Popular Science Monthly/Volume 12/March 1878/The Debasement of Coinages
By E. R. LELAND.
IN primitive days the parties to a trade had in every case first to agree as to the quantity and quality of the articles to be exchanged. When gold and silver first made their appearance in the list of commodities they were, along with other metals, in an unfashioned state, and the processes of barter were carried on with them precisely as with more bulky and inconvenient articles, so that at each transfer it became necessary to determine their quality and quantity, that is, their purity and weight, by the crude methods which then obtained. Such is still the case among some of the far-away, half-civilized nations, and in the early days of California and Australia gold-digging, "nuggets" and "dust" were in common use as currency.
With all the perfection of modern scientific appliances the work of assaying is one of great difficulty and nicety, and it must have been impossible for primitive merchants to reach anything but the rudest approximations. To do even this involved a great deal of trouble and loss of time, so that the necessity of devising some means by which the weight and fineness of a piece of gold or silver could be easily determined was early felt.
The first forms which could be called by the name of money were ingots in various shapes, stamped or sealed with the seal of the ruler as a certificate of the quality and weight of the piece, no attempt being made to so fashion the coin as to guard against alteration of weight. Some of the early pieces were stamped on but one side, and it was only by very gradual steps that the handsome circular pieces which we know as coins were evolved. But these are still defined by Jevons as "ingots, of which the weight and fineness are certified by the integrity of the designs impressed upon the surface of the metal."
The stamping of the bits of metal has always been assumed as a prerogative of the ruler, and to supply the people with coin has come to be generally considered a function of government. It will be well to bear the above definition of coin in mind; for the fashioning, stamping, and certification, have often caused a very important fact to be lost sight of, which is, that throughout these changes the metals continue to be commodities and nothing more. The stamp works no alteration in the metal, any more than does the label on a bolt of muslin, showing the width and the number of yards, convert it into something other than cotton cloth. The conversion of the unfashioned metal into coin in no way affects the principle of exchanges, and its transfer is barter just as much as it was in the beginning.
Coins command other commodities by the amount of pure metal in them.
The silver dollar buys just as much food or clothing as would so many grains of silver in any other shape; and the stamp—whether it show the classical features of Kaiser William or the graceful figure of the Goddess of Liberty—does not increase its purchasing power, except to the very slight degree which is the measure of the convenience of having it converted from bullion into coin at public cost, but this percentage is so small that it may for present purposes be neglected.
But it has come about that, instead of being looked upon as simply certified bullion, coin is frequently regarded as something mysterious in its nature and function.
Gold and silver, from their physical properties, are the most fit of all known substances for mediums of exchange. From their general use as money they are commonly spoken of as measures of value, and there is no objection to this expression if it be understood to mean that they constitute a term or factor constantly used in arriving at the ratio which exists between the various articles of commerce; but it should be remembered that this factor is not constant, though for purposes of convenience it is generally assumed to be so. As a matter of fact, gold and silver measure the value of commodities in precisely the same way that the commodities measure the value of gold and silver. Value is based on utility, but utility is not intrinsic in any substance; and a thing is only useful so far as it is supplied in needful quantities at the right time, the degree of utility constantly varying. And so, although we may get the value of x (gold and silver) in terms of y (other commodities), and the value of y in terms of x, both x and y remain unknown and variable quantities, however glibly we may talk about them.
Although the same difficulty confronts us here that is met in all attempts at the ultimate analysis of things, none the less is it imperative that there should be a fixity of standards, rigidly adhered to. To define a pound avoirdupois is as difficult as to define a pound sterling; but commerce and science are alike dependent upon absolute adherence to certain standards of weight, and upon the assumption that the law of gravitation, by which weight is determined, is inflexible.
