-half pounds of platinum, seven pounds of aluminum, sixteen pounds of silver, seventy-one pounds of nickel, 942 pounds of tin, 1,696 pounds of copper. Twenty years have produced great changes in both the total annual products and the relative cost of mining. The estimate of 1877 would now be incorrect for any of the metals named. A pound of gold now buys 1,540 pounds of aluminum, the [pg 125] change being due to an invention for reducing aluminum ore. It now takes about thirty-seven pounds of silver to pay for one pound of gold, a change in part due to new systems of coinage in which silver plays a subordinate part, but chiefly due to the greatly increased product of rich mines and greatly improved methods of reducing ores.