The “free-silver delusion” is not dead, nor will it die unless the McKinley administration shall give it its quietus by providing the country with a sound and popular system of bimetallism. Even the most sanguine of the Republican leaders must admit that the prospect of accomplishing this task by international agreement is not so encouraging as to make the tentative consideration of other plans, not requiring concerted action, unnecessary or useless. The purpose of this article is to present such a plan, and to contrast it with those which have already been tried, or have thus far been proposed.
That the financial policy we have pursued since 1878, the year of the Bland-Allison Act, has been absurd and ruinous hardly admits of two opinions. Secretary Carlisle, in his letter of September 16th last, gave authoritative utterance to what had long been tacitly understood. He said, “If the time shall ever come when the parity of the present silver dollars and silver certificates cannot be otherwise maintained, they will be received by the government in exchange for gold.” In other words, the vast stores of silver purchased by the United States under the laws of 1878 and 1890 are a dead asset of the Treasury, and cannot be utilized for purposes of redemption until sixteen ounces of silver shall again be equivalent to one of gold, or until they are re-sold in the open market for gold. To render this treasure available for ultimate redemptions thus becomes a prime condition of our problem.
There is a growing disposition in certain influential quarters to evade the difficulties in the way of international bimetallism by taking the government out of the banking business, and relegating the matter of currency issues more and more to the banks. Whatever may be said in behalf of this course, it is certainly not popular with the masses, who, justly or ignorantly, have come to look upon national banks as favored objects of legislation, and in league with syndicates and trusts. But, aside from this, the real core of the trouble is not removed. We but shift the burden of responsibility. The ultimate fund for redemption remains limited to the one metal as beforehand can serve the banks even less efficiently, for the more divided the responsibility the larger the proportion of gold required for reserve purposes.
International bimetallism at the contemplated ratio of 16 to 1, and bimetallism by independent action at the same ratio, although opposing issues in the late campaign, are founded upon the same errors and misconceptions. Both assume that monetization creates a commercial demand for the metals, thereby enhancing their values; that the use of gold and silver as money substances has been one of choice with us instead of necessity; and that legal-tender laws create value.
It may be going too far to say that monetization creates no demand, but whatever demand it may be supposed to create is not a commercial one. In the latter sense the word signifies both an actual purchase, or the exchange of one thing for another, and a permanent withdrawal from the market of the thing bought. The act of coinage is certainly not a purchase, for, directly or indirectly, it aims to restore to the offerer of the bullion not something else, but the precise thing received; nor is the metal retired from the market, since it is actually or virtually, though in an altered form, immediately restored thereto. The whole process is merely one of bailment. It would therefore seem incumbent upon those affirming the efficacy of monetization to raise the price of the metal to show by scientific analysis just how, why, and to what extent it does so. The fact that from 1792 to 1873, with free coinage at a very close approximation to the market value, not once did the legal and commercial ratios coincide, and that the change of the former from 15 to 1 to 16 to 1 in 1834 had no perceptible effect on the market, seems to be conclusive proof that the general belief that free coinage at a fixed ratio appreciates the over-valued metal is delusive.
It is important to inquire into the grounds upon which the use of silver and gold is founded, for if we have chosen them for that purpose there is an implication that other substances might have served the same object almost, if not quite, as well. Such is not the case. Silver and gold are absolutely unique in possessing the qualities indispensable for money, and not only nature, but immemorial custom and deep-rooted prejudice combine to compel their use in the exchanges irrespective, and even despite, of legislation. Monetization, therefore, cannot, for this further reason, add to, or take away from, their respective values, because the exchangeability that monetization is supposed to give them is a natural quality and not the creature of law. But so much more is this true of gold than of silver, that the dependence of modern commerce, and, through it, modern civilization, upon it is almost absolute. If, therefore, free coinage at a ratio unfair to gold were attempted, gold would cease to be offered at the mints, but it would nevertheless continue in use in final settlements, especially in transactions of some magnitude, thus preventing its decline in value.