Until the indestructibility of matter and the persistence of force were demonstrated, there was nothing absurd in the supposition that matter could be created and annihilated, force produced and destroyed; and men of genius and learning vainly sought to turn dross to gold, to find the elixir of life, to construct machines which should create their own force. Modern chemistry has dispelled the dreams of the alchemist; physiology has determined the laws of waste and supply and fixed pretty definitely the limitations of life; and the discoveries of Meyer and Joule have shown the fallacy of perpetual motion. These things are now pretty generally understood, although a lunatic is still occasionally to be found who wastes his life because of his inability to comprehend them: but it is not so generally recognized that the principle of the correlation of forces is universal; that it applies rigidly to all human activities; and that it is quite as impossible in economical dynamics as elsewhere to get something for nothing.
That coins are simply stamped bullion, and that the purchasing power of money is regulated by the quantity of pure metal only is now conceded by all economic writers; but the establishment of this principle is comparatively recent. In early times most extraordinary delusions prevailed on this subject, nor are they yet wholly dissipated. It will be interesting and instructive to note some of the mutations which have been caused in the world's coinage by the numerous royal and legislative attempts to make a part equal to the whole.
The coins of all countries seem to have been called by the same name as the weights used in them, and to have originally contained the quantity of metal indicated by their names. The coins used in Greece, Italy, France, and England, weighed in the first instance just a talent, an as, or pond, a livre, or a pound.
The Roman as, or libra, at first contained twelve ounces of copper, and was divided into twelve parts or unciæ, a division which was maintained for a long time. It is not known who first falsified the certificate and gained an illusory augmentation of wealth by reducing the weight of metal in the as, still calling it by the same name. But this fraudulent plan, once adopted, was worked with such assiduity by the successive emperors, that in 175 b. c. the as contained but half an ounce of copper, or 24 part of its original weight. In the case of so cheap a metal, diminishing the quantity was the only way in which the coin could be degraded. The principal silver coin was the denarius, rated at ten asses, and weighing one-seventh of an ounce. Its weight was tolerably well maintained, but adulteration was carried to its utmost extent, and eventually the imperial denarii came to be only copper coins plated with silver! Similar vicissitudes marked the career of Roman gold. When first coined, 204 b. c., the aureus weighed 40 part of a pound of pure gold, but through various degradations came to be only 72 part of a pound in weight, and this bore 20 per cent, of alloy.
The French money-unit, the livre, up to the reign of Charlemagne, contained exactly a pound weight of pure silver, and was divided into 20 sols. It was reserved for Philip I. to violate this standard. He considerably diminished the amount of silver contained in a sol, and his example was followed with such zeal that by the time of the Revolution the livre contained less than a seventy-eighth part of the silver which it had in the eleventh century.
Nor is this an extreme case. In 1220 the Spanish maravedi weighed 84 grains of gold, and was equal in value to about $3.50; it descended until it became a small copper coin valued at one-third of a cent.
The German florin was originally a gold coin worth $2.50; when abolished it was 40 cents' worth of silver.
These examples are taken from the history of the most stable and best-governed European states, and from them may be inferred the rapacity and swindling of the lawless, irresponsible feudal princes during the middle ages, which caused this particular fraud to fall into the deepest discredit even in those early days.
The Chinese probably illustrate in the most extreme manner the length to which loose views concerning currency can be carried. The history of their currency presents that mingling of the grotesque with the tragic which most of their actions have when viewed through Western eyes. Coined money was known among them as early as the eleventh century before Christ, but their inability to comprehend the principles upon which a currency should be based has led them into all sorts of extravagances, which have been attended by disorder, famine, and bloodshed. Coins came at last to be made so thin that 1,000 of them piled together were only three inches high; then gold and silver were abandoned; and copper, tin, shells, skins, stones, and paper, were given a fixed value, and used until, by abuse, all the advantages to be derived from the use of money were lost, and there was nothing left for the people to do but to go back to barter, and this they did more than once. They cannot be said now to have a coinage; 2,900 years ago they made round coins with a square hole in the middle, and they have made no advance beyond that since. The well-known cash is a cast-brass coin of that description, and, although it is valued at about one mill and a half of our money, and has to be strung in lots of 1,000 to be computed with any ease, it is the sole measure of value and legal tender of the country. Spanish, Mexican, and our new trade-dollars, are employed in China; they pass because they are necessary for larger operations, and because faith in their standard value has become established; but they are current simply as stamped ingots, with their weight and fineness indicated.
