As a remedy for these evils the bimetallists rely upon what has been called the compensatory action of the double standard. This may be described as follows: Suppose that the ratio established between the weights of gold and silver coins of the same nominal value be 16 to 1, and that a change in the market for bullion, due to a fall in the value of silver, temporarily makes the actual ratio 18 to 1. It will now be profitable for all debtors to pay in silver and sell gold coins as bullion, since for every ounce of gold thus sold they can purchase eighteen ounces of silver, and, by carrying it to the mint for coinage, pay as large a debt or make as large a purchase with sixteen ounces as they could have done with the original ounce of gold, and thus make a clear profit of two ounces of silver on every such transaction. It is not, of course, to be supposed that every person would know enough to take advantage of such a situation, or would take the trouble of going into the exchange business if he did see this chance of profit; but we may be sure that the people already in the business, namely, the money-changers, would melt down or export gold coins on as large a scale as possible, and buy silver bullion and take it to the mint for coinage One result of this procedure would be a large increase in the coinage of silver and a decrease, perhaps a complete stoppage, of the coinage of gold; and a second would be, so say the bimet-allists, a large increase in the use of silver for monetary purposes, and a decrease in the use of gold. A change in the relative demand for the two metals would thus be produced which would tend to counteract the effects of the fall in the value of silver, and bring the ratio between the two metals on the bullion market back to that established by law for the guidance of the mint. That is, the increase in the use of the one metal and the decrease in the use of the other for monetary purposes would raise the value of the first and lower that of the second, thus tending to bring the two ratios together. A further argument is needed to show that this compensatory action would be sufficient to make the bullion ratio actually identical with the legal, and this the bimetallists find in the enormous quantities of gold and silver used for monetary purposes and in the relatively small capacity of the bullion markets to absorb increased quantities of the precious metals without experiencing great fluctuations in their value. Mr. Barbour puts this argument in substantially the following form: The estimated gold coinage of the civilized world a few years ago was 3943 millions of dollars, and of silver coinage 2755 millions of dollars. Is it conceivable that any change in the market ratio between the two metals, due to ordinary or even extraordinary causes, would not be remedied by withdrawing a small fraction of these millions from circulation and throwing them upon the bullion market? By way of illustration Mr. Barbour says, speaking of a bimetallic ratio of 15 1/2 to 1: -

* D. Barbour, Theory of Bimetallism, pp. 20-23.

"Let us assume that there is 700,000,000 sterling of gold coin in the world and 700,000,000 sterling of silver coin, and that the annual production of gold and silver is 20,000,000 sterling in each case. Let us further assume that the labour which produced 20,000,000 worth of silver suddenly, owing to the discovery of new and more valuable mines, produces 30,000,000 (at the fixed legal ratio), and that consequently the ratio of the market falls to 1 to 17. Instantly there will be a profit to be made by exchanging gold for silver bullion and bringing the silver to the mint. The 700,000,000 of gold in the currency plus the year's production of 20,000,000 would at once compete in exchange for the 30,000,000 of silver just produced; everybody who owned gold, coined or uncoined, would hasten to exchange it for silver at the rate of 1 to 17, and would find his profit in paying his debts and taxes at the rate of 1 to 15 1/2. To suppose that any other ratio than that of 1 to 151/2 could be maintained for a single hour when the holders of 720,000,000 of gold were offering it for 30,000,000 sterling of silver at any rate better than 1 to 15 1/2 is absurd."*

On account of this compensatory action of the double standard, the bimetallists claim that if a sufficient number of nations could be induced to adopt the bimetallic system of coinage, no variation in the relative value of the precious metals could take place. The general level of prices might rise and fall on account of changes in the relative value of gold and silver and other commodities, but, so far as their relations to each other are concerned, no change could take place, since any tendency in that direction would be immediately counteracted by a modification in the relation between the demand and the supply of the two metals brought about by the process just described. The above supposition of a difference between the legal and market ratios, therefore, must be regarded as a hypothetical case, useful as an illustration of the way the law operates, but not in correspondence with facts as they would present themselves under the bimetallic system.

