§ 10. Nature and object of bimetallism. First came the "greenback movement," which lasted until after 1880.11 This then gave way to an agitation for bimetallism. Bimetallism is the plan of using two metals as standard moneys. Bimetallism is legally authorized when both metals are admitted to the mints for free coinage at an established ratio of weight. Bimetallism may be legally authorized, but not actually working; for if the market value long continues to vary appreciably from the legal ratio, only one of the metals may in fact be left in circulation. This situation is called limping bimetallism (or halting double standard), though this is a contradiction of terms. National bimetallism is confined to a single country, as was the case in the United States before the Civil War, and in France before 1867. International bimetallism is that resulting from an agreement among several nations to use two metals on the same terms.

The theory of bimetallism is that the government can act on the value of the two metals through the principle of substitution. The metal tending to become dearer will not be coined, the other will be coined in greater quantities. The degree of influence that can thus be exerted on the value of the two metals depends on the size of the reservoir of the metal that is rising in value. When it all leaves circulation, the law on the statute book permitting it to be coined becomes a mere phrase. In such a case there is bimetallism de jure, but monometallism de facto. The greater the league of states, the greater is the likelihood that the plan will continue to work. The only notable historical instance of international bimetallism is that of the Latin Union which united France, Belgium, Italy, and Switzerland in an agreement remaining actually in force from 1866 to 1874. A strong movement developed between 1878 and 1892 in favor of forming a great international bimetallic union of states.

10 See Vol. I, on agricultural leases, p. 159, wheat prices, p. 436, and changes in the land supply, p. 442. 11 See ch. 4, § 13.

One object of bimetallism was to put an end to the great fluctuations in the rates of exchange of money between the silver-using and gold-using countries, fluctuations that occasioned much uncertainty and loss to individuals engaged in foreign trade. The rise in the price of gold exchange in the silver-using countries (notably India) meant also an increase in their burden of taxation. These countries collected their revenues in silver, but they had to pay their debts, principal and interest, in gold. Another object of this movement was to prevent the burden of individual debts from increasing by reason of the rise in the value of the single standard, gold. It was, indeed, hoped that by bringing silver much more into use the value of gold would be reduced, thus bringing relief to the debtor classes. Still another object of the bimetallic movement was to aid the silver-miners and silver-producing districts by creating a larger market for silver.

Several international conferences were held, which were taken part in by some of the leading financiers of the world, representing their respective governments. The United States was foremost in advocating the policy; France at first favored it, as did in large measure the British Indian administration; though England was in the main opposed. The movement came to nothing.

§ 11. The free-silver movement. When all hope of international bimetallism failed, the efforts of many of its advocates were turned to the plan of legalizing national bimetallism in the United States at a ratio of 16 to 1. This was very different from the market ratio. Gold had become before 1860, in fact, the standard of our money system, and after 1873 it was the only metal admitted to free coinage. Silver, little by little, had been losing purchasing power in terms of gold, until from being worth in 1873 one sixteenth as much, ounce for ounce, it became in 1896 worth but one thirtieth as much as gold. The power of silver to purchase general commodities fell much less than the change in its ratio to gold would indicate, gold having risen in terms of most other goods as well as of silver. However, the "free-silver movement" to open the mints to the free coinage of silver at the ratio of 16 to 1, supported by one of the leading political parties in the year 1896, threatened a sudden and marked cheapening of money. Probably gold would have been entirely driven out as money for the time and silver would have taken its place as the standard. It is not impossible, however, that the substitution of silver for gold in the United States would have brought the two metals to parity at a level of prices much less than 100 per cent higher than the existing one, possibly not more than 20 or 30 per cent higher. In any event, "free silver" would have accomplished the purpose of making the standard of deferred payments cheaper. It was at first a debtors' movement, but to succeed it had to enlist the support of other large classes of voters. And thus it developed into the more sweeping theory that wages, welfare, and prosperity were favored by a larger supply of money quite apart from the effect it would have upon debts.

In its extreme form the free-silver plan was a fiat scheme; for some of its supporters believed that by the mere passage of the law the two metals could be made to bear to each other any ratio desired. But its most intelligent advocates recognized that the force of the law was limited by economic conditions. The victory of the gold standard in the campaign of 1896 was, it would seem, due more to the well-founded fear that a sudden change of the money standard would cause a panic than to a popular understanding of the question.

References

Anderson, B. M. Jr., Effects of the war on money, credit and banking in France and the U. S. Carnegie Endowment for International Peace. P. 227. New York. Oxford University Press. 1919.

Mitchell, W. C, History of prices during the war. P. 95. Washington War Industries Board. 1919.