Gold differs from other commodities, also, in that the supply at any given time is not merely the output of a previous year's mining operations; it is a stock that has been accumulated through centuries of production. Gold is a highly durable commodity, and as a result the world's supply becomes larger each year, even though the annual production may be rapidly decreasing. The greater part of all the gold mined since 1850 is still in existence and performing service quite as though it were fresh from the mines of the Klondike. The result of this accumulated world's supply is to render any yearly change in output less and less effective in influencing the value. Pouring a cup of water in a large tank has but slight effect upon the level of the water in the tank. Similarly an increased yearly supply of, say, $25,000,000, when added to a total world's supply of ten or twelve billions, can have but little effect upon the value of the whole if other factors remain unchanged. A great increase extended over a number of years may, however, obviously have a substantial effect upon the value of the entire mass of standard metal. The demand for gold is twofold: for use as a commodity in the manufacturing and industrial arts, and for employment as a medium of exchange and as a basis of monetary systems. The demand for gold as a commodity is, of course, subject to the same general conditions as the demand for any other commodity. It has utility in the satisfaction of human desires, and this utility is affected by degree of scarcity, change of customs, possibility of substituting other commodities, etc., in the same way that the utility of other commodities is affected. For monetary uses, however, the demand for money is sometimes said to be unlimited where free coinage exists. Since all the gold produced may be taken to the mints and converted into dollars or sovereigns, it would seem that there is a permanent and unchanging demand. This view, however, overlooks the intensity of demand. It is true that monetary systems will absorb the entire quantity of gold offered; and it is true that the number of grains put in a dollar may remain unchanged. But if the supply is greatly increased, the purchasing power of gold may nevertheless be lessened. Almost any quantity of wheat would be demanded, at some price, but a doubling of the total supply would substantially lessen the exchange value of a given bushel. It is precisely similar in the case of gold. An increase in the monetary demand for gold would be caused by the giving up of silver as a standard metal in leading countries; by an increased use of gold as a medium of exchange; by an increase in the quantity of gold required as reserve for substitute forms of money; by an expansion of commerce and trade; or by a less effective use of gold through poor organization of credit. A decrease in the monetary demand for gold would result from opposite causes. 62. THE POPULAR CONCEPTION OF A "DOLLAR” BY SIMON NEWCOMB So far as intellectual conceptions go, it ought to be perfectly obvious that calling a piece of metal, or a piece of paper, one dollar no more gives it value than calling a ruler one foot gives it length. It should be just as easy to suppose two different kinds of dollars, say a piece of silver and a piece of gold, both declared equal dollars by act of Congress, to have different actual values, as to conceive of two scales, made in different parts of the country, and both declared legal yards, having different lengths. As a matter of fact, however, the conception is not so easy when applied to any concrete case. The quality of length is evident to the senses, and the conception of this quality can be gained by simply looking at an object. The quality called value not only evades all examination by the senses, but its very conception is so abstract and difficult that the ablest economists are not yet fully agreed as to its statement. Little wonder, then, if the typical man should feel much satisfaction at being worth twice as many dollars this year as he was last, even if the dollars themselves are worth only half as much, or feel impoverished by a great reduction of his money values, though he could still command as many of the utilities of life as he could before. 63. THE "SCIENTIFIC” ARGUMENT FOR BIMETALLISM2 BY FRANCIS A. WALKER The first advantage possessed by bimetallism is that two metals constitute a better money than either metal by itself could be. The mining of the precious metals has in all ages been a work of highly spasmodic and often intermittent activity. Moreover, each metal has its peculiar sources and conditions of supply. The bimetallist, therefore, argues that it is reasonable to anticipate that the variations in production of the one will, in a degree greater or less, offset those Adapted from "Has the Standard Gold Dollar Appreciated?" Journal of Political Economy, September, 1893, pp. 503-4. 2 Adapted from Money, Trade and Industry, pp. 157-58. (Henry Holt & Co., of the other. They will not be likely to fall off in their yield at the same time and to the same amount. It would be too much to expect that the maximum production of one would coincide with the minimum production of the other. But the irregularities of mining fortune could scarcely fail to secure a more equable yield of the two metals taken together than of one separately. This contention, moreover, is fully borne out by the facts of production during the present century. On this point the monometallist alleges that gold and silver, having their separate sources and conditions of supply, are likely to be produced irregularly as compared with each other; that now gold and now silver will be yielded in excess; that, consequently, their relative values must fluctuate greatly, and that a concurrent circulation of the two is not possible. The bimetallist rejoins that the considerations alleged show how illy either metal alone is fitted for its office as a standard of deferred payments, and establish the great utility of so uniting them in the monetary function that the irregularities of the production of one may be in some degree at least offset by those of the other. The second advantage which the bimetallists claim for their system is that, by the establishment of a normal price for each of the two metals thus joined in the money office, a normal price of gold in terms of silver, a normal price of silver in terms of gold, a par-ofexchange is created and sustained between the nations using gold and the nations using silver. The natural consequence of this the bimetallists claim to be of vast importance to the trade and production of the world. A nearly stable monetary relation, a proper par-of-exchange, is established between the portions of the world. using silver and the portions using gold. The merchant of a silver country exporting his goods to a gold country can always compute precisely or approximately what the gold he obtains by the sale of his merchandise will be worth in silver. He can thus make his arrangements for business, and his contracts for labor and material, with confidence. In the same way the merchant in a gold country, exporting his goods to a silver country, runs no risk of loss through fluctuation in the comparative value of the metals, in which he buys and in which he sells, respectively. The two have a nearly fixed relation, and can thus, with but a small margin, if any, be rendered into each other for the purpose of international exchange. The gain to commerce and, through commerce, to industry, resulting herefrom is asserted by the bimetallist to be very great. 65. REASONS FOR VARIATION IN RELATIVE VALUE OF GOLD AND SILVER' BY FRANCIS A. WALKER It is easy to find reasons for variation in the gold-value of silver and the silver-value of gold. 1. The precious metals have in a great degree their separate sources and conditions of supply. Silver is generally drawn from deep mines. A very large part of all the gold produced in the history of the world has been drawn from "placers," surface deposits, where the metal lies in fine grains mingled with the sand in the beds of old rivers, or has been derived by the process of hydraulic mining, where the force of water is directed by engineering skill to accomplish the same work in a few hours which in the case of the "placer," or "gulchgold," has been done by centuries of frost and flood. Hence the production of silver is generally pursued through systematic mining operations. The production of gold is more largely influenced by accidental discoveries. Moreover, owing to its very low affinity for other metals, gold is largely found native, while silver, from the high degree of affinity it exhibits, is generally found in ores; so that the problem of its production involves both mechanical and chemical elements. It will appear from what has been said that the comparative production of gold and of silver is likely to be influenced greatly by accidental discoveries of deposits, which are likely especially to favor gold production, and to be influenced greatly, also, by the progress of the arts, which is likely especially to favor silver production. Europe and South America have been the great historical silver continents; Asia, Africa, and Australia have chiefly, almost exclusively, produced gold. North America is the only continent that has produced the two metals in anything like equal value. First through the Mexican mines it made important contributions to the stock of silver; then the California discoveries constituted it the greatest gold field of the world; and more recently the extensive silver deposits of Nevada have turned the scale of production to the side of the other metal. 2. The precious metals have, in a certain degree, their separate sources of demand. The uses of gold and silver in the industrial I Adapted from Money, Trade and Industry, pp. 139-44. (Henry Holt & Co., 1889.) |