When in 1878 it was hastily decided to make silver circulate at any cost and large quantities of it were coined, it was determined to keep the dollar at a value which is made equal to 84 1/2 cents, a fact which gave a great deal of trouble to certain moralists, who regarded it as a piece of Government dishonesty, and combined with their religious fervor a desire to export bullion. The necessity for keeping the dollar at a rate above its intrinsic value is, however, apparent at a glance. For if one dollar coin were worth exactly a dollar in value, a little change in the market value of silver would make it profitable to melt the coin and sell it for bullion; and this would be done every time the value of silver rose a little above what it was rated at when the currency was adjusted by law, and eventually a large part of the silver coinage would disappear in this way. It is therefore necessary to rate the dollar higher than its intrinsic value by as much as silver is likely to fluctuate, or in other words to coin the silver dollar so as to contain by weight a less number of cents actual value than 100. As the Government agrees to receive the silver dollar, as well as to pay it, there is obviously no dishonesty in the matter. The same thing is done in other countries, as in England for instance, and it is well known that the German gold coin of 20 marks contains about 20 pfennigs or 1 per cent, less gold than it is rated at. Of course, the fact of receiving back a greater Dumber of dollars than the weight of the silver in bullion really represents, always acts as a great inducement to producers of silver to bring it to the mint to be coined, as they not only get their produce converted into coin for nothing, but also seem to receive something more than its value in addition.
Under these circumstances, if nothing else had been done, and if we suppose for the present that there were no trade with foreign countries, the producers of silver would go on bringing the metal to the mint and receiving back coined money for it; which they would pour into circulation, until the increase of money in circulation had so raised prices that the coin they offered would no longer buy so much of commodities as would compensate them for the trouble and expense of extracting silver from the mine and carrying it to the mint. At this point the production would be reduced, and in the course of time, by the slow process of wear and tear and similar causes, the amount of the circulation would be diminished so much as to lower prices and make it again profitable to work the mines. By this process there would probably be no hoarding of silver of any importance; and even if there were, the hoarded coin would remain in the hands of the producers. Of course, the keeping back of bullion could not occur until it resulted from the high prices of other commodities. But the Government did not perceive that by this means as much silver would inevitably be forced into circulation as people could possibly make use of. They supposed that for some occult reason miners would not bring their silver to the mint, and they determined to buy bullion, coin it, and send it into circulation, giving their creditors the option of receiving their dues in gold or silver.
Now, it is clear that the miner who presents bullion at the mint would be very willing to get back for his pains a greater number of dollars than his bullion represents in gold, and is always willing to sell it to the State while the State pays better for it than the bullion dealer. But the public will be strongly and reasonably prejudiced against accepting in payment? a number of dollars, the intrinsic value of which is less than the value of what is due to them, reckoned in gold; and the public will insist to the uttermost on being paid in the more valuable coinage, or in convertible paper which can be at any time exchanged for gold. Hence it is that, whereas the dollars which miners would get for their silver would be put into circulation by themselves, yet the dollars which the Government coins from bullion it has purchased can never be disposed of to anything like the full amount of the coinage; a great part of such coinage remaining hoarded in the Treasury vaults because no one can be found to take it.
The parallel between the case of silver as it is, and the imaginary case of cereals as I described it, is now complete. By a series of circumstances the supply of silver has now become greater than the demand for it; for, if there were a demand, Government would not be obliged to store away its dollars instead of using them. It is true that the country might be induced to absorb a little more by the miners themselves, who, however, must part with their silver at a diminution of price, equivalent to what is called the depreciation of silver. But as far as the Government is concerned, there is as much silver circulating as the public can possibly be induced to take on the present terms. And we have seen that the public is not unreasonable in refusing to take dollars as such, which contain only 84 1/2 cents worth of silver, so long as they can obtain gold, or notes convertible into gold, instead. Under these circumstances, in a country not producing its own silver, but importing it, the importation would diminish at once, as it would in the case of any other article of commerce. But America produces her own silver, and like the rest of her productions she must have a permanent market for it, or a portion of her capital will be idle, and her active wealth will be reduced.
