Before proceeding with the discussion of this question it is necessary to preface my remarks with a brief history of the use of gold and silver as currency. All records point to the fact that in the dawn of modern civilization silver was the standard of value, although gold also was money and was coined. It is known that gold was coined in Constantinople even after the decline of the Western Roman Empire. In England silver was the standard and up to the forty-first year of the reign of Henry III, and gold was not coined at all; after that gold and silver were both coined, although not only the coins issued in England but also foreign coins, whether of gold or silver, were the legal monies of the realm. In Shakespeare's plays frequent references are made to pounds, marks, francs, and Florentine money, besides groats and nobles. "The several Governments in Europe possessed and exercised the right of deciding the rate at which the coins of every kind should pass, or be, in modern language, legal tender; it made no difference whether such coins were minted in the state or belonged to another state. In the reign of Henry VIII the numerous states in Europe altered the relative value of their gold and silver coins so often that the position in England became really embarrassing. At that time in Europe it was believed, as it is in China to-day, that the wealth of the country depended very largely on the quantity of gold or silver money which it possessed.
During the reigns of James I and Charles I frequent alterations were made with the object of attracting one or other metal, with the result that while the country was denuded of silver at one time it was denuded of gold the next.
The discovery of precious metals and the increase of the available quantity of both gold and silver altered their relative values materially. I cannot do better than quote from Dr. Shield Nicholson's work, Money and Monetary Problems, anent this subject:
"In the sixteenth century the new supplies of precious metals were obtained from Spain, through her discoveries and military successes in America, and were largely squandered in ambitious political schemes in Europe; but in the natural course of things they soon found their way into the great cnannels of trade. At that time the Netherlands held the commercial supremacy of the world, and Antwerp was the queen of the Netherlands. It was almost entirely by trade that the Dutch amassed their wealth. The celebrated description of Holland, written about the middle of the seventeenth century is equally true of the sixteenth. "Never any country traded so much and consumed so little; they buy infinitely, but it is to sell again. In short they furnish infinite luxury which they never practice, and traffic in pleasures they never taste." It was then through the great cities of the Netherlands, with their wide-spreading trade conditions, that the treasures of Mexico and Peru were diffused over the world, and no one is surprised to hear that Antwerp was the dearest city in Europe.
"It would however be a great mistake to suppose that even in the sixteenth century, when credit was comparatively, and, according to our notions, quite undeveloped, this distribution of new supplies of the precious metals took place, without any other noticeable result than a general rise in prices, accompanied by a natural increase in production.
"In the sixteenth century we find that, at the very time when England was beginning to feel the effects of the new treasure, all commodities of Greece, Syria, Egypt and India were obtained much cheaper than formerly - presumably owing to the fact that, by direct trade through Turkey, the charges of the Venetian carriers were dispensed with.
"We find also that careful and prudent monarch Queen Elizabeth, aided by still more careful and prudent counsellors, issuing regulations, on the one hand to check the growth of London by actually prohibiting new buildings, and on the other hand, by granting privileges and monopolies to other towns, to restore their former prosperity.
"It was peculiarly difficult for the people of that time to estimate the force of discoveries of the precious metals; for, apart from currency causes, influences were at work which were effecting great changes in relative prices, and, consequently, in production. Even before the mines of Potosi were discovered, England's wool had begun to rise in value, owing to foreign demands."*