value of those substances shall be. They argue from history that several metals have been successively demonetized, that different ratios have been fixed between metals circulating together, that inconvertible paper currencies have been kept in circulation by the will of the state.[1] The doctrine of cost of production as determining the value of money is also assailed by them. They hold that it is the quantity of money which governs its value,[2] and that cost of production has little or no influence in the matter. The next step in the bimetallic argument is to contend that their proposed ratio for gold to silver (1 to 15) can be maintained by the legal regulations to that effect. The common objection to bimetallism is, that whichever metal was undervalued would be exported. They answer that the same ratio existing over all, or a great part of, the world, there would be no inducement to export either metal, and in support of their argument they appeal to the passage from Newton quoted above, and claim him as the inventor of modern bimetallism.[3]Thirdly, a greater stability as regards value is claimed for the two metals combined than for either singly, since the fluctuations are distributed over a wider field, and, the conditions of production of gold and silver being somewhat different, fluctuations in them tend to counterbalance each other. A fourth point consists in the greater facilities which would exist for trade, since the fluctuations of the exchanges which arise from the existence of gold and silver currencies, and the variations of relative value of these metals, would under a bimetallic system disappear. The fifth argument for bimetallism is the advantages which would result from the increased prices caused by the greater abundance of money, or at all events from the check to any fall in prices which might arise from a diminution in the production of gold. The final argument is that a universal currency is desirable, and that, a single gold currency being by general consent practically impossible, this advantageous reform can be realized in no other way than by adopting a plan which permits the concurrent circulation of two metals. Most of these positions are contested by the monometallists, and even where any concession is made the value of the advantage to be reaped is estimated at a much smaller amount. The contention that the value of money is largely influenced by state demand is met by the assertion that cost of production is the ultimate regulator of value, and that any artificial regulation would stimulate the production of the cheaper metal, and thus flood the world with it. The fixing of a ratio different from the market one is derided by them as absurd, and an extreme case is instanced for this purpose. Is it possible, they ask, to make the value of silver equal to that of gold? If not, how can it be possible to alter the market ratio in even the slightest degree? Is there not a great demand for the precious metals in the various trades? And would not the ratio of this demand be affected by the fixing of a new ratio? The argument of bimetallists that their system would produce greater stability in the value of money is met by the answer that there is no proof of this. It is quite possible that a single metal may be steadier in value than two combined, and the evidence of history shows that silver is more liable to depreciation than gold. The argument derived from the advantages to exchange transactions is to a slight extent admitted, but it is pointed out that the factors which affect the foreign exchanges are so numerous, and are so rapidly eliminated in the course of trade, that a radical currency change need not be adopted for this purpose. It is also shown that, even when most European countries were bimetallic, fluctuations in the exchange price of silver took place; and still more that, where it is the less valuable metal that is in course of depreciation, bimetallism can afford no aid. The assumed tendency of the bimetallic scheme to produce a higher scale of prices than would otherwise prevail is dwelt on by opponents as a proof of its inherently vicious character. The claim to benefit the world by adding to its stock of money places bimetallists in the same class with the advocates of inconvertible paper money, and shows the absence of reason in their views. Their position becomes the same as that of the Birmingham currency school. The proposition that the quantity of money is of no consequence since prices vary in proportion to it is cited as conclusive, and the contempt so frequently expressed for bimetallists is accounted for by their advocacy of this principle of the beneficial effects of an increased amount of money. To the contention that bimetallism is the necessary condition for a universal coinage system the answer is, that the idea of universal coinage is premature, and that the gradual introduction of the gold standard is desirable as preparing the way for a future universal coinage based on gold monometallism. On the practical question as to the actual introduction of the system, the monometallists deny the possibility of forming a universal bimetallic league which would not be liable to be broken up by war, or impaired by some of the states which composed it issuing inconvertible paper. On the other hand, the various international conventions for postal purposes, extradition, commercial arrangements, and other matters of interest, are considered by bimetallists as evidences of the feasibility of their plan.[4]
