If Not Silver, What?

by John W. Bookwalter

“In 1873 the total product of silver in the world was 61,100,000 ounces, and the silver in a dollar was worth $1.04 in gold.

“Last year the world’s product of silver was 165,000,000 ounces, and the silver in a dollar was worth only 50.7 cents.

“In 1894 the potato crop of the United States was, in round numbers, 170,000,000 bushels, and the average price 53c.

“In 1895 the estimated potato crop was 400,000,000 bushels, and the average price was 26c.

“The fall in both cases was due to the same cause.”

Observe the assumptions: 1. That the output of one year determined the value of silver as the crop of potatoes does their price for that year! The schoolboy who does not know better deserves the rattan. If the theory were correct, gold in 1856 should have been worth but a fourth what it was in 1848, whereas the largest estimate of its decline in value puts it at 25 per cent.

2. That the increased silver production of twenty-two years would reduce its value in the exact mathematical proportions of the increase. This theory ignores the two most important facts determining the value of money: that the silver or gold mined in any one year is added to the existing stock, to which it is but a minute increase; and that wealth, population, and production are also increasing rapidly, relative to which the increase of silver is but a trifle indeed. The yield of the Monte Real a thousand years ago may have cost five times as much labor per ounce, and that of Laurium ten or even twenty times as much; but all of both which is not lost goes with the last ounce mined into the general stock, which is now about $4,000,000,000 in coin alone. The greatest annual production has in but a very few cases added so much as 3 per cent. to the stock on hand, and about half of it is consumed in the arts. If the increase of the annual production of silver by 2¾ to 1 in twenty-two years reduced its value one-half, will the Times tell us what should have been the reduction in the value of gold when this product increased by fivefold in eight years? It should further be noted that the discovery of a “Big Bonanza” is an event so rare that it has not happened, on an average, more than once in three centuries since the dawn of history, and that since 1873 the growth in the world’s production and trade has been, relative to former times, even greater than the increase in the production of silver.

Consider the following facts, which I have condensed from Mulhall: In 1800 the total yearly international commerce of the world was estimated at $1,510,000,000. Forty years later it had only increased 90 per cent., amounting in 1840 to $2,865,000,000, and in that year there were in all the world but 4,315 miles of railroad and no electric telegraph. The total horse-power of all the steamships of the world was but 330,000, and the carrying power of all the shipping but 10,482,000 tons. To-day the international commerce of the world is almost $20,000,000,000, and increasing at the rate of $1,000,000,000 per year; there are in the world over 400,000 miles of railway and a very much greater mileage of magnetic telegraph, including 14 intercontinental cables; the ocean tonnage of Great Britain alone is very much greater than was that of the whole world in 1840; and tremendous as this increase of international trade has been, it is the merest trifle compared with the increase of the internal trade in several of the greater nations.

What then has caused the “great depreciation”? Nothing has caused it. There has been but a trifling depreciation indeed. It is as clearly proved as anything unseen can be that if the nations had left silver and gold as they were in 1870, both would have gained materially in value, that is, in the power to command commodities, because of the vastly greater relative increase of the latter; but by demonetization all the increase has been concentrated in gold, leaving silver almost exactly as it was. At present, however, I devote myself to the question whether there has been such an increase in the production as would normally cheapen it. On this point we have evidence to convince any unbiased mind, for the relative production of silver and gold has in former ages varied very much more than in the last twenty-three years, and the variation has extended over much longer periods, without causing more than the most trifling divergences in value. And the explanation is simple: the two metals received equal recognition at the mint and in legal tender laws; the greatly increased use of the cheaper maintained its value in coinage, while disuse of the dearer tended equally to check its appreciation. In this sense government can “create value” by creating a use.

From 1660 to 1700, for instance, the production of silver averaged in value much more than twice that of gold, and in quantity some thirty-three times as much; yet all those years, the highest mint ratio was 15.20 to 1 and the lowest 14.81—a variation in money value of but .39 or 2.6 per cent. From 1701 to 1760 inclusive, the proportion of gold produced gradually rose from a little over a third to 40 per cent. in values, yet the money ratio remained remarkably constant, the highest being 15.52 of silver to 1 of gold and the lowest 14.14. In other words, for sixty years there were produced on an average about 28 ounces of silver to 1 of gold, yet the widest variation of their money values in all those years was less than 9 per cent. In the face of such facts as these, we are asked to believe that while an average of over 30 ounces to 1 created an average variation of less than 6 per cent., and a greatest variation of less than 9 per cent., a production of some 20 ounces to 1 since 1882 has created a variation of 100 per cent. And that the variation began nine years before the value production of silver exceeded that of gold! It is an affront to our common sense.