Popular Science Monthly/Volume 48/November 1895/The Past and Future of Gold

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IT is, I think, universally claimed by advocates of the free coinage of silver that the so-called demonetization of silver has led to an appreciation in the value of gold; and that this appreciation has worked grievous hardship to the debtor, or, what is largely the same, the producing classes, who are thus obliged to pay in a more valuable currency than that in which their debts were contracted. The claim is that, by an artificial change in the value of the dollar, the farmer has to produce twice or three times as many bushels of wheat as formerly to pay off his mortgage. The resulting embarrassment of the debtor classes has, in this view, spread among other classes, and has led to panics and long-continued depression in business. Aside from the natural desire of the silver miners to have their product doubled in debt-paying power, this is the whole basis of the silver agitation.

If one were to say that for this theory, upon which an international agitation has been built, and which is countenanced by a large number who have given the matter considerable investigation, some of whom are generally reputed to be competent for the purpose, there is absolutely no foundation in fact, and that, so far from there having been a rise in the value of gold, there has been an appreciable fall, he might be thought to take an extreme position. To that position, however, a careful examination of the facts has led me; and this article is written to present the evidence on the question.[1]

To ascertain the value of gold, two sources of inquiry are open: First, what is the comparative standing of gold in the mass of commodities, such as labor, land, agricultural products, manufactured products, etc.? Second, what are the influences directly affecting the value of gold, such as rate of production and relative demand for its use? In considering the evidence on the first point we must be careful to bear in mind what our silver friends generally, if not always, ignore—i. e., the influence of railways and inventions in cheapening products. Kerosene sold at Toledo forty years ago for seventy-five cents a gallon; recently as low as five cents. If, then, we ignored all other commodities and the influence of discovery, we might reach the absurd conclusion that gold had appreciated fifteen times and silver seven and a half times in forty years. So with the value of wheat and cotton in Liverpool. Improvements have cheapened transportation so vastly that, though the Ohio farmer now gets more for his wheat and corn than he did in the "forties," those products sell in Liverpool for one third the former price. So this low price in Liverpool does not mean that gold, as compared with wheat and corn, has risen. It merely registers the force of other circumstances. In using this method of comparison, therefore, we must be careful to consider not simply present as compared with former prices, but also other matters affecting market values; and it is best, whenever possible, to make comparison with commodities where the methods of production and transportation are comparatively unchanged.

I. For the purpose of comparison we shall go back a period of fifty years, and by observing the change in price-level of a given amount of gold we shall have pretty clear evidence of its rise or fall. Such a method ought to meet with acceptance by the silver men, because they are, I think, universally fond of asserting that for hundreds of years the "bimetallic standard" provided a good currency, free from all objections, and that our great object is to reverse the current of events and return to the practice of the past, from which the nations have one by one unfortunately departed. The "bimetallic standard" was in force in the United States fifty years since—so it is claimed—although the actual standard of the country after 1834 was gold, and less silver was then coined in a year than has been issued of late years in a month or even in a week, because the gold constituting a dollar could be bought slightly cheaper than the silver in a silver dollar, and therefore, though the coinage of silver was nominally "free," it had really ceased to be "basic money" long before the "crime of 1873" had been thought of.[2] If, now, the evidence shows that the existing standard of value, or "basic money," has lost instead of gained in value since the days of the "bimetallic standard" of glorious memory, then the complaints and theories of the free-silver men are without any solid foundation; and the existing agitation is like all agitations destitute of justice, simply a hindrance to the establishment of firm confidence and prosperity, and, in short, an unmitigated nuisance with which no compromise should be made.

It is a singular fact that the method of showing that the general level of prices has greatly fallen, and that therefore the gold dollar has risen, is to take the statistics of prices in great centers as a final basis. Wheat is cheaper in London in 1895 than it was in 1845—much cheaper; so is cotton, so is corn—the three great staples. Therefore, say our friends, gold has risen, and the debtor, the farmer, and the producer are robbed! This, with a little bogy-talk about Shylocks, England, and Wall Street, is all there is of their argument.

Now, if we ask what the Ohio farmer received fifty years ago for his wheat and corn, we come upon the fact—which must be a disagreeable one for the cheap-money men—that he did not get as much then as he does to-day. No books of statistics take any account of the prices obtained by the Ohio farmer in 1845; and our statistical friends, overlooking (or "remembering to forget") the difference in transportation and other conditions then and now, conveniently assume that because wheat was higher in London in 1845 than now, the Ohio farmer must have been rolling in wealth. In the forties, the Ohio farmer seldom got twenty cents a bushel for his corn, and frequently burned it up; and men still living can remember how, in those glorious bimetallic days, the farmer got but twenty-five cents a bushel for his wheat. In those times the western farmer lived chiefly by consuming his own products, buying almost nothing. It is too clear for argument or dispute that it has been railroads, telegraphs, produce exchanges, and such-like means of facilitating exchange, and not gold or silver, that have caused the fall of the great staples in commercial centers—a fact easily verifiable by any western man who will consult the oldest residents of his town.

