If Not Silver, What?

by John W. Bookwalter

So extensive was this demonetization of gold, and so far-reaching were its consequences, that it may easily be believed that it was the beginning of all our misfortunes, and that the crime of the century, instead of being the demonetization of silver in 1873, was really the demonetization of gold in 1857; for that was the first general or preconcerted international action to destroy the monetary functions of one of the metals and throw the burden upon the other, and it first familiarized the minds of financiers, and especially of the creditor classes, with the fact that the thing might easily be done and that it would work enormously to their advantage.

It may also be said that it led logically to the action of 1867, which was but the beginning of a general demonetization of silver.

The history of gold demonetization is full of instruction and is here given in detail.

In 1840-45 the world was hungering for gold. All the leading nations had just passed through financial convulsions which shook the very foundations of society. Several American states had either repudiated their debts outright or scaled them in ways that to the English mind looked dishonest, and there was a general uneasiness among the creditor classes of the world. A universal fall of prices had produced the same results with which we are now so painfully familiar. In the half century terminating with 1840 the world had produced but $529,942,000 in gold, coinage value, and $1,364,697,000 in silver, or some forty ounces of silver to one of gold; yet their ratio of values had varied but little, and the variation was not increasing. Why? Monometallists have raked the world in vain for an answer. Bimetallists point to the only one that is satisfactory, namely, the persistence of France in treating both metals equally at her mints. But there were grave apprehensions that France alone could not maintain the parity, and so, as aforesaid, all the world was hungry for gold.

And in all the world there was not one observer who dreamed that this hunger would soon be far more than satiated, and the philosopher who should have predicted half of what was soon to come would have been jeered at as a crazy optimist. In 1848 gold was discovered in California, and three years later in Australia. The supply from Africa and the sands of the Ural Mountains had previously increased, so that in 1847-8 it was equal to that of silver. But how trifling was this increase to what followed. In 1849 there was still a slight excess of silver production, and in 1850 the proportion was but $44,450,000 of gold to $39,000,000 in silver. Then gold production went forward by great leaps and bounds. How much was produced?

Well, the estimates vary greatly. Soetbeer places the amount at $1,407,000,000 by the close of 1860; but Tooke and Newmarche have put it about $100,000,000 less. In the same era the production of silver varied but a trifle from $40,000,000 a year. A committee of the United States Senate, appointed for investigating the facts, reported that in the twelve years ending with 1860 the gold produced was $1,339,400,000; and in the next thirteen years, ending with 1873, it was $1,411,825,000. Thus, in the thirteen years following the California discovery the stock of gold in the world was doubled, and in the twenty-five years ending with 1873 it was more than tripled. Several economic writers have made the statement very much stronger than this, and M. Chevalier, in his famous argument for the demonetization of gold, written in 1857, declares that the production of gold as compared with silver had increased fivefold in six years and fifteenfold in forty years, and that, owing to the export of silver to Asia and its use in the arts, there would, in a very little while, be no possible method of maintaining the parity of the two metals in money at any ratio which would be honest and profitable.

And what was the real fact? The ratio, which in 1849 was 15⁷⁸/₁₀₀ of silver to 1 of gold in the London market, and the same in 1850, never sank below 15¹⁹/₁₀₀ to 1, and never rose above the ratio of 1849 till after silver was demonetized. Why this wonderful steadiness? The answer is easy. In the eight years of 1853-60 France imported gold to the value of 3,082,000,000 f., or $616,000,000, and exported silver to the value of $293,000,000; in short, her bullion operations amounted to $909,000,000. She stood it without a quiver; she grew and prospered as never before. She resolutely refused to change her ratio. Her mints stood open to all the gold and silver of the world, and thus did she save the world from a great calamity.

Scarcely, however, had the golden flood begun when the moneyed classes and those with fixed incomes raised a loud cry. From the laboring producers no complaint was heard. They never complain of increased coinage. In the United States we knew nothing of this clamor, for we then had no large creditor class, no great amount of bonds, and very few people interested more in the value of money than in the rewards of labor. In Europe, however, all the leading writers on finance and industries took part. In 1852 M. Leon Faucher wrote: “Every one was frightened ten years ago at the prospect of the depreciation of silver; during the last eighteen months it is the diminution in the price of gold that has been alarming the public.” In England, the philosopher DeQuincey wrote that California and Australia might be relied upon to furnish the world $350,000,000 in gold per year for many years, thus rendering the metal practically worthless for monetary purposes, and another Englishman, as if resolved to go one better, declared that gold would soon be fit only for the dust pan. M. Chevalier took up the task of convincing the nations that gold should be demonetized as too cheap for a currency, and of course the interested classes soon organized for action.

Holland had already begun the process in 1847, but had managed it so awkwardly that her condition is not easily understood or described as it was in 1857. The estimated amount to be thrown out of use was only half the real amount, and in the attempt to avoid a small evil they produced a very great one.

Austria was at that time involved in trouble with her paper money system, and thought the cheapening of gold offered a fair opportunity to come to a metallic basis. The reasoning of her statesmen was singularly like that of General Grant in 1874, when he pointed to the great silver discoveries in Nevada as a providential aid to the restoration of specie payments, being at the time in sublime ignorance that he had long before signed an act demonetizing silver, and thereby depriving this country of the benefit of such providential aid. But the strength of the creditor classes was entirely too much for Austria and Prussia, and the German States allied with them almost unanimously declared for throwing gold out of circulation. A convention had been held at Dresden in 1838, with the view to unifying the coinage, but little had been accomplished, and now a convention was called at Vienna, which was attended by authorized representatives of Prussia, Austria, and the South German States. It was there stated that, besides various minor coins, there were three great competing systems in Germany, namely, those of Austria, Prussia, and Bavaria. It is needless to go into details of this once famous convention, but suffice it to say that the following points were agreed upon: (1) The Prussian thaler was to be the standard for Prussia and the South German States, and was to be a silver standard exclusively. (2) The Austrian silver standard was to prevail throughout that empire. (3) The contracting powers could coin trade coins in gold, but none others, except Austria, which retained the right of coining ducats, and these gold coins were to have their value fixed entirely by the relation of the supply to the demand. “They were not therefore to be considered as mediums of payments in the same nature as the legal silver currency, and nobody was legally bound to receive them as such;” in short, none of the gold coins permitted by the convention were to be legal tender, but all were to be mere trade coins precisely for the same purpose as the trade dollar once so famous in the United States. The result, of course, was to make silver the standard and gold the fluctuating money or token money. The effects of this convention remained with but little change till 1871.