states in adopting a single gold standard, (2) the countries composing the Latin Union in limiting the coinage of silver, (3) the Indian Government by adopting a new method of drawing bills—proved to be the really influential causes for the decline in the value of silver as contrasted with gold.[1]
Before closing this notice of the economical aspects of gold and silver production, the consumption of those metals must be considered. It may be classed roughly under three heads, viz., (1) their use as merchandise, (2) their use as money, (3) the export to the East. With regard to the first of these, while it is impossible to give precise data, it may be still held with some confidence that the demand for this purpose tends, after society has passed a certain not very advanced stage, to decline. The desire for personal adornment is with most civilized persons not a strong one. It is, so far as it exists, gratified by other articles than those made of silver or gold. Their use as manufactured goods continues to be large, and is one of the principal forms of use at present. The second head with which we have here to deal is the one by which prices are affected. The laws regulating the value of the metals as money have been considered above, p. 721, the primary one being “that the value of money varies inversely as its quantity multiplied by its efficiency,” though this proposition needs limitation and explanation. Under the third head a remarkable exception occurs to the general theory of the tendency to equal diffusion of the precious metals. For a period extending over nearly 2000 years the movement of silver from West to East has been noticed. Humboldt has made the ingenious remark that these metals move in the opposite direction to civilization, and history bears out his view. During the Middle Ages the chief Eastern products used in Europe were silks and spices, and to pay for these commodities silver was sent from Europe. The discovery of the passage round the Cape of Good Hope increased the Eastern trade, and added to the drain of silver. Humboldt and Sötbeer have given copious details. In more recent times the flow has continued, the amount of silver which passed to Asia by the Isthmus of Suez during the twelve years from 1851 to 1862 being £110,000,000.[2] There are two points requiring some further notice with reference to the form and the reason for this drain. Silver is the metal which is exported from Europe, since gold is not used for currency purposes in the East, and even as merchandise silver possesses a higher relative value than it does in Europe. Those European countries that had a double standard were the natural source of supply for exportation, their silver currency being replaced by gold. The unceasing drain of the precious metals to the East may further be explained by the fact that the greater part of the new metal is used for ornamental and not for currency purposes, and thus the demand is not checked by a rise of prices. Another reason, not generally noticed, is that Eastern prices are very much influenced by custom, and thus do not depend on supply and demand. But it is this tendency of an increased quantity of money to raise prices which forms the basis of the economical theory of the distribution of the precious metals.[3] This explains the otherwise unaccountable phenomenon of a continual drain of the money material towards those countries where custom has remained most powerful in regard to commercial transactions, or, in other words, the backward countries of India and China.
One of the technical features of the production of the precious metals may sometimes produce remarkable economic effects,—namely, the fact that gold is generally found near the surface, while silver is obtained by deep mining. It follows from this that the production of the former metal depends more on accidental circumstances, while the production of silver is affected chiefly by the state of mechanical skill. In the Nevada mines gold and silver are found together, and their value in a given mass is nearly equal.
8. Miscellaneous Questions regarding Metallic Money.—The recent discussions of matters relating to currency, and the increased intercourse among the more advanced nations, have led to the raising of some questions with regard to the proper constitution of monetary systems. Each country possessing any claim to enlightenment has directed its attention to its own monetary arrangements, and compared them with those of others, while the effect which the currency system of any nation exercises on its neighbours leads to the exciting of a lively interest in its monetary legislation. The principal problems may be summed up under three heads: (1) The proper standard to use, the discussion of which in practice turns on the comparative merits of a single standard of gold or silver and of a double standard of gold and silver at a fixed ratio; (2) the system of subdividing the currency, which is generally discussed under the title of proposals for decimal coinage; (3) proposals made in many quarters to assimilate the various currency systems of the world. These take one of two forms. It is either desired that a group of nations shall assimilate their currencies, in which case the coinage may be called an international one; or a wider view is taken, and a single system is advocated for all states. This may be styled universal coinage. The question of the proper standard may be deferred for the present, as it is of a more complex nature than the others. Before discussing even the simpler of these questions it is desirable to state some elementary facts involved in all such points. Every currency system must be based on a standard unit of value which consists of a “fixed quantity of some concrete substance defined by reference to the units of weight or space.” Thus the English unit is the pound, which consists of a definite quantity of gold (123·27447 grs. standard fineness), while the French unit is the franc (composed of 5 grammes of silver ths fine). It is not, however, necessary that the standard unit shall be a coin. All that is needful is that the current coins shall be multiples or submultiples of the unit, or at all events easily reducible to it. The Portuguese rei is too small to be coined, and the pound of silver which formed the unit of the early French and English currency was too large. Distinct from both the actual coins and the unit of value is the money of account, though in practice it is usually identical with one of them. In Russia in early times the rouble was an imaginary money of account not coined, while the copper copeck was the unit of value. Another distinction must be pointed out, namely, that between standard and token money, the former being of the same value as the metal it is made of, while the latter is rated at a nominal value higher than that of its material. The silver and copper coins in England and the smaller silver coins in the Latin Union are merely tokens, being in the case of the English silver coins about 30 per cent. below their nominal value. The French coins are of inferior fineness (835 per 1000). Token coins are only admissible in small payments, as otherwise—in accordance with an elementary principle to be presently explained—the standard coins would be driven out of circulation. The maximum amount in payment for which they are legal tender is in England 40s. One of the functions of money being to afford a standard for estimating deferred payments,[4] it is generally used as the means of discharging obligations when they become due, and in this aspect is styled legal tender. The principal coinage of any country is legal tender to an unlimited amount, and, when offered, discharges any pecuniary obligation. It is only the standard coinage which possesses this property, or rather the standard coinage is that which does possess it.
remember that a metallic currency has to circulate among the most diverse classes of society, and must be suited to the wants, and even to the prejudices, of the population using it. Many curious instances of the preference of a community for some particular coin could be given. The Austrian Maria Theresa dollar is a special favourite on the coast of Africa, and is still coined exactly as it was in 1780.
The inhabitants of California refused to accept the greenbacks issued during the American civil war, and consequently gold was always used in payments in that State. Many apparently well-devised reforms have miscarried
- ↑ See, for details, the Report of Mr Goschen's Committee, 1876, and W. Bagehot, Papers on the Depreciation of Silver.
- ↑ See A. Sötbeer in the Vierteljahrschr. für Volkswirthsch., iii., 1863.
- ↑ See Ricardo, Principles of Pol. Econ., p. 79 (ed. M‘Culloch).
- ↑ See p. 720, above.
