CHAPTER XLIV.THE SILVER QUESTION.
Its Fundamental Importance.—Dangers of Neglecting it.—Attempts at Evasion.—How it must be finally met.—Silver Paper Currency Schemes, and their Futility.
Of all current public questions, I know of none that so vitally affects the future of our financial interests as this one—what shall be the status of silver among the world’s currencies? At the present time, about one-half of the world’s metallic money consists of silver, and the other half of gold. It is clear that silver cannot maintain its necessary function as money unless it is invested with stability of exchangeable value. Such stability it cannot possess without the intervention of a conventional arrangement which, with all the force of a uniform law, makes a given weight of silver virtually exchangeable for a given weight of gold. This principle once established, and silver bullion being made convertible into silver coin at the mints of the chief nations on demand, it follows that the bullion value of silver must constantly conform closely to its value as coin, and the stability of the value of silver coin would thus be insured.
The difficulty has been that, owing to petty jealousies and prejudices, Governments have hesitated to act with the unanimity that is necessary to an efficient conventional arrangement. Each one has preferred that others should take the responsibility of free coinage; and the result has been that unrestricted coinage has been adopted only by those nations which happened to be most imperatively committed to the necessity of protecting their silver circulation. Those nations were comprised in the international combination known as “The Latin Union.” That Union was found competentto take care of all the new supplies of silver, so long as the principle of free coinage was maintained and the value of the metal was kept uniform under its operation. In an evil hour, however, certain German theorists persuaded Chancellor Bismarck to commit Germany to the demonetization of silver. The large supply of the metal thereby suddenly thrown into the mints of the Union nations alarmed that combination, first, into a limitation of their coinage of silver, and, finally, into a suspension of it. The coinage demand for silver being thus cut off, the price of silver bullion was cut loose from the relative legal valuation between silver coin and gold, and was left to drift with the variations in the commercial demand, and to decline in consequence of an excess of supply over demand. This is a brief explanation of the causes of the present depreciation in the value of silver.
I know of no way of repairing the value of that metal other than by establishing an international union, similar in its objects and conditions to the now virtually defunct Latin Union, but embracing a wider range of Governments than that combination did; the co-operation of the United States, England and Germany being especially important. Here I may perhaps be permitted to republish a series of questions propounded by the New YorkDaily Commercial Bulletin, in October last, with my answers appended, as briefly expressing the conclusions I have been led to form on this question:
I. Would the stock of gold in the world afford a basis broad enough to meet the banking and commercial operations of Europe and the United States, without the co-ordinate use of a properly regulated silver legal tender?
II. Would you favor an International Coinage Union, embracing the United States and the leading European Governments, based upon a uniform valuation of silver as compared with gold, and binding each member to coin on demand all silver presented at its mints and to make such coin a legal tender?
III. Supposing the ratio of valuation adopted by such a Union to be the present most general one of 15½ to 1, do you see any reason why the obligation of all nations in the Union to convert silver bullion into legal tender coin at that rate should fail to restore silver to its former value of about 60 pence per ounce?
IV. Would the suspension of the coinage of the Silver Dollar be judicious, or necessary, or effectual, as a means of inducing European Governments to join in an International Coinage compact?
V. Are there any important reasons connected with the finances of the United States Government, with our currency system, or with the prospective trade of this country, why the coinage of the Standard Dollar should be suspended?
IV. Do you favor the immediate suspension of coinage of the Silver Dollar?
1. Possibly the existing stocks of gold in Europe and America might be sufficient to serve the purposes of banking reserves and for transmission in the international exchanges; but it is impracticable to use such a valuable metal to the extent required for the purposes of active circulation, and this creates a necessity for a silver legal tender coin for the retail transactions of business. For this reason I regard the use of silver, co-ordinately with gold, as an indispensable element in the world’s currency.
2. I regard an international union as absolutely necessary for maintaining the joint use of gold and silver, if the relative value between those metals is to be steadily maintained. If a uniform value of silver were adopted by members of such a union, and if the mint of each nation were bound to coin all silver brought to it, and the coins were made a legal tender, it appears to me that this would establish a uniform value for silver bullion the world over, on a parity with the legal valuation of silver coin; and this conventional value of bullion would be preserved as long as the union should be continued. Even the limited international arrangement known as the Latin Union sufficed to keep silver at about 60 pence per ounce, until its members, taking fright by the demonetization of silver by Germany, stopped the coinage of silver; when, the conventional support being withdrawn and the coinage demand suspended, bullion fell to its value as a mere commodity. This shows how effective the union principle is, and what becomes of silver without it.
3. If an international union were to fix the value of the two metals at 15½ weights of silver to 1 of gold, the rate now general in Europe, and the members of the union were compelled to coin it on demand at that rate, then the free convertibility of bullion into coin would necessarily make the coin and the bullion of equal value, except the slight difference that might arise from coinage charges; which is tantamount to making silver worth about 60 pence an ounce, or its former value.
