The Americans

by Hugo Münsterberg

The starting-point of the discussion lay in the law of 1873, which, for the first time in the United States, excluded silver coin from the official currency. There had already been differences of opinion before the passage of this law. The friends of silver say that in 1792 the United States permitted the coinage of both silver and gold without limit, and that silver was the actual monetary standard. And, although by accidents of production the relative value of the precious metals, which had been 15 to 1, later became 16 to 1, nevertheless the two metals continued to be regarded equally important until the surreptitious crime of 1873. It was a secret crime, they say, because the law was debated and published at a time when the nation could have no clear idea of what it meant. The Civil War had driven gold coin out of the country, every one was using paper, and no one stopped to ask whether this paper would be redeemed in gold or silver, and no one was accustomed to seeing gold coins in circulation. General Grant, who was President at that time, signed the bill without any suspicion that it was anything more than a technical measure, much less that it was a criminal holdup of the nation on the part of the rich. And great was the disaster; for the law demonetized silver, brought a stringency of gold, lowered prices tremendously, depressed the condition of the nation, and brought the farmers to poverty, so it was said.

The opponents of bimetallism recognize no truth in this story. They say that in the first third of the nineteenth century the silver dollar was counted equal to the gold dollar, at the ratio of 15 ounces to 1 ounce of metal; but since this ratio did not continue to correspond with the market price, and the gold of the country went to Europe, because it there brought a better value, the official ratio was changed as early as 1834 to 16 to 1. This rate put a small premium on gold, and virtually established a gold standard for American currency. The owners of silver mines no longer had silver coined in the country, because they could get more money for their silver bars abroad; and so, as a matter of fact, during the next decade only 8 million silver dollars were coined, and this denomination virtually went out of circulation. Only the fractional silver currency could be kept in the country, and that only by resorting to the trick of making the coins proportionately lighter than the legal weight of the silver dollar.

The currency became, therefore, to all intents and purposes, a gold one, and nobody was discontented with it, because silver was then less mined. From 1851 to 1855, for instance, the average silver production of the United States was only $375,000, while that of gold was $62,000,000. Then came the lean years of the Rebellion. The government borrowed from the banks, in the autumn of 1861, $100,000,000 in gold, and in the following year issued $150,000,000 of unsecured greenbacks. Thereupon the natural laws of exchange drove all sound currency out of the country, and $150,000,000 more greenbacks were soon issued. The premium on gold went higher and higher, and reached its highest point in 1864, when the price was 185 per cent. of the normal value. After the war confidence was restored, the paper dollar rose from 43 to 80 cents; but the quantity of paper in circulation was so tremendous that metallic money was never seen, and not until the early seventies did conditions become solid enough for the treasury to take steps to redeem the greenbacks.

But this was just the time when all the civilized nations were adopting the gold standard—a time in which the production of gold had become incredibly large. The two decades between 1850 and 1870 had brought five times as much gold bullion into the world as the preceding two decades, and the leading financiers of all countries were agreed that it was high time to make gold the universal standard of exchange. The general movement was begun in the conference of 1867 held in Paris. Germany led in adopting the gold standard; the United States followed in 1873. The gold dollar, which since the middle of the century had been the actual standard of American currency, became now the official standard, and silver coinage was discontinued. There was nothing of secrecy or premeditated injustice, for the debates lasted through several sessions of Congress.

If, nevertheless, the so-called crime remained unnoticed, and so many Senators failed to know what they were doing, this was not because the transactions went on in secret, nor because the use of paper money had made every one forget the problems of metallic currency, but rather because no one felt at that time that he would be injured by the new measure, although the attention of everybody had been called to the discussions. The owners of silver mines themselves had no interest in having their mineral made into coin, and no one was disturbed to see silver go out of circulation. All the trouble and all the hue and cry about a secret plot did not commence until several years later, when, for entirely independent reasons, circumstances had considerably changed. The step had been taken, however, and the principle has not been repudiated. The unlimited coinage of silver has not been permitted by the United States since 1873.

Nevertheless, silver was destined soon again to become regular currency. Hard times followed the year 1873, prices fell and the value of silver fell with them, and bimetallic coinage had been discontinued. Bimetallists connected these facts, and said that the price of silver fell because the commercial world had stopped coining it. For this reason the only other coined metal, which was gold, became dear, which meant, of course, that prices became cheap, and that the farmer got a low price for his harvests. And thus the population was driven into a sort of panic.

A ready expedient was suggested: it was to coin silver once more, since that would carry off the surplus and raise the price; while on the other hand, the increased amount of coin in circulation would bring prices up and restore the prosperity of the farmers and artisans. This is the main argument which was first heard in 1876, and was cried abroad with increasing loudness until twenty years later it was not merely preached, but shouted by frenzied masses, and still in 1900, misled the Democratic party. But the desire for an increased medium of circulation is by no means the same as the demand for silver coinage. After the Civil War the public had demanded more greenbacks just as clamorously as it now demanded silver. It was also convinced that nothing but currency was needed to make high values, no matter what the value of the currency itself.

So far as these main facts are concerned, which have been so unjustly brought into connection, there can be no doubt that the depreciation of silver was brought about only in very small part by the coinage laws. To be sure, the cessation of silver coinage by several large commercial powers had its effect on the value of silver; but India, China, and other countries remained ready to absorb large amounts of silver for coinage; and in fact the consumption of silver increased steadily for a long time. The real point was that the production of silver increased tremendously at just the time when the production of gold was falling off. From 1851 to 1875, $127,000,000 worth of gold on an average was mined annually, but from 1876 to 1890 the average was only $108,000,000; while, on the other hand, the average production of silver in those first twenty-five years was only $51,000,000, but in the following fifteen years came up to $116,000,000. The output of gold therefore decreased 15 per cent., while that of silver increased 127 per cent. Of course, then silver depreciated. Now the future was soon to show that increased coinage of silver would not raise its price. Above all, it was an arbitrary misconstruction to ascribe bad times to the lack of circulating medium. Later times have shown that, under the complicated credit system of the country, prices do not depend on the amount of legal tender in circulation in the industrial world. The speed of circulation is a factor of equal importance with the amount of it; and, most important of all, is the total credit, which has no relation to the amount of metallic currency. When more money was coined it remained for the time being unused, and could not be put in circulation until the industrial situation recovered from its depression.

Thus the bad times of the seventies were virtually independent of coinage legislation: but public agitation had set in, and as early as 1878 met with considerable success. In that year the so-called Bland Bill was passed, over the veto of President Hayes, which required the treasury of the United States to purchase and coin silver bars to the value of not less than 2 million, and not more than four million, dollars every month. This measure satisfied neither the one side nor the other. The silverites wanted unlimited coinage of silver; for, if a limit was put, the standard was still gold, even though the price of silver should be somewhat helped. The other side saw simply that the currency of the country would be flooded with depreciated metal, and one which was really an unofficial and illegal circulating medium. It was known that the silver, after being coined into dollars, would be worth more than its market value, and it was already predicted that all the actual gold of the country would be taken abroad and replaced by silver. The “gold bugs” also saw that this legislation would artificially stimulate the mining of silver if there should actually be any increase in its price.

The new law was thus a bad compromise between two parties, although to many it seemed like a safe middle way between two dangers. Some recognized in the unlimited coinage of silver the dangers of a depreciated currency, but believed that the adoption of the gold standard would be no less dangerous, because gold was too scarce to satisfy the needs of the commercial world. It was said that free silver would poison the social organism and free gold would strangle it, and that limited silver coinage, along with unlimited gold coinage, would therefore be the only safe thing.