Ricardo continues:

But this very quality subjects to greater variations of value during periods of war or extensive commercial discredit, when it is often collected and h.o.a.rded, and may be urged as an argument against its use. The only objection to the use of silver as the standard is its bulk, which renders it unfit for the large payments required in a wealthy country; but this objection is entirely removed by the subst.i.tuting of paper money as the general circulation medium of the country. Silver, too, is much more steady in its value in consequence of its demand and supply being more regular; and, as all foreign countries regulate the value of their money by the value of silver, there can be no doubt that on the whole silver is preferable to gold as a standard, and should be permanently adopted for that purpose.

Innumerable additional citations from authors of repute could be adduced to fortify this position.

It will thus be seen that the fluctuations in the value or purchasing power of both gold and silver have always been admitted by scientific writers. They were so well understood three centuries ago that in Queen Elizabeth's reign (1576) the British Parliament directed that the rents reserved in the long leases of certain college lands should be payable, not in money, but in wheat. And at various times during the past seventy years propositions have been formulated to subst.i.tute for gold and silver as a standard of value for deferred payments, a tabular statement of the prices of the princ.i.p.al articles of commerce, to be made by official authority and published from time to time, by the average of which the fluctuations of gold could be ascertained and proper allowance made for them in the settlement of time transactions. Professor Jevons, Prof. Francis A. Walker, and other political economists of note have expressed approval of such a tabular standard for long-time contracts, as securing greater equity than would gold as a measure of values.

Those who now a.s.sert that silver has fallen and that gold has not risen in value arrive at this conclusion by a very safe process of reasoning.

First, to show that silver has fallen they measure it by gold alone, without reference to the general range of prices; and then to prove that gold has not risen they make it the measure of itself. An increase or decrease of the value of either can not be ascertained by reference to the other, and certainly not by const.i.tuting either of them a standard by which to judge itself. It would of course be forever impossible to show any change in the value of gold or silver, or of anything else, measuring it by itself. It is only by looking at the relations which both metals bear respectively to a considerable range of commodities generally dealt in as well as to each other, that it can be ascertained with certainty what has happened.

Not only upon consideration of all the facts I have given, but upon the logic of the situation, it must be obvious that gold has risen and will continue to rise in value as long as its volume decreases and the demand for it increases. Since 1860, when 77 per cent. of the combined yield of the two metals, it has diminished not only in relative proportion to the yield of silver, but it has diminished absolutely. For the five years ending with 1860 the yield of gold throughout the world was $137,000,000 a year; for the five years ending 1889 the yield was but $110,000,000 a year. If, as claimed by the advocates of the single gold standard, an increase in the yield of silver decreases the value of silver, by what system of logic can they deny that a decrease in the supply of gold increases the value of gold?

In a late issue of the London Economist, that of April 26, 1890, I find an editorial article relating to the recent discussion on bimetallism in the British House of Commons. That article comments somewhat sharply on Mr. Smith's a.s.sertion that "a conspiracy had been formed among the financial cla.s.s in Europe and America to get rid of silver as full-valued money in order to increase the value of gold, in which their revenues are paid." In the course of his comments the editor, by "confession and avoidance," admits our whole contention as to the rise of gold and the fall, as a natural consequence, of the prices of commodities. He says:

It may not be amiss, however, to point out that the increase in the exchangeable value of gold has been by no means such a gain to the financial cla.s.s as he in common with many others suppose; for advantage has been very largely taken of it to cut down the return upon the capital which the financial cla.s.ses have invested. It has favored debt conversion schemes, and it has been one of the influences that have caused the rate of interest in general to decline so decidedly, that, all round, the yield of investments is now very appreciably lower than it was fifteen years ago. The idea that the creditor cla.s.s have realized unmixed gains and the debtor cla.s.s have suffered unmitigated losses by the alteration in the purchasing power of gold is thus altogether fallacious. There has in their case, as in all others, been a species of compulsory give and take. Each has gained and each has lost something, and now that the process of readjustment has been carried so far it would be unwise to the last degree to unsettle everything again by such legislation as the bimetallists propose.

The editor of the Economist is to be commended for at least one thing.

He does not quibble as to the most important point in the bimetallic controversy. He frankly admits that gold has risen, and does not, as some others do, attribute the fall of prices to improvements in methods of production.

