BIMETALLISM. 



565 



power remains the same his efforts to increase production result iu 

 further loss. Another mode of restoring profits is now tried — he 

 must cheapen the cost of production. The reduced value of all his 

 appliances and raw material assist him in this, but as labor is the 

 principal factor in production a reduction in its cost becomes 

 imperative. He is then brought face to face with the most 

 unhappy feature in a producer's experience — a conflict of capital 

 with labor ; and at this point, springing from the same cause, the 

 sufferings of the wage-earner begin. Thus loss of profit, contrac- 

 tion of business, commercial failures, lower wages, want of employ- 

 ment, destitution, all follow in the wake of a diminution of the 

 currency. But this contraction of production sets free capital. 

 The possessors of money will not invest it in commerce or 

 manufactures because of its unproductiveness. A temporai-y use 

 for it is sought in the exchange. Instead of now fulfillinjr the 

 function of a measure of value in the ordinary avenues of trade 

 and commerce it is used as a medium of exchanjje, and at the very 

 time it is so used transactions are fewer, trade is quiet, and money 

 competes with money for what business there is. In the exchange 

 market it becomes cheap and plentiful. The bank rate of discount 

 abnormally falls. All this time every industry is languishing on 

 account of its restriction. The action of Gei'many and France in 

 1873 in demonetising silver had the effect of reducing the currency. 

 Its use as legal tender in international transactions was hampered. 

 The entire burden of the world's transactions was being thrown on 

 gold as the sole measure of value, and its insufficiency in that 

 capacity was quickly proved. Prices at once began to fall, and 

 have continued falling as the influence of demonetisation became 

 more apparent. Now% twenty years after the event, we have not 

 touched bottom. The full significance of the break of the standard 

 has not yet been realised just because silver still has to serve in 

 the internal currencies of the nations, but daily the difficvdty of the 

 position is becoming more acute. The uncertainty of the silver 

 standard is such that the tendency to extend the function of gold 

 as the sole standard throughout the world becomes more apparent, 

 the consequent scramble for it accentuated, and its continued 

 appreciation all but assured. 



THE MEDIUM OF EXCHANGE. 



The effects of the demonetisation of silver on the world's 

 exchange is no less apparent than its influence on prices. Before 

 the year 1873, when silver and gold were linked together under 

 the ratio of 15J to 1 in Europe and 1(3 to 1 in America, with free 

 coinage at all the national mints, international trade was carried on 

 with the smallest amount of risk. The movements of the precious 

 metals were assured and caused no uneasiness. If silver or gold 

 were wanted in any country, the means of procuring it were at 

 hand. The agio on either metal was never more than the cost of 