As for the sake of clearness I have hitherto omitted the consideration of foreign trade, so, now that I have shown how the accumulation of silver has taken place, I may introduce the element of commerce with foreign nations. For, obviously, when it is found that the country will not take any more silver for its own use, the only logically possible alternatives are that the surplus silver should not be used at all, or should be used outside of the country. But it is also certain that as long as a possibility of using the silver outside of the country exists, those who possess it will not be content with not using it at all; therefore, if there were no obstacles in the way, all the surplus silver, not required for actual circulation, for reserve funds, and for purposes of art and decoration in the United States, would find its way to foreign countries. If this had occurred, of course silver would not have lost value, as it would not have become a “drug” in the market. But it has not occurred yet, and we turn to the examination of the obstacles which must necessarily exist in the way of it.
II.
WHEN A COUNTRY has a surplus of some commodity which she desires to dispose of she can only dispose of it by taking in exchange some other commodities which she can make use of. And this means that the commodities which she receives in exchange must be such as will be sold after they have been imported. This, again, can only take place if, after having imported them, all expenses being paid, the articles can be sold in the country for as much more than was represented by the value of the exported article, while still on the spot, as is equivalent to the ordinary rate of profit on the capital embarked. Insurance, tariff duties, the part of the cost of carriage ultimately borne by the importing country, and other minor items are counted as part of the expenses to be written off before the profit on the capital is reckoned. If these expenses become too great the importer will either not make the profit which is necessary in order that he may continue trading, which will happen if he does not raise his prices; or, if he raises his prices, the public will not buy all of the commodity he imports, and he will be forced to contract his operations. In either case a diminution of trade to the point at which it remains profitable must be the natural and rapid result of obstacles put in the way of it.
These obstacles may be of two kinds. They may be inherent in the commodity itself or they may be due to wholly independent causes, which do not directly affect the commodity itself, but raise the price of the articles obtained in exchange for it. To the first class belong fluctuations in the amount or quality of the commodity, which tend to diminish its own value in the foreign markets without affecting other articles of commerce. As, for instance, if we suppose a sudden and great increase in the production of cereals, so that more is offered for sale all over the world than can possibly be bought, whereby the value of them is so much diminished that a sufficient quantity of commodities can no longer be obtained for a given quantity of cereals to make it profitable to transport cereals to market. To the second class belongs
everything which tends to increase the price (not the original value) of the articles obtained in exchange for the commodity in such a manner as to diminish the existing demand for those articles in the country which takes them, by putting them out of the reach of a number of persons who were willing to take them at the lower price, but prefer to forego them at the higher price. For instance, when the surplus of a commodity is exported and articles are obtained in exchange for it which call be sold so as to make the trade profitable to those who engage in it; if the Government of the country imposes a tariff duty on those articles, it is clear that, if the law is not dishonestly evaded, the price of those articles in the country which has the tariff will rise exactly by the amount of tariff, other things remaining the same. It is probable that this rise of price will be such us to reduce permanently the demand for those articles unless those who engage in the trade be content with a much smaller profit on their capital; and if they are not content they must contract their operations.
These are the two classes of obstacles which are likely to arise.
Applying what has been deduced to the case of the production of silver in the United States, it becomes clear at once that the exportation of superfluous silver (and I repeat that it must be superfluous or it would not be lying idle) is checked by one or both of two obstacles; either by fluctuations in the value of silver itself, so that it will not buy enough saleable commodities to make it worth exporting, or by a tariff duty on the commodities which might be imported, so high as to diminish the demand for them too far to make it profitable to import more of them than are at present imported; or by both these causes acting simultaneously. And the extent to which the exportation of the superfluous yield of silver is checked is exactly equal to the amount at any time lying idle in the country, over and above the reserve fund necessary to maintain a convertible paper circulation, usually estimated at one-third of that circulation, and over and above the amount of metal used for purposes of art and luxury.
Now that we have arrived at these plain conclusions, it requires little but the most ordinary common sense to see that, supposing both the causes above stated to be at work in checking the availability of silver for commercial purposes in the United States, no remedy can be permanently effected which does not deal radically with both those causes. As a matter of fact they both really exist, for the value of silver is in a constant state of fluctuation, and at the same time heavy tariffs place a number of commodities, which would be eagerly bought if cheaper, entirely beyond the reach of the great majority of incomes in this country. The remedies applied must, therefore, be twofold and distinct; the one lying in persuading the rest of the world to do something which shall establish the value of silver at a standard less changeable than has hitherto been found practicable; the other consisting in a modification of the tariff duties to suit the altered conditions of the country.
Those remedies are, then:
A universal gold and silver standard.
A revision of the tariff.
