Chambers's Journal of Popular Literature, Science, and Art, fifth series, no. 120, vol. III, April 17, 1886

LITERATURE, SCIENCE, AND ART, FIFTH SERIES, NO. 120, VOL. III, APRIL 17, 1886 ***

[Illustration:

CHAMBERS’S JOURNAL

OF

POPULAR

LITERATURE, SCIENCE, AND ART

Fifth Series

ESTABLISHED BY WILLIAM AND ROBERT CHAMBERS, 1832

CONDUCTED BY R. CHAMBERS (SECUNDUS)

NO. 120.—VOL. III. SATURDAY, APRIL 17, 1886. PRICE 1½_d._]

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.

We must bear these figures in mind in endeavouring to see how gold has become scarce, and, as it is termed, ‘appreciated in value.’ Besides the coinage for these and the other states which have to put a certain quantity of gold through the mints every year in order to keep up their normal currency, there is the large demand for the metal for employment in the arts and manufactures. M. de Levaleye estimated a few years ago that the amount of gold thus used is about ten millions sterling annually; but in a former article we took fifteen millions sterling as the figure. The latter we believe to be nearer the mark, and it is the fact that the use of gold for purposes other than coinage is annually increasing.

A thing may increase in market value—which, as we have said, is different from intrinsic value—in two ways—namely, by reason of enlarged demand, or by reason of diminished supply. Both forces have operated in the case of gold; for, while the demand has increased in the manner just shown, the supply has been steadily falling off. In 1852, after the discoveries in California and Australia, the production of gold was to the value of thirty-six and a half millions sterling; but now, it is only about half that amount. The decrease in yield is shown in a very interesting manner by comparing successive periods of five years. Thus:

Period. | Total Production. | Annual Average. 1852-56 | £150,000,000 | £30,000,000 1857-61 | 123,200,000 | 24,600,000 1862-66 | 114,000,000 | 22,750,000 1867-71 | 109,000,000 | 21,753,000 1871-75 | 77,000,000 | 19,200,000

Between 1875 and 1882 the average remained a little over nineteen millions annually; but in 1883 the production was only about eighteen and a quarter millions; and in 1884 it was rather under eighteen millions sterling. At the close of last year, Mr Samuel Smith, M.P.—a leading bi-metallist—said that the present production could not be estimated at much over sixteen millions annually. If our estimate is correct, that fifteen millions annually are used in the arts and manufactures, it will be seen what a narrow margin is now left for coinage.

This is bad enough from a bi-metallist point of view; but worse remains. Silver has been all the time increasing in amount of production. We have not the figures for precisely the same periods as for gold, but the following will suffice to show the growth in the yield of silver:

Period. | Total Production. | Annual Average. 1852-62 | £90,760,000 | £9,076,000 1863-73 | 124,530,000 | 12,453,000 1874-80 | 110,400,000 | 15,771,428 1881 | ... | 18,800,000 1882 | ... | 20,500,000 1883 | ... | 21,400,000 1884 | ... | 21,400,000

The broad inference from these figures is that the production of silver has about doubled within the last twenty years. The increase is mainly, if not entirely, from the development of the mines in the western States of America; and an American authority estimates that the production will probably double itself again within the next twenty years.

Now, the curious fact is, that while the world at once and greedily absorbs the annual production of gold, it is in present circumstances unable to utilise all the silver. This metal is actually decreasing in employment in the arts; and indeed, it is within the observation of every one that silver-plate is no longer the highly coveted possession which it once was in middle-class families. One meets now with ‘solid-silver’ appliances comparatively seldom in general use, electro-plate having taken their place. Its disuse as money has been already mentioned.

The result is remarkable. In 1848, the metallic money, current or hoarded in the world, was estimated at one thousand millions sterling, of which four hundred millions were gold, and six hundred millions were silver. In 1870, the metallic money was estimated at fourteen hundred millions, of which seven hundred and fifty millions were gold, and six hundred and fifty millions were silver. At present, the metallic money of the world is estimated at about fifteen hundred and seventy millions sterling, of which about eight hundred millions are gold, and seven hundred and twenty millions are silver. It is to be remembered also that a very small proportion of the gold which is withdrawn for manufactures and ornaments ever finds its way back into the circulating arena, because the labour expended on the finished ornament gives it a higher value than can be obtained out of the melting-pot. In this connection another interesting point may be noticed, which is, that it has been ascertained that out of every three thousand sovereigns coined, one sovereign represents the annual loss by friction; and in half-sovereigns the annual loss in the same way is one in eighteen hundred. It may not be generally known that our gold coins circulate very much in some parts of the East and in South America, and are only returned to this country when they have lost in weight by friction. This loss reduces the intrinsic value; but when sent to London, they are exchangeable at face value, if not excessively abraded.