The coinage of England, although it has suffered less than that of any of the older countries, has still undergone great debasement, which has begotten misery and trouble enough to make her experience of great value. At the time of the Norman Conquest the silver or money pound weighed 12 ounces, the system of coinage being the same as that of Charlemagne, and it was continued untouched until the year 1300, when the standard was tampered with by Edward I. By increasing the number of shillings made from a pound, he set a pernicious example which was followed only too well, so that in the reign of Queen Elizabeth 58 shillings instead of 20 shillings were coined out of the pound weight of silver. Up to the reign of Henry VIII., although the weight was decreased, the sterling fineness of coins was not debased; but that eminent head of the Church, after dissipating the immense wealth which he received from his father, resorted to the most disgraceful means to supply his riot and extravagance. He so adulterated and degraded the silver coinage that the pound sterling contained but four ounces of silver, £2 8s. of it being equivalent to the pound sterling of 500 years before. Under the reigns of his children, Edward VI., Mary, and Elizabeth, the fineness of the coin was gradually restored, and its degradation arrested, so that it was the boast of Elizabeth that she "had conquered now that monster which so long had devoured her people." The coinage of England has had nothing further to endure at the hands of her princes.
The reign of James II., bad enough in all ways, was in no instance more disgraceful than the state to which he brought the coinage of Ireland during his brief kingship there. His coins of gun-metal, copper, brass, pewter, the sorriest tokens, were made unlimited tender, and forced into circulation by every device. His loyal Irish subjects were the sufferers from this swindle, for they had in their possession nearly the whole of his worthless money. As he was compelled to abandon England before his necessities became very great, her money escaped violation.
Of course, all this tampering with money has been accompanied by tyrannical laws which were intended to make the debased coin pass for just as much as the pure. Nothing would be gained unless this could be done. Mint-officers were sworn to secrecy, but the melting-pot revealed the fraud. Proclamations were issued by Edward II., commanding, under heavy penalties, that the money should be kept current at the stamped value, and that no one should enhance the price of his goods on that account, for it was the king's pleasure that the coins should be kept up to the same value they were wont to bear! Later, in the reign of Edward VI., when the debasement reached its lowest depths, a maximum was set on the price of corn, and those who refused to carry their grain to market were to be punished.
Absurd as such compulsory laws may seem to us, they are perfectly logical outcomes of any attempts to lower the standard of money. There is nothing to be gained by debasing coinage unless the operations of commerce can be regulated upon the assumption that a part is equal to the whole. Edward's proclamation, that it was his pleasure that the coins should be kept up to the value that they were wont to bear, and that people should be compelled to market their goods at the old prices, was more difficult of enforcement, but not different in principle, no whit more dishonest, than a law which shall make 90 cents a legal tender for 100, in the discharge of all debts.
It was hardly to be expected that a higher standard of morality would be found among subjects than that held to by their rulers. The tampering was begun by the people on their own account, the more readily as the nature of the coin made this an easy matter. In making the coins the metal was divided with shears, and afterward shaped and stamped by hand with the hammer. They were not exact in size or weight: some contained more, and some less, than the correct quantity of silver; few pieces were exactly round; and, as the edges were smooth, nothing was easier than to take a slight paring from the pieces as they passed from hand to hand.
Coin-clipping was discovered to be profitable and comparatively safe, and it was practised with great industry. As early as the reign of Elizabeth it was prohibited, on the pain of life and limb, and the forfeiture of all lands. But the practice was too lucrative to be thus checked, and by the time of the Restoration the larger part of the silver in circulation was mutilated. Macaulay has described in most graphic manner this episode in the history of British coinage. All trade and industry was deranged by the confusion which arose from the disgraceful state of the money. "Nothing could be purchased without a dispute. Over every counter there was wrangling from morning till night. The workman and his employer had a quarrel as regularly as the Saturday came round."
