CURRENCY, BIMETALLIC. 



277 



market and the mint ratios, Gresham's law- 

 comes into operation. For example, our pres- 

 ent silver dollars are coined at a ratio to gold 

 coins of 1 : 16 (more exactly, 1 : 15-988), so 

 that sixteen ounces of silver, when coined, are 

 made into as many dollars as one ounce of gold. 

 But in the bullion market, in which gold and 

 silver are exchanged for each other as other 

 articles of merchandise, it now requires twenty 

 ounces of silver to buy one ounce of gold ; that 

 is, the market ratio is 1 : 20. If we had free 

 coinage, Gresham's law would begin to oper- 

 ate with great rapidity. That law is, " The 

 cheaper metal drives out the dearer." The rea- 

 son is, because there is a profit in it to money- 

 brokers. A man having an ounce of gold can 

 take it either to the mint to be coined, or to 

 the bullion market ; if to the former, the gold 

 coin will exchange for but sixteen ounces of 

 silver coin ; if to the latter, it will exchange 

 for twenty ounces of silver bullion. He will 

 gain by selling his gold as bullion ; for on buy- 

 ing twenty ounces of silver with his one ounce 

 of gold, he can retain four ounces as profit, take 

 the remaining sixteen ounces to the mint, and 

 have it there put into the form of silver coin, 

 which (as long as any gold coins remain in circu- 

 lation), when passed from hand to hand for gold 

 coins, will give him an ounce of gold in gold 

 coins. He can then melt his ounce of gold 

 coin, sell it as bullion for twenty ounces of sil- 

 ver bullion, and again repeat his operation. 

 This will go on so long as any gold coins re- 

 main in circulation. It is, then, more profitable 

 to use gold as bullion than as coin, while it is 

 more profitable to use silver as coin than as 

 bullion so that, by Gresham's law, the cheap- 

 er metal, silver, will drive out of circulation the 

 dearer metal, gold. The difference between the 

 market and mint ratios need be but slight to set 

 jn motion the force that will drive one metal 

 out of use. Unless the legal ratio be constantly 

 changed to suit the market ratio, it is evident 

 that only one metal will be in use. This would 

 not be a bimetallic currency, but a monome- 

 tallic currency, composed alternately of which- 

 ever metal happened to be the cheaper. 



It has been urged, however, by advocates of 

 bimetallism that a double standard creates a 

 compensatory action by which a fall in either 

 metal is at once counteracted. When the value 

 of one of the legal-tender metals falls, the other 

 will be at a premium, and the cheaper metal 

 will drive out the dearer. The demand for the 

 cheaper metal will, it is said, keep its value up, 

 while the withdrawal of demand from the 

 dearer metal will cause its value to fall. This 

 " equilibratory " action, it is said, will make 

 the medium of payments more stable during 

 periods of long contracts ; that " the desire of 

 every debtor to meet his maturing obligations 

 in the cheapening metal " will work to counter- 

 act the force that is lowering its value. The 

 very fact of the increased demand for the 

 cheapened metal implies a lessened demand 

 for the dearer one. On the other hand, it is 



argued that the demand for the cheapening 

 metal arises solely because it is cheaper, and 

 that as it tends to rise in value to its former 

 position the demand for it will fall off; so that 

 it can not rise wholly to the level it held before. 

 But as the dearer metal falls to meet it, the 

 relative values may, conceivably, be the same 

 as before, while both metals have become 

 cheaper as regards other commodities. That 

 is, the cheaper metal, under the compensatory 

 theory, would drag down the dearer with it, 

 until both resumed the same relative positions 

 on a plane of lower value. In short, the 

 compensatory action, under every event that 

 cheapened either metal, would invariably lower 

 the standard of deferred payments, or the 

 amount to be paid at the maturity of long 

 contracts. In addition to this, it is urged, in 

 regard to the compensatory action, that, al- 

 though it does not expose prices to the ex- 

 treme fluctuation of both metals, yet it does 

 expose prices to more frequent fluctuations 

 than would be the case with but a single stand- 

 ard ; and that each of these frequent fluctuations 

 must, in order that any " compensation " may 

 be felt, be such that one metal would be driven 

 out of circulation, for only when the demand 

 is centered on one metal and withdrawn from 

 the other can any equilibratory force be shown. 

 So that it is urged that the compensatory 

 action can be effective only by alternately 

 changing the standard of prices from silver 

 to gold or from gold to silver. If countries 

 are asked to join an international league in 

 order, by the compensatory action, to main- 

 tain the relative value of gold to silver, it 

 means that states must submit to seeing the 

 cheapened metal drive out the dearer. A coun- 

 try which, by virtue of its large wealth, great 

 transactions, and habits of trade, had found 

 gold more convenient than the heavier and 

 cheaper silver, would scarcely submit to this. 

 Such economic difficulties make agreements on 

 a given ratio by an international monetary 

 league almost impossible. The political diffi- 

 culties are serious enough. 



Still further it is urged that if silver is de- 

 monetized, as it has been by Germany, it will 

 greatly increase the demand for gold, and so 

 increase its value that there will be a disas- 

 trous fall in prices ; in short, that there will 

 not be enough gold to satisfy the needs of 

 trade. This idea appears of late in the asser- 

 tion that there has been an " appreciation " of 

 gold. It is sometimes believed that the stock 

 of gold in the world is insufficient for the needs 

 of commerce, and that the annual production 

 is falling off. To this it is replied that the 

 stock of gold has been increased since 1850 to 

 such an extent that a large amount of the new 

 supply (to 1883, about $4,233,000,000) has been 

 made available for money uses ; that this great 

 sum has been absorbed into the circulation of 

 countries before using silver ; and that silver has 

 been thrust out of use by some nations, only 

 because of the opportunity which has been 



