This section is from the "Elementary Principles of Economics" book, by Richard T. Ely and George Ray Wicker. Also available from Amazon: Elementary Principles Of Economics: Together With A Short Sketch Of Economic History
Recent Monetary History states, as well as others, still provides a place for silver in its currency. By the Bland-Allison Act of 1878, the Secretary of the Treasury was required to coin not less than $2,000,000 worth of silver nor more than $4,000,000 worth per month. Under the act there were coined, down to August 12, 1890, when the law was superseded, 378,166,793 silver dollars, or over 2,500,000 per month. In order to find a place for the circulation of the silver, silver certificates were issued, and these, being more convenient to carry, circulated among the people, while the silver dollars upon which they were issued remained in the Treasury. During the twelve years in which the Bland-Allison Act was in force, silver continued to fall in value. This depreciation suggested two opposite remedies. Some, attributing the fall to the limitation upon silver coinage, urged free coinage as a cure; others, believing free coinage impracticable and the existing condition dangerous, urged entire suspension.
The Sherman Act of 1890. After a long struggle in Congress, a compromise bill was passed, known as the Sherman Act, by which the Secretary of the Treasury was authorized to purchase 4,500,000 ounces of silver a month (so long as the market price did not exceed $1 for 371¼ grains of pure silver) paying therefor with legal tender notes of the Treasury. It was soon found that the Sherman Act did not put an end to the depreciation of silver. Moreover, it was generally believed that the purchases under the Act formed a great and increasing menace to the security of our currency.
Repeal of the Sherman Act. For two or three years there were heavy exportations of gold from the United States, and as a result it was commonly claimed that if the Sherman Act were not soon repealed, gold exporta-tions would continue until the United States would be driven to a silver basis. During this same critical period, the Indian mint was closed to free coinage of silver, and the price of that metal fell within three days from 82 cents to 67 cents an ounce. Added to this was the fact that the revenues of the United States fell off until they were less than current expenditures, thus creating a fiscal deficit. This combination of circumstances led to a special session of Congress in the late summer of 1893, which, after a bitter fight, repealed the purchasing clause of the Sherman Act.
The Currency Act of 1900.Between 1893 and 1900 the monetary situation gradually improved, although for two or three years the United States, in order to protect the currency, was driven to repeated issues of bonds under very humiliating circumstances. The defeat of the Democratic candidate for President in 1896, who ran on a platform declaring for "the free and unlimited coinage of silver and gold at the ratio of 16 to 1, by the independent action of the United States," paved the way for a new-currency bill which was passed by Congress March 14, 1900. This act expressly declares that the gold dollar shall be the standard of value in the United States, and that all other kinds of money are to be maintained at a parity with gold. It further requires the United States Treasurer to maintain a special reserve fund for the redemption of United States notes. This fund must in all cases amount to $150,000,000 in gold or in gold and redeemed notes. If the amount of gold falls below $100,000,000, and the redeemed notes which constitute the remainder of the fund cannot at the time be exchanged for gold in the general treasury, short time gold bonds may be issued and sold to make up the deficiency in the reserve. As to silver coinage, the act calls for the coinage of silver dollars from the already existing stock of silver, until the number of such dollars shall equal the amount represented by the "Treasury notes of 1890," issued to pay for the silver. These silver dollars, or the corresponding silver certificates, are to be paid out in redemption of the "Sherman notes," as fast as such notes are presented at the Treasury. When all the Sherman notes shall have been redeemed, the remainder of the silver bullion purchased by the governmentrepresenting the seigniorage from the silver coinage is to be coined into subsidiary silver.
It will be seen, therefore, that by the terms of this recent monetary legislation, strong provision has been made for securing parity of all parts of our money, and for strengthening the position of the United States as a country of gold monometallism.
International Monetary Conferences.The strong desire for international bimetallism which was felt both by economic theorists of repute and by practical statesmen in many lands has led to repeated monetary conferences, which have usually received the vigorous support of the United States. The most noteworthy of these were the Paris Conference of 1878 and the Brussels Conference of 1892. Nothing whatever has come of these expert discussions. Inertia and the quiet opposition of a great part of the business world have been more potent than the activity of the bimetallists. England, as a great creditor nation, has led the opposition to all plans for international action.
Whatever we may think of the economic arguments of the international bimetallists, we must remember that a great political obstacle stands in the way of the fruition of their hopes. The monetary history of the last twenty-five years seems to show conclusively that international bimetallism is losing rather than gaining in favor; and therefore those who favor international bimetallism, recognizing the hopelessness of attaining their ideal, may well afford to unite with their former opponents in securing the best monetary system that offers hope of realization.
1.Money serves as a medium of exchange, a measure of values, a standard of deferred payments, and a store of value.
2.The precious metals have certain desirable qualities that have given them first place for money use.
3. Governments do not create, but they do increase the value of money.
4. The general theory of competitive value applies to the value of money, or general prices.
5.Stability, the great desideratum in money, is opposed to inflation and contraction.
6.Bimetallism has been advocated as a policy to secure stability; but the recent tendency has been away from bimetallism to gold monometallism.
1.Name the qualities desirable in money. Mention different things that have been used as money.
2.What is coinage ? Free coinage ? Gratuitous coinage ? Brassage ? Seigniorage ?
3.Discuss the relation of government to money.
4.Discuss the quantity theory of the value of money.
5.What are the advantages of paper money ? Its dangers ? From an examination of actual paper money, name and describe the different kinds that are used in the United States.
6. What are the evils of inflation? Of contraction? How much money does a country need ?
7. What is bimetallism ? International bimetallism ? What was the Latin Monetary Union?
8. What was the Bland-Allison Act? The Sherman Act? The Act of 1893? The Act of 1900?
9. What international monetary conferences have been held, and what has been their result?
Jevons, W. S. : Money and the Mechanism of Exchange, Ch. VIII (the four pages on Gresham's Law).
Kinley, David: Money, A Study of the Theory of the Medium of Exchange, especially Chapter V.
Laughlin, J. L.: The Principles of Money.
Nicholson, J. S.: Money and Monetary Problems.
Report of the Indianapolis Monetary Commission.
Scott, W. A.: Money and Banking, pp. 69-72.
Walker, F. A.: Money, Part I, Ch. I, pp. 1-10; also Money, Trade, and Industry, and International Bimetallism.
White, Horace: Money and Banking, Part I, Ch. II, pp. 23-29.