He also admits that coincidently with and caused by the rise in gold there has been a great decline in the rates of interest, and, strangely, claims that the debtor is compensated for the rise in the value of money by the ability to convert the debt into one bearing a lower rate of interest, or, as he calls it, resorting to "debt-conversion schemes."

He does not inform us how any compensation can be made to the the debtor for the time the debt has been running, as to which it can not be converted, nor for the enhanced amount exacted from the current earnings of labor by the rise in the value of money to pay taxes and the expenses of Government, nor for the loss entailed on the debtor whose property is mortgaged on long time, where the holder of the mortgage refuses to convert it into an obligation bearing a lower rate of interest than originally contracted for. He suggests no method by which to make whole those who have lost their property through sheriff's sale by reason of falling prices and the rise in the value of money. Neither does he state how long it will be before the next confiscation is to take place, by reason of the continued operation of the cause that produced the first.

But he has been frank enough to concede (what is never disputed except when the money question is under discussion) that there has been a rise in the exchangeable value of gold, and conceded its natural sequence, a fall in the rates of interest.

IMPROVED METHODS OF PRODUCTION.

In order to justify their position it becomes necessary for the advocates of continued demonetization of silver to insist that the fall of prices is not due to the rise in the value of gold but to improved methods of production.

Whatever the cause to which it is to be ascribed, the undoubted fact is that a fall of prices throughout the western world set in concurrently with the reduction of the world's money volume by the demonetization of silver. It was well understood at the time by those who had given consideration to the subject that demonetization alone would effect that result. This is manifest from an article in the London Daily News, a paper of exceedingly large circulation, quoted in the Journal of the Statistical Society of England for 1873, page 395. Referring to the adoption of the single gold standard by Germany the Daily News said:

As the annual new supply of gold throughout the world is reckoned at little more than 20,000,000 ($100,000,000), and the usual demand for miscellaneous purposes is very large, it follows that, if the German Government perseveres in its policy, the strain upon the existing stocks and currencies of gold will be most severe.

For a time, at least, unless the annual production of gold should suddenly increase, the money markets of the world are likely to be perturbed by this bullion scarcity, and the fall in the value of gold----

which means the rise in prices that for some time had prevailed;

of which so much has been heard, will be checked or reversed.

The yield of gold did not "suddenly increase," and the intelligent prophecy of the Daily News was fully realized, not merely to the extent of a check to the rising prices; (or, as it is styled by the Daily News, a check to the "fall in the value of gold,") but to the extent of an immediate rise in the value of that metal, and a persistent and deplorable fall in the general range of prices.

This prophecy that the "fall in the value of gold" would be checked by the demonetization of silver; or, better, reversed by it, was welcome reading to the creditor and income cla.s.ses of England and of the world.

That it was "reversed," and the value of gold appreciated, is as plain as that; one being subtracted from two, there is but one for a remainder.

The immediate fall in prices of commodities was the natural, the antic.i.p.ated, and the deliberately intended result of that movement.

But we are now a.s.sured that this fall is not due to any monetary cause, but to the greater efficiency of machinery in the production of commodities.

No advocate of an increased volume of money denies that in a few departments of manufacture there have since 1873 been improvements tending to economize labor and cheapen products; but they emphatically deny and challenge proof that improvements of mere detail in the manufacture of some articles will account for the extraordinary fall of price since that time in almost every product of industry. We are also told that the development of the system of transportation, both by land and sea, have tended to lower the price of commodities to the consumers.

I grant it. But we had those improvements before 1873.

The inventions made between 1873 and 1890, the period of falling prices, were no more important or radical in their effect on industry,--tended no more to cheapen commodities, than did those from 1850 to 1873, the period of rising prices. Indeed the inventions which preceded 1873 were as a whole much greater in scope, more far-reaching in result, and more revolutionary in their effects on industry, than those of the later period. All the great basic improvements had been invented, and had been incorporated with the industrial system of all civilized countries long before 1873, if we except the electric light and the telephone. We have had the steam engine, the cotton gin, and the spinning-jenny since the last century; the railroad and the steam-ship since the '30's; the telegraph, the mechanical reaper, steam-plow, and other agricultural labor-saving devices since the '40's; the sewing machine since 1854, and the Bessemer process and steel rail since 1857.