Suppose, then, that such a law, national or international, should go into effect to-day, would anyone be so fatuous as to part with his gold until the effect of the law could be discerned? If the governments at the same time should exercise the same good sense, they would retain their gold and disburse their silver, but such conduct would defeat the very object of the law. If, on the other hand, they should release their gold, retaining their silver, they would give fresh point to the oft-proved saying, “The fool and his money are soon parted.” A bona-fide attempt on the part of one or more powers to change the market ratio of the metals could result only in transferring government gold to private coffers, and in a general fall to the silver basis with all its attendant evils. Meanwhile the gold would continue its functions as money in new transactions, but at its market value, never by any chance reaching the public treasuries except on the same basis. The inconvenience of transacting business with a metal some thirty times as heavy, value for value, as that to which they had been accustomed would, without further reason, speedily induce the governments to a restoration of the gold standard at any cost.
As for the legal-tender quality, it cannot be denied that governments here possess a peculiar power which individuals cannot exert; but that fact does not make the exercise of that power morally right. The quality of legal tender infused into the debased dollar cannot but add temporarily to its exchangeable value in a degree gradually diminishing with the exhaustion of the accumulated credits. When, however, the last debtor in the series is reached, and there is no longer a Peter to rob for the sake of Paul, the fraudulent coin must inevitably sink to the value it had as bullion prior to the act that created it.
Upon such fallacies as these it is sought to erect the elaborate superstructure of the civilized world’s monetary system! Some of the more advanced thinkers among the self-styled bimetallists, realizing that some deference must be paid to the lessons of experience, which offers not a solitary instance of the concurrent use of the two metals under a fixed ratio, argue that, even so, the chief blessing of bimetallism—a less variable standard—will have been secured in the automatic oscillation from one circulation to the other. If this oscillatory feature is the object sought, the adoption of a ratio of 16 to 1, or thereabouts, would certainly not secure it, but one almost identical with the market ratio would be imperative. Not once in the history of our country did this alternation occur, although from 1792 to 1873 we were upon the double standard. It is true that in 1834 the circulation changed from silver to gold, but that was due not to the automatic effect of that system, but to an actual change of the legal ratio from 15 to 1 to 16 to 1. But if the legal ratio is now made to conform to the market one, what becomes of our present silver coins? Must they be called in and be replaced by the new? If so the convenience of our subsidiary coinage will be sacrificed, for a silver dollar twice its present size would be intolerable.
The obstacles in the way of international bimetallism need not be enumerated here. The proceedings at the Brussels monetary conference in 1892, though they accomplished little besides, certainly served to make these difficulties plain. The primary object is to make silver coins and gold coins continuously interchangeable in trade at a ratio approximating as closely as possible to 16 to 1, and the discussion of the means to accomplish this has apparently narrowed down to one proposition to be answered by a simple yes or no: Shall the free coinage of gold and silver at the ratio of 1 to 16 be restored? It will not do to insert any other ratio (except, perhaps, 1 to 15 or 1 to 15½), because if a ratio closely approximating the commercial one is contemplated, each nation might decide the question for itself, and an international agreement would be superfluous. All the civilized nations have their own established ratios of coinage varying from 15 to 15½ or 16 of silver to 1 of gold, and whichever of these should prevail the result could not but be a serious matter to those nations obliged to reform their coinage in accordance therewith. Neither horn of the dilemma presented by the plan of a fixed ratio is practicable; the convenient one of 16 to 1 is impossible, and the commercial one would necessitate recoinages and make the coins prohibitively cumbrous. The choice of an intermediate ratio would be a virtual relinquishment of the principle itself, for how would that ratio be arrived at if not by mere guess? There are no data to guide us, nor is there any formulated rule by which the desired ratio may be determined. Besides, the intermediate ratio would still remain open to the objections advanced against the higher ratio, both in requiring recoinage and in unduly enlarging the coins.