WHAT IS BI-METALLISM?
One of the great troubles of the commercial and financial world is the growing scarcity and dearness of gold, concurrently with a growing abundance and cheapness of silver. That gold is not merely a form of money, but is also a valuable and useful commodity in itself, goes without saying. What is true of gold is true also of silver. These two metals are called ‘precious’ because, of all other metals, the desire to possess them in a crude form is universal. Let us put it in another way. All nations do not desire to possess pig-iron, or ingot copper, or block-tin, because all nations cannot utilise these metals in such form, however ready they may be to purchase articles made from them. But all nations above the lowest rank of savagery do desire to possess gold and silver in the state of bullion, because they can all utilise these metals in some mode of ornament or in purposes of exchange. But for obvious reasons the desire for silver is not so large and so general as the desire for gold.
From an early period in the history of civilisation, gold and silver have been used as money, and the reason they are valuable as money is because they have a high intrinsic value. Now, value is a quality which has been variously defined, but which for our purposes can best be explained as of two kinds. That is to say, there is exchange value and intrinsic value. It is a common thing to say that an article is worth just what it will bring, or sell for. In a certain sense, this is true; but the ‘worth,’ or value, in such cases is market or exchange value only. Take, for instance, the value in the book market of some scarce book or pamphlet for which an extravagant price will be paid by a bibliomaniac, wholly regardless of its literary merits. Books which are intellectually worthless will often attain a very high ‘market value.’ Per contra, a copy of the Bible may be obtained for sixpence.
In speaking of value, therefore, one must always understand whether market value or intrinsic worth be meant. The two do not always coincide. A thing is very often intrinsically worth a great deal more than it will sell for; and, on the other hand, a thing will often sell for a great deal more than it is intrinsically worth. No better examples of the latter can be mentioned than the extravagant prices which are sometimes paid for pieces of old china, or the extraordinary sums which were given for bulbs in the days of the Dutch tulip mania.
Now, the peculiar virtue of gold is that it combines the highest exchange value with the highest intrinsic value. It possesses qualities which no other substance has; some of these qualities adapt it for use as money, while it possesses at the same time a value independent of its worth as money—namely, its intrinsic value. That is to say, a sovereign is valuable not merely because it will exchange for twenty shillings, or purchase a pound’s worth of goods, but also because it can itself, by re-melting it or otherwise, be made an article of use. The same is true only in a modified degree of silver money. A shilling can be utilised in the same way as bullion-silver can; but a shilling does not contain a shilling’s-worth of the metal. This is why silver coins in this country are called only ‘token-money.’ Their intrinsic value is not equal to their ‘face’ or exchange value, and therefore you cannot at law compel a man to receive payment of a debt from you in silver if the amount be greater than forty shillings sterling. Silver beyond forty shillings is not what is termed a ‘legal tender.’ A creditor may take silver from you if he likes, just as he may take a cheque from you if you have a banking account; but you can no more compel him to receive payment in silver over forty shillings than you can compel him to take your cheque.[1]
This has been the law of England since 1816; and it is this law which makes England what is called a mono-metallic country—that is, possessing one sole standard of value. That standard, as we know, is gold. But India is also a mono-metallic country, and silver is there the sole standard, gold not being now minted at all, although gold coins, such as mohurs, circulate to some extent, and are hoarded as ‘treasure.’ Indeed, in all the Asiatic countries it may be said that silver is the circulating medium of exchange—that is to say, the actual form of money. Yet, in all Asiatic countries, gold is more highly prized than silver, and is more readily taken in payment of a debt, even if of Western coinage; and this fact is another illustration of the high intrinsic value of gold in all parts of the world. Strictly speaking, gold is not ‘money’ in Asia, but it is held more precious than official money.
Now, there are certain persons who contend that it is a great mistake on the part of any nation to have a standard of value confined to a single metal, be it gold or silver, and who further contend that the existing universal depression of trade is principally due to England and one or two other countries rejecting silver for purposes of legal money. These persons are what it is usual to call Bi-metallists, and they desire to see adopted a universal dual, or, more correctly, alternative standard.
The theory of bi-metallism is one of French origin. In 1865, certain European states formally adopted it. These states were France, Belgium, Italy, and Switzerland; and their combination is known as the ‘Latin Union.’ The agreement they made among themselves was that each of them should coin both gold and silver in unrestricted quantities and of defined fineness, and that both gold and silver money should be ‘legal tender’ in each state for all debts. That is to say, in the Latin Union a man may pay a debt of a thousand pounds, or any amount, in silver—if he likes—instead of being confined to forty shillings-worth of silver, as with us. In practice, he does not do so, because it is inconvenient to carry and to count large sums in silver coins. The purpose of that agreement was to increase the amount of coined currency without causing an addition to the market value of one metal by concentrating the demands of mints upon one alone. It necessitated fixing a ratio of value between the two metals, and the ratio was taken by the Latin Union to be fifteen and a half parts of silver to one of gold. That is to say, one ounce of gold was declared by law to be ‘worth’ fifteen and a half ounces of silver, and vice versâ.
It would take too long and too much technicality to follow the operations of the Latin Union; but it is necessary to explain that one branch of the agreement had to be departed from after the close of the Franco-German war. The Germans demanded payment of the whole of the two hundred millions of the war indemnity in gold, and they then adopted for themselves a gold standard. This is what is meant by saying that Germany demonetised silver; she became mono-metallic, like England. The effect of this action on the part of Germany was to cause an extra demand for gold for mint purposes, and at the same time to throw upon the markets of the world a vast quantity of silver which was no longer wanted for coinage. Consequently, the price of silver measured in gold fell so considerably that the Latin Union could no longer maintain the ratio of fifteen-and-a-half to one, which they had established. They therefore agreed among themselves not to coin any more silver—or to coin only such small quantities as were needed for the convenience of the people—while, however, they retained the principle of silver money being ‘legal tender’ as well as gold.
Some years later, the United States government resumed specie payments—that is to say, they called in the ‘greenbacks,’ or notes for small amounts which were issued during the war, when coin was scarce, and began to pay all their debts in gold. In order to do this, they had to purchase and mint a large quantity of that metal. Between 1873 and 1883, it is estimated that no less than two hundred millions sterling worth of gold were taken up for coinage over and above the normal consumption in that way. Thus, the United States required one hundred millions; Germany, eighty-four millions; and Italy, sixteen millions. This meant an average extra demand on the ten years of twenty millions annually.