The inevitable result of free coinage at a fixed ratio is to expel the undervalued metal from circulation. There can be but one way to prevent this, and that is by a system of sliding scale whereby scrupulous fidelity to the state of the market from day to day may be preserved. Diurnal recoinages are of course out of the question, but the thing is nevertheless both easy and practicable.
Let us assume that gold only has hitherto been used as money, that 25.8 grains thereof have been taken to be one dollar, and that it is now desired to supplement it with the use of silver. Our proposition will necessarily take this form: If one dollar is equal to 25.8 grains of gold, it must be equal to as many grains of silver as 25.8 grains of gold will buy in the open market. Here we must remember that what is true to-day may not be true to-morrow or a year hence. So many grains of gold may to-day be worth 412½ grains of silver, to-morrow they may be worth but 400, and next day, 420. By fixing the amount of silver in the dollar we thus utter through these coins a new falsehood each day. Constant values, not constant weights, is what we are driving at; so in lieu of the silver coin we must substitute a promise to pay a gold dollar, or a gold dollar’s worth of silver, whatever the state of the market. This is what I designate natural bimetallism. The silver dollar and fractional pieces as we now have them may nevertheless continue in circulation, for the promise can be written into them by legislation to redeem them, upon surrender, in the same manner as the paper promises. It is possible that Hamilton and his successors in office prior to 1837 may have thought of this expedient, but discarded it as not then feasible. We must remember, however, that they had serious practical difficulties to contend with, which are now happily removed. The advantages of the telegraph, the cable, the improved means of transportation, and our admirable system of market quotations, enable us now with certainty and ease to determine daily what any given thing is worth in terms of any other.
In order to make my plan as clear as possible, I shall run the risk of seeming elementary by following through, step by step, a typical transaction under it: Let us fancy that the reader, bearing a nugget of gold in his left hand and another of silver in his right, and desiring to convert them into money, repairs to the Philadelphia mint. He applies there to the proper clerk, who, for simplicity’s sake, we will suppose performs all the operations. The clerk weighs and assays the two pieces of metal, and finds the gold one to contain 25,800 grains of standard gold, worth precisely $1,000, which are counted out in bills. A similar operation reveals that the lump of silver weighs 35,500 grains, but the clerk is now observed to consult a table before saying, “The market equivalent of a gold dollar is to-day 710 grains, consequently your 35,500 grains are worth $50;” and he then proceeds to count out the money in bills precisely like those given in payment for the gold. Upon examining these at his leisure the reader discovers imprinted thereon a contract running as follows: “This note entitles the bearer on demand to [the denomination of the bill] dollars in gold or to the market equivalent thereof in silver.”
In the course of time, say five years hence, these identical notes, by the accidents of trade, have come into my hands, and I desire to have them redeemed. Applying to the United States Treasury I find I am granted the privilege of taking payment in silver, in gold, or partly in one and the balance in the other. For the purposes of our illustration, however, we will adhere to the figures already used. In exchange for the $1,000, then, I receive back precisely the weight of gold originally given for them. For the $50 I receive six pieces of silver of different sizes, which I notice are arranged upon a decimal scale of grains. They contain respectively 30,000, 5,000, 1,000, 500, 100, and 50 grains; in all 36,650 grains, or 1,150 grains in excess of the original quantity. Upon inquiry I learn that this excess is not due to any mistake by the clerk, but that since the first transaction silver has fallen so that 733 grains are now commercially equal to 25.8 grains of gold, and that the government has simply redeemed my notes at par. After this first experience I have many subsequent transactions with the mint and with the Treasury. At the former I find that I have the choice of notes, gold coin, or silver coin. At first I reject the silver coins as being under weight, but upon its being explained that they are purposely made light for the sake of convenience, and that they are by general law redeemable in the same manner as the notes, I no longer object to them. At the Treasury, on the other hand, I am sometimes, though rarely, informed that the government is exercising the option reserved in its contract; that it is paying exclusively in gold, or exclusively in silver, or partly in one and partly in the other. These occasional disappointments, however, never affect the integrity of the money I have in hand, for whether redeemed in gold or silver, everyone knows that it will be redeemed at its face value, and it accordingly passes unquestioned.