The forced construction into which their position drives the advocates of the gold standard is well ill.u.s.trated in a recent number of a magazine of high standing in this country, in which I find the following:

But if it be demurred, does not a debt incurred, say, ten years ago require to-day more wheat or iron for its satisfaction than the sum could have bought when first borrowed? Certainly, but the wheat or iron represents no more labor now then it did ten years ago, and its increase in quant.i.ty stands for the new efficiency which applied science has bestowed on toil.

Observe how deftly the writer places iron, in the manufacture of which there have admittedly been some improvements, in the same category with wheat, in the production of which the improvements within any recent period have been of the most trifling character. It will be exceedingly difficult to convince the farmers of this country, whose mortgages are eating up the proceeds of their labor, that the enormous decrease in the debt-paying power of their products is made up to them in "the new efficiency which applied science has bestowed on toil."

As well might it be maintained that the rise of prices and the concurrent wave of universal prosperity, experienced after 1849, was not due to the increase of the world's money stock from the mines of California and Australia, but to some sudden, unaccountable, and complete loss of all improvements theretofore attained in the arts and industries of the world.

EFFECT OF CHECKS AND CLEARING-HOUSES.

But it is said that checks, notes, drafts, bills of exchange, and the facilities afforded by clearing-houses effect such economy in the use of money that it goes farther now than formerly, and that therefore so large a volume of money as was formerly needed is not needed at present.

It is sought thus to escape the conclusion that the fall of prices is the result of a shrinkage of the volume of money, or at least to imply that if the money volume has been shrinking the agencies mentioned have served to mitigate, if not entirely to counteract, the effects of such shrinkage. This is in substance to claim that however contracted the money volume of a country may become, the system of checks and clearing-houses--on the principle of the compensating balance--will expand in a proportion directly corresponding to the contraction of the currency; that the greater the reduction of the volume of money in the country the greater the increase in the transactions of the clearing-house.

Nothing more absurd could be conceived. If this view were correct, it would make no difference whether the amount of money in circulation were large or small; a million dollars would be as efficacious as $100,000,000, and even one dollar as effective as a million dollars; and if we suppose the last dollar to have disappeared from circulation, then, according to the sweeping and pretentious claims set up for the clearing-house system, we could dispense altogether with the use of money and rely exclusively on checks, drafts, and bills of exchange.

That checks and clearing-houses are a great convenience to commerce is not denied. They serve to a certain extent to make more effective the money volume of a country. By the clearing house system of off-setting the demands of the several banks, one against the other, and requiring payment in cash of the balances only, large amounts of loans may remain undisturbed and greater stability of industrial conditions be secured.

Clearing-houses, however, were not established primarily for the convenience of commerce, but for the profit of bankers. Whatever amounts of money are economized by means of those inst.i.tutions bring compensation, by way of interest, to the banks. We may, therefore, rely upon their being utilized to the utmost under all circ.u.mstances.

But, however much checks and clearing-houses may economize the use of money, they are no novel devices. They are not some untried and newly-invented instrumentalities. Checks have been in use ever since the invention of banks. The clearing-house system was established in this country in 1853. Contributing, as it does contribute, to the pecuniary profit of the banks by making possible an economy in the use of invested money, which the banks have loaned out, and on which they are drawing interest, the system has grown with the growth of the business of the country. It will undoubtedly continue to grow, but with no greater acceleration than population and business will warrant.

As it has been a part of the banking machinery of the country for nearly forty years, and during that period has been utilized to the utmost, the conditions of its existence and utilization have long since become static conditions. The demands for currency have borne relation to the needs of business, with clearing-house facilities in full sight and operation; and at all seasons, in the adjustment of prices, those facilities have had full force and effect. a.s.suming that at any given period the business of the country were conducted with a given volume of money, _plus_ a certain volume of clearing house exchanges, then, at a later period, an increase of business would demand an increase in the volume of money, _plus_ a proportionate increase in the volume of clearing-house exchanges; having had this system in full and effective use for forty years, it is as absurd to ascribe the _fall_ of prices in the last half of that period to any economy in the use of money effected by the clearing-house system as it would be to ascribe to the same cause the directly opposite effect--the _rise_ of prices--that took place in the first half of the same period.

THE PROOF AFFORDED BY THE FALL OF INTEREST.

If further proof were needed that gold has risen in value, it is, as I maintain, to be found in the coincident fact of a decrease of rates of interest on first-cla.s.s securities. That decrease has kept even step and pace with the rise in the value of money.