The above summary gives the main arguments on each side of the discussion as given by the advocates of the contending principles. A short consideration will show that the controversy may be suitably divided into three heads, viz.—(1) the possibility of constructing a universal bimetallic system which shall be in accordance with sound economic principle; (2), if the first question be answered in the affirmative, the comparative merits of this system as opposed to the present variety of systems, or a future universal gold-standard system; and (3) the expediency under present circumstances of nations in general, and England in particular, joining in the proposed convention. Each of these topics calls for some remark. (1) The possibility of a bimetallic system can hardly be denied. Under all the difficulties attending its existence in a single country, it was retained in practical working in France during the early part of the 18th century, and it is plain that a widely-extended league would afford a better field for its action. It is quite possible that national preferences for one metal or the other would be displayed, but this would be no hindrance, since the exchanges would be regulated by the legal rate, and prices would depend on the total quantity of both metals (the amount of gold being multiplied by the legal ratio, and added to the amount of silver).[5] The objection which denies the power of Governments to fix the relative values of gold and silver, and which is supported by the instance of the extreme case of silver being made equal in value to gold, may be set aside by the consideration that the use of the precious metals takes two forms—(a) their use as commodities, (b) their use as money. Since the state can influence the demand for these metals as money, and since therefore it can raise the value of either of them by this increased demand, it follows that, within assignable limits, it can fix the ratios between them, and that these limits are “the ratio which would subsist between their values if gold were demonetized, and that which would subsist if silver were demonetized.”[6] The possibility of bimetallism, if all nations were agreed, is allowed by some monometallists (e.g., Professor Jevons), and an unconscious argument to this effect was given by the proposal of Chevalier, at the time of the Australian gold discoveries, to adopt silver as the standard and demonetize gold, which is a clear recognition of the force of law in monetary questions. It is therefore reasonable to answer in the bimetallists' favour the question first raised. (2) The considerations to be taken into account under the second head are far more complex, and do not admit of accurate determination. The present currency systems of England and the Scandinavian Union are based on the composite system, and afford the greatest satisfaction to the inhabitants of those countries. The bimetallic system of the Latin Union has been suspended, the introduction of silver as the principal money not being desired by the various peoples concerned. Germany has lost considerably by the sales of depreciated silver, and, were a gold standard once firmly established, it is not likely that any wish for change would be manifested. With silver countries the case is different. They have to receive masses of depreciated silver and to give commodities in exchange, while their purchasing power is reduced owing to the greater relative value of gold to silver. It would therefore be clearly advantageous for silver-using countries that a system should be adopted which would raise the value of their money, and save them from the necessity of importing large quantities of silver to produce a proper adjustment. The ultimate consequences of the complete demonetization of silver as regards silver-using countries are not so clear. The supply of gold might suffice for all wants, and might furnish a better currency than the heavier silver. The preservation of two separate monometallic systems, of gold for the more advanced countries of Europe and the United States, of silver for Russia and India, would, when the superfluous stock of silver had passed to the East, present little difficulty after equilibrium was attained. The new ratio between silver and gold would become established, and silver prices in silver-using countries would be higher in proportion to the fall in the value of silver. It is therefore plain that a suitable adjustment would be reached under any variety of currency systems, and it may therefore be concluded that the comparative merits of the competing standards are not capable of
- ↑ See Dana Horton's paper on the Position of Law in the Doctrine of Money, presented to the monetary conference of 1881 (Appendix ix. C).
- ↑ On p. 721, above, the theory of money value has been stated, and the objections to the cost of production theory given. It is strange to find Jevons arguing (in common with Bagehot and Prof. Price) that the value of money ultimately depends on cost of production, when his examination of that doctrine in general is considered. Compare Contemp. Rev. (May 1881) with Jevons's Theory of Pol. Econ., p. 201 sq.
- ↑ Modern bimetallists freely admit that two different bimetallic systems—i.e., having different ratios—could not exist, for each would drain the other of one metal.
- ↑ The principal sources for the above summary, besides works before cited, are the pamphlets of Seyd, Cernuschi, and De Laveleye, on the bimetallism side, as well as the articles of the latter in the Fort. and Contemp. Reviews. The monometallist arguments are given by Prof. Jevons (Contemp., May 1881), Mr R. Giffen (Essays in Finance, pp. 286–310), and Lord Sherbrooke (Nineteenth Century, April 1882). See also the Report of the Paris conference, 1881, and Mr T. H. Farrer, The State in its Relation to Trade, pp. 49–52.
- ↑ It is assumed that the other factors which influence the value of money (see p. 722, above) remain constant.
- ↑ Mr J. J. Murphy in Dublin Statistical Journal, vol. viii. p. 282. See also M. Walras, Journal des Économistes, May 1881, “Théorie Mathématique du bimétallisme.”
