ment of taxes, the trouble ceased.' Jevons gives a striking illustration of the same law: "At the time of the treaty of 1858 between Great Britain, the United States, and Japan, which partially opened up the last country to European traders, a very curious system of currency existed in Japan. The most valuable Japanese coin was the kobang, consisting of a thin oval disk of gold about two inches long, and one and a quarter inch wide, weighing two hundred grains, and ornamented in a very primitive manner. It was passing current in the towns of Japan for four silver itzebus, but was worth in English money about 18s. 5d., whereas the silver itzebu was equal only to about 1s. 4d. [four_itzebus being worth in English money 5s. 4d.]. The earliest European traders enjoyed a rare opportunity for making profit. By buying up the kobangs at the native rating they trebled their money, until the natives, perceiving what was being done, withdrew from circulation the remainder of the gold."'

It appears, therefore, that the value of money is liable to more frequent fluctuations when both metals are a legal tender at a fixed valuation than when the exclusive standard of the currency is either gold or silver. Instead of being only affected by variations in the cost of production of one metal, it is subject to derangement from those of two. The particular kind of variation to which a currency is rendered more liable by having two legal standards is a fall of value, or what is commonly called a depreciation, since practically that one of the two metals will always be the standard of which the real has fallen below the rated value. If the tendency of the metals be to rise in value, all payments will be made in the one which has risen least; and, if to fall, then in that which has fallen most.

3

While liable to "more frequent fluctuations," prices do not follow the extreme fluctuations of both metals, as some suppose, and as is shown by the following diagram. A represents the line of the value of gold, and B of silver, relatively to some third commodity represented by the horizontal line. Superposing these curves, C would show the line of extreme variations, while since prices would follow the metal which falls in

'See Macaulay, "History of England," chap. xxi.

2 "Money and the Mechanism of Exchange," p. 84.
8 Jevons, ibid., p. 138.

value, D would show the actual course of variations. While the fluctuations are more frequent in D, they are less extreme than in C.

B

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D

Chart showing the line of prices under a double standard.

§ 2. The plan of a double standard is still occasionally brought forward by here and there a writer or orator as a great improvement in currency.

It is probable that, with most of its adherents, its chief merit is its tendency to a sort of depreciation, there being at all times abundance of supporters for any mode, either open or covert, of lowering the standard. [But] the advantage without the disadvantages of a double standard seems to be best obtained by those nations with whom one only of the two metals is a legal tender, but the other also is coined, and allowed to pass for whatever value the market assigns to it.

When this plan is adopted, it is naturally the more costly metal which is left to be bought and sold as an article of commerce. But nations which, like England, adopt the more costly of the two as their standard, resort to a different expedient for retaining them both in circulation, namely (1), to make silver a legal tender, but only for small payments. In England no one can be compelled to receive silver in payment for a larger amount than forty shillings. With this regulation there is necessarily combined another, namely (2), that silver coin should be rated, in comparison with gold, somewhat above its intrinsic value; that there should not

be, in twenty shillings, as much silver as is worth a sovereign; for, if there were, a very slight turn of the market in its favor would make it worth more than a sovereign, and it would be profitable to melt the silver coin. The overvaluation of the silver coin creates an inducement to buy silver and send it to the mint to be coined, since it is given back at a higher value than properly belongs to it; this, however, has been guarded against (3) by limiting the quantity of the silver coinage, which is not left, like that of gold, to the discretion of individuals, but is determined by the Government, and restricted to the amount supposed to be required for small payments. The only precaution necessary is, not to put so high a valuation upon the silver as to hold out a strong temptation to private coining.

§ 3. The experience of the United States with a double standard, extending as it does from 1792 to 1873 without a break, and from 1878 to the present time, is a most valuable source of instruction in regard to the practical working of bimetallism. While we have nominally had a double standard, in reality we have either had one alone, or been in a transition from one to the other standard; and the history of our coinage strikingly illustrates the truth that the natural values of the two metals, in spite of all legislation, so vary relatively to each other that a constant ratio can not be maintained for any length of time; and that "the poor money drives out the good," according to Gresham's statement. For clearness, the period may be divided, in accordance with the changes of legislation, into four divisions:

Í. 1792-1834. Transition from gold to silver. II. 1834-1853. Transition from silver to gold. III. 1853-1878. Single gold currency (except 1862-1879, the paper period).

IV. 1878-1884. Transition from gold to silver.

I. With the establishment of the mint, Hamilton agreed upon the use of both gold and silver in our money, at a ratio of 15 to 1: that is, that the amount of pure silver in a dollar should be fifteen times the weight of gold in a dollar. So, while the various Spanish dollars then in circulation in the United States seemed to contain on the average about 3711 grains of pure silver, and since Hamilton believed the relative market value of gold and silver to be about 1 to 15, he put of 3711 grains, or 24 grains of pure gold, into the gold dollar. It was the best possible example of the bimetallic

system to be found, and the mint ratio was intended to conform to the market ratio. If this conformity could have been maintained, there would have been no disturbance. But a cause was already in operation affecting the supply of one of the metalssilver-wholly independent of legislation, and without correspondingly affecting gold.

Two periods of production of silver, in which the production of silver was great relatively to gold, stand out prominently in the history of that metal. (1.) One was the enormous yield from the mines of the New World, continuing from 1545 to about 1640, and (2) the only other period of great production at all comparable with it (that is, as regards the production of silver relatively to gold) was that lasting from 1780 to 1820, due to the richness of the Mexican silver-mines. The first period of ninety-five years was longer than the second, which was only forty years; yet while about forty-seven times as much silver as gold was produced on an average during the first period, the average annual amount of silver produced relatively to gold was probably a little greater from 1780 to 1820. The effect of the first period in lowering the relation of silver to gold is well recognized in the history of the precious metals (see Chart X for the fall in the value of silver relatively to gold); that the effect of the second period on the value of silver has not been greater than was actually caused -it has not been small-is explicable only by the laws of the value of money. If you let the same amount of water into a small reservoir which you let into a large one, the level of the former will be raised more than the level of the latter. The great production of the first period was added to a very small existing stock of silver; that of the second period was added to a stock increased by the great previous production just mentioned. The smallness of the annual product relatively to the total quantity existing in the world requires some time, even for a production of silver forty-seven times greater than the gold production, to take its effect on the value of the total silver stock in existence. The effect of this process was beginning to be felt soon after the United States decided on a double standard. For this reason the value of silver was declining about 1800, and, although the annual silver product fell off seriously after 1820, the value of silver continued to decline even after that time, because the increased production, dating back to 1780, was just beginning to make itself felt. Thus we have the phenomenon-which seems very difficult for some persons to understand-of a falling off in the annual production of silver, accompanied by a decrease in its value relatively to gold.

This diminishing value of silver began to affect the coinage of the United States as early as 1811, and by 1820 the

CHART X.

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