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countries which are not on a strictly gold basis are nevertheless enabled to keep their currency at substantial parity with gold in other countries. This is accomplished by means of redemption in foreign exchange. The government or its agents, while not redeeming its currency in gold, redeems it in orders on gold abroad. When there is a demand for redemption of silver the government sells bills of exchange on London or New York at a stated price in gold. The silver received from the sale of exchange is withdrawn from circulation until demand for redemption ceases. It will be observed that this system is one of indirect redemption of silver.

Another form of standard is that of irredeemable paper. In one sense this is obviously a single standard; but it differs from monometallism in that the currency material is not a commodity having a value independent of its monetary use, as in the case of the precious metals. With irredeemable paper money the paper is issued by the government and declared to be the standard of value. It is made legal tender in payment of debts and is receivable by the government in all obligations due from individuals. It is supposed to get its value either from the "fiat" of the state which issues it, or by means of a monopolistic limitation of the supply.

An irredeemable paper standard entirely independent of other standards has seldom been tried. Paper money is usually bound up in one way or another with other forms of money, being used merely as a medium of exchange, with metals as the money of account, or being only temporarily irredeemable, that is, at some future time convertible into specie.

The multiple standard is a device calculated to produce an unvarying standard of deferred payments, and has no reference to the medium of exchange. The prices of a large list of representative commodities are combined for a given year or period of years into a base or index number, 100. This represents the purchasing power of money at the given time. Each year or month or week thereafter the new prices of these commodities are averaged and the variation from the base number, 100, indicates the changes in the purchasing power of money that have occurred. If the index number becomes 110, then $110 must be returned by a debtor for every $100 that had been contracted when the base was 100. If the index number becomes 95, then similarly only $95 need be paid by a debtor. In this way the inequalities resulting from a fluctuating standard would be eliminated.

61. THE VALUE OF STANDARD MONEY

When a given commodity is chosen as a common denominator of value its function is to serve as a means of comparing the exchange ratios of commodities in general. Thus the relative values of wheat and corn are expressed by comparing each separately with the money of account. If a bushel of wheat exchanges for one dollar in standard gold, and a bushel of corn for one-half dollar, the ratio of wheat to corn is found to be two to one. The foregoing process, however, obviously first involves a direct comparison of each commodity with money; and since the standard itself is a commodity, this first value relation, or price, as it is called, is a result of the general conditions of demand and supply as affecting the standard on the one hand and the commodity to be compared with it on the other.

When a commodity is chosen as a standard for deferred payments we have a similar comparison of goods with the standard, but with a time element introduced. It is in connection with deferred payments, moreover, that the standard controversies have mainly arisen.

Since gold serves as a common denominator of value and a standard of deferred payments, it is important that one understand the forces regulating its value. The supply of gold is obviously influenced directly by the conditions of production at the mines. The discovery of a bonanza mine tends to depress the value of gold as a standard through increasing its supply; and the exhaustion of a rich vein of ore would conversely tend to raise the value of the standard through decreasing the supply.

Changes in the cost of producing gold have not in the past had much effect upon the quantity produced, owing to the speculative character of gold mining. It has been stated that the cost of producing gold has probably on the whole exceeded its value, and that the losses sustained by the many who search in vain have outweighed the gains of the fortunate few. In recent years, however, with the rapid disappearance of placer mining and the necessity of providing an expensive equipment for extracting gold ore, the cost of production has come to be carefully considered. There are marginal mines where it barely pays to take out the gold, just as there are marginal farms and marginal factories. It is doubtless true, however, that the lure of the yellow metal will indefinitely continue to play its part in the production of gold, and thus render a portion of the supply dependent upon chance.

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 the discharging of a $10,000,000 increased output of gold into a total world's supply of eight or nine 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 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.

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