Guineas, which had originally been coined to be equal to 20s., rose as the silver grew worse, till they were current at 30s. of the base trash which passed by the name of silver coin. The shrinkage on the average of the pieces in circulation amounted to nearly or quite 50 per cent. The most rigorous and cruel laws were passed, but they were ineffectual, and, while scores of miserable wretches were dangling from the gibbets, clipping was as rife as ever.
Clipping is here referred to at some length, because it differs from other degradations of coinage only in respect to the parties by whom it is done. It is reducing the value of coin without public authority, and is the least mischievous of the two forms, because, as no one is compelled to take clipped coins, the loss is forced on no one.
The first effort to correct the evils which had thus arisen was, by furnishing a large supply of fresh, honest, milled coins. The politicians of that day believed that, if the people were given plenty of new and good money, it would soon displace the old; and so the mints were run to their utmost capacity, but the new coins vanished from sight as fast as they were put ont. Gresham's law, that "bad money drives out good money, but that good money cannot drive out bad money," although not then formulated, worked its inevitable result. The statesmen marveled that men would not pay 12 ounces of silver when 10 could be made to serve the purpose, but they persistently refused to do so. By the time of William III., the necessity of resorting to some measures which should be effectual was generally felt.
It was evident to all that the old coinage must in some way be supplanted by a new, but the manner in which this should be done was warmly disputed. Mr. William Lowndes, then Secretary of the Treasury, was ordered to make a report and did so, recommending that the standard of the new coin should be depreciated to the level of the trash in circulation, by making the new shilling worth nine-pence or thereabouts. He asserted, and attempted to prove, "that making the pieces less, or ordaining the respective pieces (of the present weight) to be current at a higher rate, might equally raise the value of silver in our coins;" and seriously argued that, if an ounce of silver were but cut up finer, other nations would be induced to sell their products for a smaller number of ounces. He had a considerable following, composed, Macaulay says, "partly of dull men who really believed what he told them, and partly of shrewd men who were perfectly willing to be authorized by law to pay a hundred pounds with eighty"—a description which fits with sufficient accuracy the advocates of the Bland Bill.
Lowndes's fallacies were exposed with great ability by Locke, and fortunately wiser counsels prevailed. The old standard was maintained in the new issues, and the clipped coins were called in, the loss falling, as it should do, on the public at large. Space forbids the introduction here of the arguments by which this wise course was sustained. The controversy is interesting and instructive, and deserves attention, for it was revived 116 years later when Bank-of-England notes became depreciated, and is raging now that silver has undergone a similar decline. It is true that the situation is not precisely the same, but the principle involved is: the arguments against restoring a degraded coinage or degrading an established one are substantially the same.
The object of the Bland Bill and similar measures, though nominally a restoration of a former standard, is in fact a debasement of the present one. The value fixed for the United States dollar under the act of 1792 was by accident put below that of the dollars with which it then came into competition. The act provided that the dollar should be of the value of the Spanish milled dollar, and also provided that it should contain 3714 grains of pure silver, whereas the Spanish dollar contained 3774 grains. This discrepancy resulted from a blunder in assaying the Spanish coin, but was perpetuated until the old silver dollar was abolished. Owing to the unprecedented fall in the price of silver, the real value of 3714 grains is now only about ninety cents in the market, a decline which would be a very serious matter if this accidental dollar were still a legal tender and in use in trade; but fortunately the act of 1873 put it where it is incapable of doing mischief.