4. In view of the differences of opinion in Europe on the standard question and the strong prejudices in England in favor of the gold standard, it appears to me more than doubtful whether any step will be taken on this subject until those countries are made to carry the burthen of the large surplus of silver that we are now coining. But with 25 to 30 millions of bullion of our silver going thither every year, the effect would be so serious upon Asiatic trade and upon the immense silver circulation of the Latin nations, that it seems certain they would soon become willing to assume their share in restoring silver. At any rate, it is a proper and necessary compulsion for us to apply.
5. The Government is very closely threatened with a suspension of gold payments, if the coinage is continued. We have already seen a point at which the Treasury had to negotiate with the banks for six millions of gold to avert that catastrophe; and it is only a thin margin of a very few millions that separates us from such a condition all the time. Of course, if the Government suspended coin payments, gold would be apt to go to an indefinite premium; with the consequence of a rush of greenbacks into the Treasury for redemption and a depreciation of such paper as is redeemable in silver to the purchasing power of that coin. In my view, these dangers are much nearer than is generally supposed; and it is a most unjustifiable policy that needlessly perpetuates this state of things.
6. For the reasons assigned in my other answers to your inquiries, I regard the suspension of the coinage of the the silver dollars as to the last degree imperative. And the suspension should be both total and unconditional. Either a partial or a temporary suspension would fail equally to avert the home dangers with which we are threatened, and to bring about that European action which is indispensable to a sound and permanent settlement of the question.
So long as there was no efficient conventional arrangement for maintaining the value of silver, no nation can safely continue its coinage, because, in so doing, it was increasing its stock of currency, the future value of which could not be depended upon, and which might easily become a source of embarrassment and injustice between citizen and citizen, between debtor and creditor. In our country, however, such was the political influence of the silver-producing States that they easily induced Congress to order the coinage of not less than $24,000,000 per annum of standard silver dollars. The effect of this has been, undoubtedly, to somewhat check the decline in silver bullion; but at the expense of the artificial addition already of $230,000,000 of badly depreciated legal tender to our circulating medium. Our whole currency system has thus been vitiated; for our $680,000,000 of paper money may be redeemed in silver; and we are thus exposed to the very gravest dangers, in the event of anything causing an important drain of gold to Europe. That the coin thus issued was not really needed for the purposes of circulation is demonstrated by the fact that it has been found impossible to get more than one-third of it into circulation. In order to obviate this difficulty, various devices have been introduced for keeping the coin in the Treasury and issuing against it paper certificates of small denominations. The most ingenious of these contrivances was the one proposed by Hon. A. J. Warner, of Ohio, and pressed on the Government for its endorsement. In September last I took occasion to publish certain objections to Mr. Warner’s scheme, which was finally rejected by the Silver party; and, with that rejection, there is probably an end to all proposals for creating a purely silver paper currency. As a brief exposition of one phase of this controversy, it may perhaps be permissible to reproduce here the views then expressed:
Mr. Warner’s measure virtually concedes that the coinage of the silver dollar has already been carried to a point thatthreatens serious danger to the currency system of the country, and, consequently, to the just relations between the creditor and debtor classes. This confession from a representative of the Silver party does not come a day too soon; and it would be welcome, were it not accompanied with proposals that would aggravate the evils which need to be remedied. Let us briefly examine Mr. Warner’s plan.
First, it discontinues the current monthly coinage of silver dollars required under the existing “Bland Act.” 2. It provides that, in lieu of this current coinage, holders of silver bullion may deposit any amount thereof in the United States Treasury. 3. It requires that, against such unrestricted deposits of bullion, the Government shall issue to the depositors “bullion certificates,” expressing an amount of money equal to the market value of the bullion at the time of its deposit. 4. These certificates are to act as a new form of currency. The Government could use them in liquidation of all its debts not made expressly payable in gold; and it would be required to accept them in payment of customs duties, taxes and public dues generally. The national banks would be required to accept them in payments between themselves. And, 5, the certificates are made redeemable in lawful money, (i. e., either gold, silver or U. S. notes), or at the option of the Treasury in silver bullion at its current value at the time of redemption. These are the more vital provisions of the scheme. Let us see what they involve.
Against the whole plan there lies a very positive doubt of its constitutionality. The Constitution empowers Congress to authorize the coinage of gold and silver, and to make such coins a legal tender; but there is nothing in the powers thus conferred, nor in any powers conveyed by that instrument, that can be construed into a right of the Government to receive silver bullion on deposit. The Government can have no interest, duty or function in connection with bullion, except so far as it may be procured for the express purpose of coinage. It can have no more power to assume the custody of bullion for the accommodation of its producers than it has to store cotton, iron or wheat for the convenience of the dealers in those commodities. And when, in addition to assuming the grave responsibilities of custodian, the Government undertakes to issue receipts endowed with special privileges and attributes, calculated toincorporate those receipts as an important part of the currency system, it commits a breach of the true functions of government and of the true constitutional limitations of federal authority, which, it would seem, the Supreme Court should unqualifiedly prohibit.