Upon several occasions I present bonds of the government for redemption, some of them issued previous to the inauguration of the new system, and others issued afterward. In either case I find that the same system of redemption prevails as in the example of the notes. Treasury notes, silver coins, and silver certificates—one and all I discover are also redeemable like the new notes or convertible into them, so that I need never concern myself about any matter save their genuineness.
Gold certificates and greenbacks must, of course, be redeemed as their special contract requires, but, once redeemed, they must reissue in the new bimetallic notes which I have described. Thus a very simple method is provided whereby this form of currency may be transmuted into another without contracting the circulation.
The great desideratum is to make our vast stores of silver available for ultimate redemptions, and this, natural bimetallism effectually accomplishes. Our gold reserve would therefore cease to be indispensable to the preservation of our national credit just as soon as the greenbacks and gold certificates were converted into the bimetallic notes or cancelled. But there need be no fear that the gold reserve would ever become depleted. By removing all danger of the debasement of our money, by insuring the parity of every dollar of our currency with gold, and by permanently retiring the greenbacks, we destroy the incentive to hoard gold, cause its return to the reserve, relieve it of half the burden it formerly had to sustain, and reduce to a minimum the tendency to withdrawals. The copious supply of gold thus secured would enable the Treasurer to waive his option to pay in silver whenever the customer preferred gold, thereby enabling merchants to use the less cumbrous metal for foreign shipments. Indeed, it is entirely probable that the new notes would be preferred to gold in international as well as in domestic exchanges.
An advantage of especial importance is that the metals can be concurrently used. The oscillation from one to the other, even if it be admitted that it would provide us always with the better of them under whatever changes may occur, is certainly not to be preferred to the constant and equal use of both. The unlimited coinage of the two metals upon a plan so equitable, recognizing as it does their precise market relations from day to day, would enable us to view with indifference the fluctuations of the market, however great, and to whatever cause due. Incidental to this advantage, and second only to it in importance, would be the establishment of a par of exchange simultaneously with the gold-and with the silver-using countries by allowing customs duties to be paid in silver bullion at market prices, or in gold.
It may be contended that under the plan here proposed the government might lose by a continued decline in silver, and that the silver it already has would remain depreciated far below the price the government paid for it. I frankly admit this. But is it reasonable to suppose that silver will continue to decline? The probabilities are that in the succeeding twenty years the production of gold will increase more rapidly in proportion than silver; and it also seems that whereas processes for extracting and refining silver have well-nigh reached their limit of economy, the new processes for treating gold are rapidly improving. Nor must it be forgotten that should such a decline occur the mint deposits are from day to day keeping pace with the withdrawals, the losses on the latter thus being counterbalanced by concurrent gains, and interest-bearing debts being constantly transmuted into non-interest bearing currency. It is equally clear that the utilization of a dead asset, as the government stock of silver now is, is a distinct gain, and will permanently dispense with the future issue of bonds for the repletion of the gold reserve. As for the silver purchased by the government under the Acts of 1878 and 1890 having become depreciated, the fact is there whether we choose to recognize or ignore it. There is no better way for palliating that loss than to make that silver immediately available for the payment of the nation’s debts.
Allied to the question of the costliness of the system is that of its tendency toward, or freedom from, speculative disturbances. So long as payment solely in gold was compulsory, speculators had a fertile field for their operations. By giving the Treasurer the option of payment in silver or gold, however, raids upon either metal can be met by paying exclusively in the other until the proper equilibrium is restored. If a real difficulty should still be found to exist in practice, a slight mint charge would effectually put an end to it. In any event, natural bimetallism is much less open to criticism on this score than the existing system, or than that of the fixed ratio.