Before proceeding, I wish to disclaim any belief in the magical properties of the words “Double Standard,” or “Free Trade.” The latter, in its true acceptation, defines an ideal state of commerce, in which every commodity would be produced in the place where it could be produced most advantageously; but which implies also an ideal state of society in which war should be impossible, and an ideal state of natural science in which any kind of scarcity would be foreseen and prevented. The expression “Double Standard” really implies the power to regulate absolutely the value of the precious metals all over the world. But though both these conditions are impossible, it is not out of the question to approach indefinitely near to either of them. In not believing in perfect free trade as a possibility, one is not expected to believe the existing system of tariffs to be perfection; and though far from asserting that a double standard will enable Russia and Austria to return to specie payments, one may be pardoned for anticipating a greater stability of silver from the combined action of a dozen rich governments, making it legal tender.
The late Mr. J. Stuart Mill disposed of the question of double standard in exactly three pages, showing it to be “a fond thing vainly imagined.” The ground he took was that, as the values of the metals gold and silver in relation to each other are liable to fluctuate, the one would generally be worth more than the other. By “Gresham’s law,” that the inferior medium of circulation always drives out the more valuable when the circulation becomes redundant, a nation with a double standard would, he argued, alternately have a gold or a silver standard according as the one were more valuable than the other. All that would be got would be an increased item of expenditure for recoining every time the values altered. But in many places Mr. Mill was accustomed to say that it was impossible to foresee what position might arise, as no one could know how far the production of silver and gold would continue. It seems probable, therefore, that he might have been led, had he lived, to change his mind in regard to the double standard. He would have seen, as we see to-day, that though the relative fluctuation of the precious metals is the strong objection to a double standard, nevertheless, in the absence of a double standard, there is no means left by which to control that fluctuation at all. And if it is desirable to control the fluctuations of ordinary articles in the market, how much more should every one wish to steady the value of silver; which, double standard or no double standard, is, nevertheless, common money all the world over. Fortunately, there is a sufficient feeling in the United States at present in favor of a double standard to make it possible for me to pass over the details of its working and go on to the other step which must be taken to reduce the equation of international demand. That other step, as I before said, is the modification of the tariff.
The introduction of a double standard all over the world, though it would act as a fly-wheel to partially regulate the value of silver, would not in any extensive way tend to draw off the superfluous silver of the United States. It is quite true that at the first introduction of the double standard abroad, considerable quantities of silver bullion would be required to supply the new coins which would be needed. But when once this first outlay, so to speak, had been made, there would be no more bullion required than before, except to supply the wear and tear of foreign currencies. If, then, after the first movement, America went on producing silver at the same rate as at present, a return to the present state of affairs would be inevitable; and there would not even be the prospect of such temporary relief as has been obtained in the first case by the demand for bullion abroad on the extension of the currency. The advantage of the double standard, as far as it would affect the surplus production of American silver, would be a purely temporary one. In its relation to commerce, by establishing the market value of silver on a firmer basis, the advantage would be permanent. The only plan by which the surplus wealth of the country could be employed as capital would be by enlarging the country’s financial operations. To accomplish this a permanent demand must be created for commodities (over and above what are at present sold in the country), which on the whole shall exchange for the regular annual surplus production of silver in the United States. The only way to do this is to raise the sluice which holds foreign imports out of the country, and let enough flow in to establish equilibrium. The tariffs must be lightened somewhere. I am aware of the extreme delicacy of this point, well understanding the vastness of the manufacturing interests at stake. Any attempt to diminish import duties at short notice must be attended with great danger, unless carried out according to a fixed and faultless scheme. But here is no question of any sweeping measure for introducing free trade. We only need a sufficient, though homoeopathic, dose of free trade to enable us to enlarge our operations. But if the country is willing to say: “No! we will allow our capital to lie in vaults bearing no profit to ourselves, in order that our great-grandchildren may drink imitation hock and champagne grown on American soil,” then I have nothing more to say. Such magnificent self-denial is becomi
ng to the sons of free men. If this country prefers to use bad articles itself, and pay high prices for them, or not to get them at all, in order that its posterity may be clothed in purple and fine linen, and smoke Turkish tobacco of Virginia growth, the case is altered. Probably it would be nearer the truth to credit the people with more financial acumen and less thirst for domestic glory. In this case they, like other business men, will be anxious to keep the whole of their capital in active employment. But these are mere statements. My business is with facts and their logical consequences. I do not wish to appeal to the sentiment of politicians of my own country, but to the common sense of honest men. A slight extension of the reasoning I have already used will suffice.
Complete Works of F Marion Crawford Page 1348