It is one of the compensations of the disordered state of our finances growing out of irredeemable war-issues, that, coin being virtually out of circulation, we could put our coinage on the footing aimed at by all great commercial nations, without incurring the loss and distress which such revolutions are apt to involve. And now it is proposed to undo all this, to restore this impaired dollar to its old position, and put upon the nation all the loss and inconvenience which would grow out of such a change. For states of transition are always states of suffering and, were there two or three hundred millions of silver in the hands of the people to-day, the statesman well might hesitate to raise the standard of the old dollar, making it equivalent to the gold one. The load of silver which France is carrying interferes seriously with her efforts to resume on her paper currency, and yet she very properly hesitates to enter upon an experience similar to that which Germany has recently had; but we, virtually starting anew with our coinage system, with the experience of all the past to light us, are asked to plunge into a quagmire from which we could only emerge after much floundering and defilement!
And who is to be benefited by the remonetization of silver? If remonetization will, as is claimed for it, enhance the price of silver, so that it will make the dollar of 1792 and the gold dollar equal, then the holders of silver and they only will reap the advantage. Is the disposable silver stock of the world held by the class of men into whose pockets the Western voters are anxious to legislate money? The American mine-owners hold a large amount in the shape of ore; the German Empire has ninety millions of surplus she would be glad to dispose of; the Bank of France has one hundred and forty odd millions in its vaults, that is a source of great present disquietude; England has a fair stock, and as creditor of India is likely to become the holder of much more; she is deeply interested in seeing the price of silver sustained, and would be very grateful for relief from any quarter. It is from these sources the silver would flow if the United States should decide to assume the function of pulling chestnuts for the entire commercial world, and these are the men who would profit by remonetization—provided that step should have the effect on the price of silver that is claimed for it. But the assumption that it will bring the gold and silver dollar upon a par is entirely unwarranted.
The Monetary Commission, of which Mr. Jones was chairman and Mr. Bland a member, are at great pains to show, in their report, that, owing to the magnitude of the stocks of silver and gold in the world, the value of the precious metals cannot be visibly affected by current production; that no current supply was ever yet sufficiently great to affect the value of the metals except slowly and by almost imperceptible degrees. This may or may not be so, but it is a little curious to note that the same gentlemen who in their report maintained that the effect of an annual supply of $65,000,000 or $70,000,000 would have no appreciable effect on the price of silver, are now gravely arguing that an annual demand of say $25,000,000—the utmost capacity of our mints—would at once enhance the price by 10 per cent. Here they forget the insignificance of the amount in comparison with the enormous accumulated stock of the world.
A further decline in the price of silver is far more probable than an advance, and it is only because the old silver dollar is worth but 90 cents, and likely to be worth less rather than more, that it is so loudly clamored for. The avowed object of its restoration is to relieve those who have debts to pay.
Neither in motive nor in method does this differ from the disreputable frauds of the feudal princes who adulterated their coins that they might pay their debts more easily. Both the act and its consequences are identical. The image and the superscription of the monarch lied in the older example: in the modern instance the image and the superscription are no less lying ones. And the consequences will in no wise differ. Henry VIII. was enabled to cheat his creditors in precisely the same unscrupulous way that is proposed for the United States to cheat theirs, by paying them in coins of diminished value; and the losses he entailed upon his subjects—far exceeding his own gains—were precisely those we should suffer. All creditors are placed in the position of the creditors of the swindling government. Debtors are indiscriminately benefited at the expense of creditors. To pay the public debt in a depreciated currency, whether it can be done legally or not, is to weaken if not destroy public faith. If they had a rational conception of what national credit is, this consideration alone would give the agitators pause. When nearly two hundred years ago England was struggling to restore order to her finances, William III. pressed upon the House of Commons the importance of taking care of the public credit, and assured them that it could only be preserved by keeping sacred the maxim that "they shall never be losers who trust to a parliamentary security." Our national credit has rapidly advanced to the very first rank, and with upright dealing can easily be maintained there. It would not be necessary to perfect a great deal of the kind of legislation that is now being urged to put it on a level with the credit of Spain, or the defaulting states of South America.
There is a prevailing misconception as to where the gains and losses arising from the proposed change will fall.
