When we consider the transcendantly important character of the service which money performs—when we reflect that, without it, the achievement of an advanced civilization would be impossible, we can not escape the conclusion that, compared with the value of that service, the commodity value of any material on which the money function may be stamped is too trifling to merit serious attention.
This will be made clear by reflection on the necessities of the situation.
So long as society chooses to maintain the automatic or metallic money-system, it must be obvious that to escape the evils that would result from a sudden and overwhelming increase in the supply of the money-material as compared with the entire stock in existence, and the infinitely more serious evils that would result from a wholly insufficient yearly addition to that stock, it must have on hand an enormous accumulation of the metals on which the stamp is placed. It must be manifest that no material would be fit for universal acceptance for so important a function as money unless there were available so great a quantity of it that no sudden shock could be inflicted on society by ordinary fluctuations in the current yield, or in the current consumption in the arts.
But, in the nature of things, a supply sufficient to effect that result would be so enormous as practically to destroy the market value of the material as a mere commodity if the money function and use were withdrawn from it.
THE MONEY DEMAND, NOT THE COMMODITY DEMAND, THAT GIVES GOLD ITS VALUE.
Mr. Giffen the statistician of the London Board of Trade, in an article recently published in an English magazine, berating and deriding the bi-metallists, maintains that it is not the demand for gold as money, but for gold as a commodity, to be used in the arts, that determines its value.
To prove his case, Mr. Giffen states that the supply of gold is about $95,000,000 per annum, the annual demand for the arts $60,000,000, or about two-thirds of the annual supply; while the demand for money is only $35,000,000, or about one-third that supply. He therefore argues that the art demand, being the greater of the two, contributes more largely to the maintenance of the value of gold than does the demand for that article as money. It is hardly necessary to point out the absurdity of this claim.
The commodity demand in any one year is not made upon the current year's supply, but upon the entire amount in existence, which, is estimated to be about $4,000,000,000. If the demand for the arts entirely ceased, would the addition, to the money volume, of the $60,000,000 now used in the arts produce any appreciable effect on the value of the $4,000,000,000 in existence?
On the other hand, what is the demand on gold for the money use? All the labor and all the salable property of the western world are constantly offered in exchange for it. It is a moderate estimate to assume that each dollar is earned, demanded, and paid once a week, or fifty times in each year. This constitutes a total annual money demand of $200,000,000,000, compared with which colossal sum how inconsequential is the commodity demand of $60,000,000 in maintaining the value of gold.
The amount of gold annually used in the arts is not very definitely ascertained, but in 1886 it was estimated by the then Director of the United States Mint to be $46,000,000 per annum. Mr. Giffen estimated it at $60,000,000. It is my opinion that the arts forage on the money-stock of gold to the extent of about the entire annual yield. The bullion or commodity value of that metal being determined by its money value, whoever desires to use it for any purpose other than money, takes the bullion at its coinage value, or else melts up the coin.