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 competent to 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 York _Daily Commercial Bulletin_, in October last,

with my answers appended, as briefly expressing the conclusions I have

been led to form on this question:

QUESTIONS.

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?

REPLIES.

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 that threatens

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 to incorporate 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 mercy of 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 the WORLD’S surplus 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 broke down 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.

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