The provision made for the redemption of these proposed certificates would be to the last degree objectionable. They are payable in legal tender money, or, at the option of the Government, in an equivalent value of silver bullion at its current market price. If the Government chooses to redeem them in lawful money, it exposes itself to a new and important demand upon its legal tender notes or its gold: and as the amount of greenbacks owned by the Treasury now runs so low as to prohibit those notes being used for the purpose, it follows that the redemption of the certificates would have to be made from the Treasury stock of gold. Thus the operation of the scheme would be to exchange the Government gold for silver bullion. What could the silver men desire better? What could all other interests dread more? It would be a direct step towards incapacitating the Government for maintaining gold payments; and, as such, would go far towards dissipating that broad substratum of gold which is the sole means of preventing our entire paper currency from depreciating to a level with the bullion value of the silver dollar.
It is thus clear that the Government would be ultimately driven to redeem the certificates in silver bullion. What does that imply? First, that the Treasury would have to stand the loss upon the deposits of bullion that might arise from a fall in its value. Take a case for illustration. A deposit is made of 1,000,000 ounces of gold at the current price of $1.10 per ounce, the Treasury being required to issue against it $1,100,000 of certificates. Later, when the price of silver has fallen to say $1.05, the $1,100,000 of certificates is presented for redemption, and 1,047,619 ounces of silver have to be delivered, as the bullion equivalent at the current market value. The Government thus loses 47,619 ounces of silver by the transaction. Now, seeing what a handsome profit can be made by thus depositing bullion at a higher price and withdrawing it at a lower, are men so virtuous that we can depend on their not working this Treasury silver mine to the utmost possible advantage? With the hands of the Government thus tied, it would be at the mercyof unprincipled speculators and could not escape being mulcted to the extent of millions of dollars. The moment such a bill was signed by the President, speculative combinations would be formed with London bullion dealers; the European stocks would be secured, and, after advancing the price, would be sent to the United States Treasury. The next step would be to force down the price; and then the certificates would be presented to be redeemed by a much larger quantity of silver than had been deposited against them. And thus the game would go on continuously, the Government being the loser in every transaction. A finer scheme for the benefit of speculators could not have been conceived; but for legitimate interests, in many ways dependent on the value of silver, nothing could be more serious.
There is nothing in Mr. Warner’s measure to prevent the United States Treasury from being saddled with as much of the European stocks of silver as speculators find it to their interest to send here, in addition to the product of our own mines; and for such deposits the Treasury would be compelled to pay whatever artificial price it suited the operators to determine. And what does such a transfer involve? First, that we should have to ship so much more gold to Europe, making the operation a virtual exchange of Europe’s silver for America’s gold; next, that the United States Government would thus be made to bear the sole weight and responsibility of carrying theWORLD’Ssurplus of silver; next, that, as a consequence, England, Germany, and other nations would become still more reluctant than they now are to negotiate for an international settlement of the silver question; next, that the Government would be so handicapped with its enormous load of silver as to place it at an utter disadvantage in such negotiations; next, that the Government would be exposed to immense losses in assuming such vast responsibilities; and, next, that the large issues of certificates to be made against this mass of bullion would be a forcible and artificial inflation of the currency, which could not fail to produce disaster to all the material interests of the country.
Of course, such an arrangement would be all that the silver interests could desire. For them, indeed, it would be a far better protection than the Bland Act. But this advantage would be only temporary; for when the scheme brokedown of its own weight, as sooner or later it must, the miners would be exposed to ruin from the consequent derangements.
The only wholesome treatment of this question is to repeal the Silver Coinage Act. That done, we should add $25,000,000 to our yearly exports, instead of locking up so much of our national product as dead capital in the Treasury; while that increase of exports would give us a greater command of European gold and thereby strengthen our international position in this question. Europe, and especially England, would then be compelled to earnestly consider measures for placing the double standard upon a broad and lasting international basis; and as such a disposition began to manifest itself, the silver market would so far sympathize as to amply compensate producers for any losses they might suffer from a temporary fall in bullion.
Henry Clews.
Bad as the situation is, in respect to this vast mass of the world’s circulating medium, yet it is far from being a hopeless one. The more serious it becomes, the nearer will be the remedy. The derangements to commerce and to immense vested interests must ultimately become so serious, that the nations which now obstruct the application of a remedy will be compelled to submit to the necessities of an imperative danger, and the end will probably be that a coinage union will be established between the great nations, on a basis broad enough to give stability to this form of money beyond all possibility of future disturbance.