The effect of this change in the actual production and employment of gold and silver is to materially alter their relative values. The value of silver measured in gold has fallen so enormously, that instead of the ratio being, as was fixed by the Latin Union, fifteen and a half parts of silver to one of gold, the actual ratio in the markets of the world is now only about twenty parts of silver to one of gold. It is estimated that a sovereign will now purchase as much as thirty shillings would do fifteen years ago; and this is what is meant by saying that the appreciation of gold is the cause of the depreciation of prices of commodities. But all this time silver has remained the legal standard of value of India, and a rupee is still worth two shillings in that country. That is to say, a rupee has still the purchasable power of two shillings in India; but in England it is worth only about one shilling and sevenpence. Therefore, upon every pound which the Indian remits to this country he must lose twenty per cent., or about four shillings, for exchange. This is a very serious loss not only on merchants—many of whom, however, can to some extent counteract it by sending home goods instead of money, goods which they buy for silver in Calcutta and sell for gold in London—but also on the government, which has to send home something like fifteen millions sterling, gold value, every year, to meet the interest on the public debts, and the like.

The position, then, is this—that the supply of gold-money is now too small for the world’s needs, and that all commerce and international intercourse is being hampered by the restriction of the medium of exchange. At present, the sole practical medium is gold; and gold-money, as Mr Goschen has remarked, has three functions to perform: it has to supply the pocket and till-money of the people; it has to remain in the vaults of bankers as security for the notes issued against it; and it has to serve in settling the balances between nations. The larger the amount of trade which is being done, the larger must these balances necessarily be—although not in direct proportion—and the more gold must be required to adjust them. By analogy of reasoning, the less gold there is in the form of circulating money, the more must the trade be restricted. If the restriction does not operate on volume, it must operate on prices, and this in effect is what has happened.

The subject of concern, then, in the circles of finance throughout the world is how to rehabilitate silver, as it is termed—that is, how to replace it in the position which it is claimed the metal should occupy as money. If the supply of gold is too small for the world, then the only alternative is to utilise silver more largely, and to give it an official value in relation to gold. That value cannot now be placed in the ratio of fifteen-and-a-half to one; but it is thought that common agreement among the nations might enable the ratio to be fixed at something like seventeen to one.

The object of the bi-metallists is to bring about an arrangement between all the nations of Europe and the United States of the same principle and effect as that adopted by the Latin Union, which we have described. That is to say, they seek to have the free concurrent coinage of both gold and silver in a fixed ratio of value, and to have both metals everywhere decreed unlimited legal tender. The effect of this would be, they claim, to provide a supply of metallic coinage amply sufficient for the world’s present and increasing requirements, while it would prevent those violent fluctuations in exchange which do so much to disturb our trade with the silver-using countries of the East and of South America (where the Mexican silver dollar is the standard). Unless this be done, they assert, gold will become the sole currency of the world, and will have to perform the work of two metals. The effects of the consequent depreciation of silver upon India will be ruinous, and the effects of the consequent appreciation of gold will be to reduce the value of property in all commodities in this country still further. The final result, say some, must be panic and revolution.

The arguments _pro_ and _con._ involve technicalities not quite suitable for our pages. It may be mentioned, however, that those opposed to bi-metallism say that there is no reason to conclude that the supply of gold has _permanently_ fallen off; that fresh discoveries may be made any day; that the effects of the fluctuations of exchange on trade are exaggerated, and do not, in practice, prevent free commercial intercourse between countries of quite different currencies; and that the diminishing use of silver in the arts is an argument against its use as money. If silver becomes comparatively valueless as a commodity, how, it is asked, can the ratio of value as money between it and gold be maintained? The metal would be placed in the anomalous position of having two values—one at the mints, and another in the markets—and the consequence would be that the market value would rule, and people would refuse to take the silver money. This is the case at present in the United States, where the government is compelled by law to buy for coinage some five hundred thousand pounds-worth of silver every month, which silver money lies dead in the treasury because the people don’t want it.

On the other hand, it may be contended that the very fact of silver being legalised by all the great nations of the world would impart to it a value which might re-create a demand for it for other employment. It may be possible, too, to arrange not a permanent but an adjustable ratio, to be altered from time to time by joint agreement among the nations, according as the relative values of the metals are affected by supply and demand.

Be this as it may, it would seem that all the nations concerned, including even Germany, who acknowledges having made a mistake in demonetising silver, are more or less in favour of bi-metallism, and that all wait for the concurrence of England. In the United States, the present efforts of the government are directed towards repealing the law which compels them to coin a certain amount of silver—not that they do not want a dual currency, but simply because they cannot work it as long as England persists in adhering to the gold standard. Thus it would appear that in the great silver question England is, rightly or wrongly, not as yet prepared to come to a decision. In England, moreover, counsels are very much divided among experts, while the general public gives almost no attention to the question whatever. It is in the hope of stimulating the interest of our readers in a great, almost a vital matter, that we place this article before them.