A depreciated coinage will diminish the revenue of the Government by a far greater amount than will be saved in the payment of the bonds, so that the burden of taxes cannot be lightened in that way. It will cripple all institutions of learning and of charity that are maintained by endowments; it will tithe the assets of all the savings-banks and life-insurance companies; it will curtail the trust funds of widows and orphans, no matter in what form they may be held; it will defraud the frugal and prudent wholesale, for the benefit of the improvident and reckless. Relatively, the loss will fall heaviest on those who are too poor to get in debt, who work for wages or a salary. Those of the bond-holders to whom the now familiar term of "money-sharks" will in any degree apply will be found quite competent to take care of themselves. They live in the money-centres of the world; their finger is on the arteries of commerce, and they can watch the pulsations and guard against the perturbations; in the unsettled condition of things which would attend such a change, they will be best able, because in the best position, to hedge against their losses. Prices will, of course, adjust themselves to the new standard, but the adjustment will not be so sharp and rapid or exact as to cause the loss to fall just where it is intended it shall fall. The "sharks," we may be sure, will get from under, and the brunt of the suffering will strike just where it does in most cases—upon the poor, the ill-informed, the unready.
Of the ability of this nation to pay its debts in full, there is not the slightest question, and it is essentially dishonest for a debtor to compound at 90 cents when he can pay 100; but, if it be determined that it is necessary and right for the Government and other debtors to make such a composition—if it can be shown that it is a step dictated by a sincere desire to execute fair and impartial justice—we shall still be as much entitled as ever to object to its being done by reducing the standard of money. It is an attempt to accomplish by mean and paltry subterfuge that which, if done at all, should be done in a manly way. If debts are to be scaled, let it be done openly, and the dividends, whatever they may be, paid in money at par.
A proposition to restore the old dollar, and make it a legal tender for everything except the interest and principal of the public debt and for customs duties, is said to find considerable favor. It is hard to understand how, after our prolonged experience of the derangement caused by having two unequal kinds of currency, such a scheme should be advocated. With one currency fit for paying bonds, customs duties, and foreign payments, and another not so fit, and therefore, of course, at a discount, we have a condition of affairs that is profitable to "money-sharks" and brokers alone. Every dollar which is paid as brokerage, growing out of the use of two kinds of currency, is a tax levied upon the people. If the sums which have been annually paid by consumers in the way of brokers' commissions since 1862, as a result of the depreciation of our currency, could be stated, and it could be shown by whom this tax has ultimately been paid, it would raise a party in favor of a single standard that would sweep everything before it. The tax has been levied indirectly, and paid unknowingly, but this has not lessened the burden of it—economic laws are none the less inexorable when their workings are obscure. And now, when we have almost emerged from under this load, it is proposed to put us back under it, not temporarily, but permanently, without even a distant hope of release.
There is one other proposition in regard to the reissue of silver: it is, to coin a silver dollar which shall contain enough metal to make it the equal of the present gold dollar. To this there is no moral objection, but there are grave economic ones. The rapid and violent fluctuations of the silver-market during the last two years show that forces are at work which are unusual in their nature and not yet understood, and the appeal can well be made to all prudent men whether it would not be better to wait a little before reintroducing into our currency so unstable an element. When the disturbing forces have expended themselves, and the silver-market has settled down to a normal condition, so that we may know what the price of silver really is in relation to other commodities, it will then be time enough to try to establish some fixed ratio between it and gold, and admit it as a legal tender.
But obvious as the lessons of history are, and pitilessly as the fallacies of those who think to make 90 equal 100 have been criticised, both by the pens of economists and the workings of natural laws, there is too much ground to fear that no reliance can be placed on the clearness or rectitude of popular convictions, and that we shall be called upon to vindicate once more the principles of monetary economy in the most painful and expensive way. There does not seem to be among our leaders either knowledge or virtue enough to protect us. A minority of the press and the business-men of the larger towns of the country are alone opposing this scheme compounded of fraud and folly, and it is to be feared that their political influence is quite inadequate to stand against the urgency of the great majorities of the West and South.