Bimetallism

Bimetallism, the name given to a system of coinage under which both gold and silver are legal tender, the value relatively to one another being fixed at a certain ratio, that proposed being usually 1 to 15-1/2. At present, though both are used in the coinage of the more advanced countries, yet the basis of the currency is usually gold only, silver being used as token money, with a conventional value. Thus 100 shillings are not the equivalent of so much silver bullion as five sovereigns will purchase, and silver is only legal tender in England for sums under 40s.

As commerce is at present constituted, some nations tend naturally to use silver as a standard, others to use gold. Thus in most of the states of South America, where food is plentiful, wages and the prices of the necessaries of life low, and the great mass of the population has but few wants, a gold coinage would hardly circulate at all, unless the pieces were too small to be of any practical use, because the number of people who want to spend a sum equal to 10s. or £1 all at once is relatively very few. On the other hand, as a country becomes richer, it tends to adopt a gold standard, to save trouble in the carriage and handling of coin. Now in trade between a country with a gold standard and one with a silver standard, in addition to all the ordinary risks of commerce there is the uncertainty arising from the fact that the existing market ratio between the values of gold and of silver is constantly fluctuating; and (with the narrow profits gained on modern commercial transactions, taken singly) the fluctuation may make the difference between profit and loss. Such fluctuation, it is alleged, discourages trade. Still more does it discourage investment of foreign capital in silver-using countries - silver, it must be remembered, having fallen in value almost steadily since 1872, A railway in Mexico, for instance, where silver is the basis of the currency, may be owned by English shareholders, and fix its rates and fares on the hypothesis that the ratio of gold to silver will be as 1 to 20. A very slight depreciation of silver may cause a loss on exchange sufficient to reduce the dividend seriously. And a company cannot readjust its whole tariff with every variation in the price of silver. Most of all, it is said, does the system affect the European producer of goods also produced in silver-using countries. The Indian wheat grower has been accustomed to sell his wheat for export for a certain amount of silver. Silver having fallen relatively to gold, this amount is obtainable by the European purchaser more cheaply than formerly; he therefore has an inducement to purchase more Indian wheat, and so the fall in the price of silver acts as a bounty on the import of Indian wheat, which competes with the wheat of Europe. The Government of India, again, raises its revenue in silver from the Indian people, but must purchase stores and make various other payments in Europe in gold or its equivalent. Every fall in silver decreases its ability to do so; and the capacity of the mass of the Indian people to bear taxation is already strained to its utmost limits. Indian officials, too, whose pay is estimated in silver rupees, but to a great extent remitted to England to make purchases, feel acutely the fall in silver, in consequence of which 13 or 14 rupees exchange for a sovereign instead of 10 as formerly.

After the Franco-German war and the unification of Germany the silver coinage of that country was replaced by gold. Part of the demonetised silver was offered for sale - 3,552,000 kilogrammes from 1873 to 1879 inclusive, while at the same time there was an increase of nearly 50 per cent. in the weight of silver obtained from the mines - chiefly in the United States - between 1876 and 1885. Moreover, the demand at the same time decreased, partly from the cessation of free coinage (or unlimited coinage on demand) in Germany, the Latin Union, and Holland; and from a diminution in the Indian demand, due in part to the substitution of bills for silver in the remittances of the English Government to India, in part to the cessation of special causes which between 1857 and about 1871 stimulated an exceptional export of silver to that country. Thus, while in 1872 the market price of silver averaged over 59d. per oz., in 1888 it fell below 42d. Along with this has gone "the appreciation of gold "(to use Mr. Goschen's phrase), partly from increased demand by the countries which have substituted a gold for a silver standard, viz. Germany, Holland, and the Scandinavian countries; partly from increased hoarding by individuals and governments, owing to the uncertainties of the political and commercial world; partly from an increase in its use in manufactures; partly from a decrease of supply. Hence there has been a general fall in the prices of commodities, that is in their values estimated in gold. (But no doubt much of this fall is due to increased supply consequent on improved methods of production, and to that temporary over-production which always results before the new methods and machinery have driven the old out of the field; and the relative degree in which it is due to either set of causes is one of the most hotly disputed points in the controversy.)

The bimetallists therefore propose that the chief trading countries of the world shall agree to adopt a double standard - that is to allow free coinage (see above) of both silver and gold, fixing a ratio between them. That usually proposed is 15-1/2- to 1, or about the ordinary market ratio before the fall commenced; but some bimetallists are ready to accept a ratio of about 22 to 1, which more nearly represents the present state of things. The monometallists object that were both metals legal tender, debtors would at once hasten to discharge their debts in the cheaper metal, whenever a variation in the market ratio occurred. The bimetallists, however, reply that such a movement would at once check the variation; the increased demand for silver if its value fell would check the fall; and that in any case an international agreement would practically avail to keep up the ratio. Bimetallism indeed, they urge, did exist in some degree from 1868 to 1872, when the Latin Union - France, Belgium, Italy, and Switzerland - practised the free coinage of silver as well as gold, coins issued in any one of the countries being legal tender in the rest, and the same agreement is practicable on a more extended scale. Moreover, the supply of gold is not likely to increase, while the supply of silver is; and though in practice more than 99 per cent. of wholesale purchases are paid for not by gold but by bills, cheques, and other credit substitutes for money, yet the value of these depends on their convertibility into metallic standard coin at will. Hence in any monetary crisis at present there is a sudden and severe demand for gold, if only as the basis of fresh issues of bank notes. Bimetallism, therefore, it is urged, would supplement the supply of metal available for coinage in a way impossible if gold is the only standard.

It is, however, this increased supply of silver (probably capable of very great extension) which is the great difficulty of bimetallism. This part of the case against it has been effectually put by Mr. David A. Wells (Recent Economic Changes). Mr. Giffen's Essays in Finance may also be consulted on this side. Professor Walker's Political Economy gives a concise and impartial sketch of the theory, to which this article is considerably indebted. In its support much has been written, particularly by M. Cernuschi, Mr. H. Hucks Gibbs, and Mr. Samuel Smith. Professor J. S. Nicholson's Essays on Money and Monetary Problems must also be mentioned, and a concise statement of "The case for Bimetallism" will be found in Sir Louis Mallet's Remains (1891). The report of the Gold and Silver Commission (1888), of which a useful summary has been published by the Bimetallic League, contains much valuable information. The commissioners were equally divided for and against bimetallism, and the controversy is still quite unsettled. Of course only a scanty outline of it has here been given.