The relation between the compensatory law and the evils of monometallism may be illustrated first by reference to the hypothetical case assumed by Mr. Barbour and explained in the preceding section. Instead of asking one-third of the population of one country to give up the use of metal B for that of metal A, as was suggested in the latter part of the quotation from Mr. Barbour's book, the bimetallists propose that both nations make the coins of both metals full legal-tender at the ratio of 10 to 1. Then the result in the hypothetical case would have been no change of prices in either nation and no change in the ratio between the metals. To quote again Mr. Barbour's words:-

* Theory of Bimetallism, pp. 41, 42.

"If, then, before the rate of production of the two metals began to vary it had been declared that the A and B coins were full legal-tender at the ratio of 1 to 10 throughout both countries, we should, according to the bimetallists, have had 26 2/3 millions of A coins and 133 1/3 millions of B coins forming the currency for four millions of people. The 133 1/3 millions of B coins being worth 13 1/3 millions of A coins, it follows that the value of the total currency is 40 millions of A coins, or, in other words, we have for four millions of people a currency which is of the value of 10 coins of A metal per head. This is the exact amount required by our hypothesis to insure stability of price, and we consequently see that the alternative and optional use of the two metals as money at a fixed ratio secures stability of price, provided that the two metals do actually circulate side by side at that ratio."*

Regarding the appreciating gold standard, which is the chief evil charged against the monometallic system, the claim is that it could be partially and perhaps entirely counteracted by the use of both gold and silver as standard money. In order to restore gold to its former value it would be necessary to adopt such a ratio as would put the compensatory law into operation and cause the substitution on a fairly large scale of silver for gold in the monetary uses of the world; but, in order to prevent future changes, the best that could be done would be to adopt the ratio at the present time ruling on the markets. This ratio could then be maintained for all time, and while it might not entirely prevent any further appreciation, it would at least retard the movement and prevent the fall of prices to so low a level as would be possible under the present system. The argument on this point is substantially the same as that employed in Mr. Barbour's hypothetical case. The bimetallic system acts as a check upon fluctuations in the value of both metals, but cannot entirely prevent them. As soon as some external force, such as a discovery of new sources of supply, or improvements in the methods of production, begins to affect the value of one of the metals, the action of the compensatory law commences and modifies the demand for it in such a way as to counteract the rise in value, if that is the tendency of the movement, or the fall, if the new force is working in that direction; but the maximum result of this counteraction will be to prevent a change in the ratio of the two metals. It cannot go so far as to make the ratio between the demand and the supply of both metals precisely the same as before. For example, suppose that the production of silver were to increase twenty-five per cent under the bimetallic system, all that is claimed is that the demand for silver for monetary purposes would be increased and that for gold decreased to whatever degree might be necessary to prevent a change in that ratio, but that would not mean a twenty-five per cent change on both sides, which would be required to exactly restore the former ratio of demand to supply. Very likely a twelve and one-half per cent increase in the monetary demand for silver and a corresponding decrease in that for gold would be sufficient, in which case both metals would have experienced a considerable fall in value, but not so great a fall as silver would have experienced, had no counteracting agency been in operation. If no change had taken place meanwhile in the value of commodities, prices would certainly rise, but not in the same degree as in a silver monometallic country under the same circumstances, and, if both metals had previously been appreciating in their relation to other commodities, this tendency would have been checked and perhaps entirely counteracted.

* Theory of Bimetallism, pp. 30, 31.

As compared with conditions in a gold monometallic country suffering from an appreciating standard, the situation would be much better, because the decrease in the demand for gold for monetary purposes might just counterbalance the increasing demand or the decreasing supply which was the cause of its appreciation in the gold-standard country.

The advantage of a fixed and unchangeable ratio between the precious metals in the field of international trade is obvious. The chief difficulty at the present time in this branch of trade is the lack of a fixed par of exchange between gold- and silver-standard countries. If bimetallism could maintain a fixed ratio between the two metals, this difficulty would entirely disappear, and exchanges between England and India, or between the United States and China, would be no more hazardous than those between England and the United States at the present time.