The rise in the value of gold, as shown by comparison with large numbers of articles of commerce, has been between 35 and 40 per cent. The rate of interest on gilt-edged securities shows a corresponding decline. But unfortunately for the struggling people of the country, the fall in the rate of interest on farm mortgages and on property remote from money centers has been nothing like so great, nor has it been so great as the fall in the price of agricultural lands, and in the products of labor.

I hold, therefore, that a new axiom should be added to the science of political economy; namely, that as the purchasing power of money increases, its income producing power decreases, and in about the same ratio; and conversely, when the purchasing power of money decreases, its income-producing power increases. In other words, when prices rise interest rises; when prices fall interest falls. When money is increasing in volume and decreasing in value, prices rise, and its investment in productive enterprises becomes more profitable, and as a consequence interest rises. When it is decreasing in volume and consequently increasing in value, prices fall, investment in property and productive enterprises become precarious and unprofitable, and, as a consequence, it avoids them, and seeks investment in bonds and gilt-edged securities, aptly termed "money-futures," which for years have been increasing and continue to increase.

Some thirteen years ago I indulged in a little prophecy concerning the rates of interest. I take no great credit to myself for it, but in 1877--four years after the demonetization of silver--before the rates of interest had materially fallen, and when the same contention was made that is made now, namely, that money was cheap because interest was low, and that the policies of the country were wise because our credit stood on such a high plane, I submitted to Congress the report of the Monetary Commission, from which I quote:

Money can be borrowed readily only upon such securities as bonds which are based on the unlimited tax-levying power of the Government, or upon the bonds and stocks of first-cla.s.s trunk-lines of railroad corporations, whose freight and fare rates are practically a tax upon the entire population and resources of the regions which they traverse and supply. The compet.i.tion among capitalists to loan money on these more ample securities has become very keen, and such securities command money at unprecedentedly low rates. These low and lowering rates of interest, instead of denoting financial strength and industrial prosperity, are a gauge of increasing prostration. Large acc.u.mulations of money in financial centers, instead of being caused by the overflow of a healthful circulation, or even a proof of a sufficient circulation, are unmistakable evidence of a congested condition caused by a decreasing and insufficient circulation. The readiness with which Government bonds bearing a very low rate of interest are taken, instead of showing that the credit of the Government has improved, is melancholy evidence of the prostrated condition to which industry and trade have been reduced.

There need be no haste in refunding the public debt at the rates now proposed and considered low. Unless the progress of the commercial world in the policy of contracting money by demonetizing silver is checked, bonds bearing a much lower rate of interest than any yet offered will be gladly accepted by capitalists here and in Europe. When the money stock is diminishing and prices are falling, the lender not only receives interest, but finds a profit in the greatly increased value of the princ.i.p.al when it is returned to him. A loan of money made in 1809, if repaid in 1848, would have been repaid with an addition of 145 per cent. in the purchasing power of princ.i.p.al and interest, besides all the interest paid. Those who have loaned money to this Government since 1861 have already received nearly as much in the increased value of their princ.i.p.al as in interest, and all the probabilities are, in respect to the four per cent.

thirty-year national bonds now being negotiated, if they are redeemed in gold, that more profit will be made by the augmentation in the value of princ.i.p.al through interest. Indeed the signs of the times are, that the bonds of a country possessing the unbounded resources and stable inst.i.tutions of the United States, payable in gold at the end of thirty years without any interest whatever, would, through the increase of the value of that metal, prove a most profitable investment.

All the facts of the situation to-day fully bear out the statements I then made.

So determined are the advocates of the single gold standard in defending the wisdom of its maintenance that facts whose existence would at ordinary times be readily admitted, are, during a discussion of the money question, pointedly denied. For example, within the past few weeks we have seen in various eastern newspaper contributions from prominent writers taking direct issue with the advocates of silver as to the prevalence of general distress throughout the country. They declare that there is no such distress, a.s.sert that they have looked for it in vain, and derisively inquire where it is.

Perhaps the best authority I can cite in response to this inquiry is the princ.i.p.al commercial daily journal of the east, the New York Journal of Commerce, itself one of the most ardent and uncompromising advocates of the gold standard. In an editorial article in its issue of January 11, 1890, that journal said: