Here I am forced to notice another hasty and mischievous analogy. Some devices for composite measures of length have been adopted to avoid contraction and expansion, and it is urged that bimetallic money is a step in the same direction. I by no means assert that science can do nothing to reach a better standard of value than gold is. What progress in that direction may lie in the future no one can tell, and he would be rash who should ever presume to deny that progress can be made; but when any proposition is presented it will have to show what composite measures of length show, viz., that its action is founded on natural laws. Heat and cold act oppositely on the components of the composite measures of length, or the arrangement is such that the action of the natural forces neutralizes. No such scientific principle underlies bimetallic money. The forces determining the value of gold and silver act independently of each other and are not subject to common influences. They are complex, moreover, and their effects are not uniform in their different degrees. Therefore this analogy also fails.
The opinion that a concurrent circulation is not possible has led several of the leading nations of Europe (and, at the time of writing such is still the system of the United States) to adopt the plan of a permanently false rating of gold and silver, so as to use silver as a subsidiary coinage. Silver is permanently overrated, so that it obtains currency above its bullion value. If the civilized nations want to use silver for money, so that the total amount of metallic money in the Western world shall be greater than the amount of gold, and if they are not satisfied with the use of it as subsidiary, then there is only one way left, and that is for some nations to use gold and some to use silver. This was the solution of the bimetallic difficulty which China was forced to adopt a thousand years ago. Some provinces used iron and some copper. The question then arises as to who will take silver. This brings me to the last point of which I have to speak.
I have discussed my subject as if gold and silver stood on the same level of desirability for money, and as if there were no choice of convenience between them. Such is not the case in fact. It will be observed that gold and silver never have been used together. Gold has generally been subsidiary, being employed for large transactions. With the advance of prices and the increase in variety of commodities, as well as in the magnitude of transactions, nations have passed from copper money to silver and from silver to gold. This advance is dictated by convenience. Silver is no longer as convenient a money for civilized industrial and commercial nations as gold. We therefore see them gradually abandoning silver, and we saw the Latin Union set up a bar against silver so soon as the operation of the double legal tender threatened to take away gold and give it silver. Whether this movement from silver to gold can be accomplished without financial convulsions I am not prepared to say, especially in view of the extent to which the nations have depreciated gold by paper issues, but I regard the movement as one which must inevitably go forward. The nations which step into the movement first will lose least on the silver they have to sell. The nations which use silver until the last will lose most upon it, because they will find no one to take it off their hands. If we now abandon the gold standard and buy the cast-off silver of the nations which have been using it and are now anxious to get rid of it, we voluntarily subject ourselves to that loss, which we are in no respect called upon to share. The Dutch at New York kept up the use of wampum longer than the English in New England. When the Yankees were trying to get rid of it, they carried it to New York, adding some which they manufactured for the purpose, and they carried the goods of the Dutchmen away. The latter then found that they held a currency which they could only get rid of at great loss and delay to the Indians north and west of them. The Yankees thus early earned a reputation for smartness. The measure now proposed is a complete parallel, only that now this nation proposes to take the rôle of the Dutch. We shall have to give our capital for silver, and after we have suffered from years of experience with a tool of exchange inferior to that which our neighbors are using, we shall have to get rid of it and buy the best. Then we shall incur the loss—to all those who have anything—of the difference between the capital we gave and that which we can get for the silver. The dreams of getting silver and keeping gold too, so as to have a concurrent circulation, are all vain. At the rating proposed there is no difference of opinion on this point amongst any persons at all qualified to give an opinion. The real significance of the propositions before the country is to make us one of the nations to take silver in the distribution I have described. The notion of a coinage union is impracticable. It would be easier to get up an international union to do away with war. England is perfectly satisfied with her money. She appreciates the peril of monetary experiments and will make none. Germany, Sweden, Finland, Denmark, and Holland have just changed from silver to gold, and will not enter on any new changes for a long period, if ever. The coinage union is therefore out of the question. The issue before us is simply whether we, being a gold nation, will, under these circumstances, abandon gold and take up silver. No doubt the nations which want gold would be very glad to have us do it. We should render them a great service; we should, however, do ourselves great harm, as much so as if we should buy a lot of cast-off machinery from them. They are waiting to see whether we are ignorant and foolish enough to put ourselves in this position; and when they have seen, we shall hear no more of the coinage union.
I have now presented the views to which my study of this question has led me. It will be perceived that I direct my attack against the postulate of all the bimetallic theories. I have carefully discriminated between the alternate standard and bimetallism. I have said little about the former. It is very much a matter of opinion whether it would work or not. I do not believe that it would, under a coinage union, but I should not feel forced to take strong ground against any one who held the contrary opinion. My subject has been a concurrent circulation of gold and silver, and I have tried to controvert the notion that any such thing is possible, with or without a coinage union, because that notion contradicts the first great law of economic science. If that notion is true, then there is no science of political economy at all; there are no laws to be found out, a professional economist has nothing to teach, and he might better try to find some useful occupation. If that notion is true, we have no ground on which to criticize the Congressmen who are trying to pass the silver bill. We cannot predict any consequences or draw any inferences from past experience. If legislation can control value for definite results, then the whole matter is purely empirical. In that case, the Congressional experiment may turn out well for all the grounds we have to assert the contrary; its success would only be questionable, not impossible; if it failed it would not be because its supporters had attempted the impossible, but because they had not used sufficient means. They could go on to try the experiment again and again in other forms and with other means, and they would indeed be doing right to proceed with their experiments, like the old alchemists, in the hope of hitting it at last. No economist would have any ground upon which to step in and define the limits of the possible, or to prescribe the conditions of success, or to set forth the methods which must be pursued—if he could not appeal with confidence to the laws of his science as something to which legislature as well as individuals must bend. Therefore one who holds the views I have expressed in regard to economic forces, laws, and phenomena is compelled, as well by his faith in his science as by the public interests now at stake in the question, to maintain that a concurrent circulation of gold and silver, either with or without a coinage union, is impossible.
THE INFLUENCE OF COMMERCIAL CRISES ON OPINIONS ABOUT ECONOMIC DOCTRINES
[1879]
Any one who follows the current literature about economic subjects will perceive that it is so full of contradictions as to create a doubt whether there are any economic laws, or whether, if there are any, we know anything about them. No body of men ever succeeded in molding the opinions of others by wrangling with each other, and that is the present attitude in which the economists present themselves before the public. Like other people who engage in wrangling, the economists have also allowed their method to degenerate from argument to abuse, contempt, and sneering disparagement of each other. The more superficial and self-sufficient the opinions and behavior of the disputants, the more absolutely they abandon sober arguments and devote themselves to the method I have described. As I have little taste for this kind of discussion and believe that it only degrades the science of which I am a student, I have taken no part in it. In answer to your invitation, now, what I propose to do is to call your attention to some features of the economic situation of civilized nations at the present time with a view to establish two points:
1. To explain the vacillation and feebleness of opinions about economic doctrine which mark the present time, and
2. To show the necessity, just at this time, of calm and sober apprehension of sound doctrine in political economy.
At the outset let me ask you to notice the effects which have been produced during the last century by the developments of science and of the industrial arts. Formerly, industry was pursued on a small scale, with little or no organization. Markets were limited to small districts, and commerce was confined to raw materials and colonial products. Producer and consumer met face to face. The conditions of the market were open to personal inspection. The relations of supply and demand were matters of personal experience. Production was carried on for orders only in many branches of industry, so that supply and demand were fitted to one another, as we may say, physically. Disproportionate production was, therefore, prevented and the necessity of redistributing productive effort was made plain by the most direct personal experience. Under such a state of things, much time must elapse between the formation of a wish and its realization.