In a late number of The Forum, that excellent statistician, Mr. Edward Atkinson, has given a most interesting table which, in the present connection, I can not do better than copy. The table was constructed to show at a glance the variations in price of the principal commodities as expressed in gold.[3]

Prices, Wages, Purchasing Power.
1845. 1860. 1865. 1870. 1880. 1890.
Meat 79·4 100 197·0 174·3 103·6 99·6
Other food 82·8 100 240·3 146·3 116·9 103·5
Cloths and clothing 97·1 100 299·2 139·4 104·6 82·4
Fuel and lighting ...... 100 237·8 196·5 100·2 92·5
Metals and implements 110·8 100 191·4 127·8 96·3 73·2
Lumber and building material 106·7 100 182·1 148·3 130·9 123·7
Drugs and chemicals 121·0 100 271·6 149·6 113·1 87·9
House furnishings 102·3 100 181·1 121·6 85·2 69·5
Miscellaneous 114·8 100 202·8 148·7 109·8 89·7
Average of all prices 102·8 100 216·8 142·3 106·9 92·3
Average of all wages 86·8 100 143·1 162·2 141·0 158·9
Average wages by importance 85·7 100 148·6 167·1 143·5 168·2
Salaries of city teachers 74·8 100 134·7 186·3 182·8 186·3
Paper money 100·0 100 49·5 81·1 100·0 100·0
Gold price of silver bullion in London 95·3 100 99·0 98·2 84·7 77·4
Purchasing power of wages 84·4 100 66·0 114·1 132·3 172·1

In brief, the table shows that the prices of many commodities rose very much between 1845 and 1865, and afterward fell a little lower than the 1845 level; while wages, on the contrary, not only did not recede, but continued to advance after 1865. It shows another interesting fact—that 1865 is the date when prices began to fall, and not 1873; and thus discloses the purely artificial nature of the effort to make the era of cheap prices coincide with the "demonetization of silver" in that year.

In Mulhall's History of Prices (page 7) the author brings together in a short comparison a statement of the views of various authorities on the subject of the rise and fall of prices.

Years. Soetbeer. Jevons. Laspeyre. "Economist." Mulhall. Medium.
1845 to 1850 100 100 100 100 100 100
1851 to 1855 114 107 111 . . . 104 109
1856 to 1860 125 120 122 127 105 120
1861 to 1865 127 120 123 . . . 110 121
1866 to 1870 125 121 . . . 140 111 124
1871 to 1875 136 . . . . . . 127 112 125
1876 to 1880 127 . . . . . . 115 99 114
1881 to 1884 124 . . . . . . 105 92 107

A study of any of these tables will convince one that there is an enormous exaggeration in the way the cheap-money men talk about the fall of prices. While there has been to some extent a fall in the price of most products in centers of trade, it is by no means very extensive or portentous.

According to Mulhall (History of Prices, page 7), cotton in the United States averages thirty-three per cent higher in 1881-'83 than in 1841-'50; and wheat two per cent higher. Owing, however, to the great fall in transportation, and to improvements in agricultural machinery, the farmers' increased remuneration is by no means expressed by these figures. For corn the showing is still better, probably amounting to something like one hundred per cent for the average American farmer. During the same period pork has risen fifty-six per cent; tobacco, forty-four per cent; butter, forty-five per cent, and cheese eighty per cent—all in centers of distribution, while they have risen still more in the hands of the producer. If my personal recollection is at all reliable, we pay in Toledo, Ohio, to-day more for eggs, chickens, potatoes, and fruits than twenty years ago in greenbacks. Thus, by a little discrimination, we see that the "great fall in prices," so often and so lugubriously spoken of, is in the great centers where the consumers and not where the producers live. Instead, therefore, of being a calamity, this fall in prices has been an unmixed blessing. The farmer gets more for his product; the city man pays less. Such has been the result of the construction of railroads, the most beneficent and far-reaching of all practical inventions. And yet, with locomotive whistles reaching well-nigh every ear in the country, from lines of railroads having a mileage of nearly one hundred and seventy thousand in the United States, our free-silver friends ignore their existence, and, on the basis of London prices in former times, build up a purely imaginary farmers' paradise in contemporary America.

The evidence afforded by wages shows either that the money standard has not risen, as claimed, or that the working classes have received an astounding increase of wages. Take the trades in which the conditions are wholly or comparatively unchanged by modern inventions, and in a country where no economic revolution has occurred—England:[4]

Year. shillings per week.
Blacksmith. Mason. Carpenter.
1740 16 16 15
1840 21 23 20
1880 32 35 30

Thus wages are seen to have advanced about twice as much in the forty years, 1840 to 1880, as in the previous century. In the United States Mulhall gives tables (Dictionary of Statistics, page 463) showing that operatives' wages have risen from two hundred and fifty to three hundred dollars per annum in the thirty years beginning with 1850. Even during the last few years, in spite of the depression prevailing, I very much doubt if wages and salaries have, taken as a whole, declined at all, or at any rate so much as is usually supposed. Only a few days since I read in a newspaper of the city in which I live a table showing that the salaries of teachers in the public schools had had a steady average increase during the past four years; and the increase was not confined to any one year, but continued gradually through the whole period. However this may be, we can not turn to any reputable authority which does not show that a large increase of wages has occurred during the past fifty years in every civilized country. If, therefore, "gold has risen fifty per cent" in value, the working classes have had a far more wonderful advance than they or any one else supposed.

Again, real estate is one of the greatest of commodities, and if the dollar has increased in value it ought to be reflected in the fall of real estate. No such fall has, however, taken place. Farms in the United States, irrespective of cattle, implements, etc., rose from two hundred and fifty dollars per inhabitant to two hundred and eighty dollars per inhabitant during the thirty years ending in 1880[5]—a fine increase, considering the accompanying increase of population.

Another consideration is of far greater weight than any derived from a single commodity. If land rises in value, the rent increases; if money rises in value by reason of scarcity, the rate of interest advances. If, then, the combined Shylocks of the world, together with the banks, England, and Wall Street, have "demonetized silver" in order to "corner money" and boom the rate of interest, there ought to be traces of it. Singular as it may be to our silver friends, there seem to be none. In fifty years the average rate of interest in the United States has been about cut in two. The best railroad bonds formerly bore seven and ten per cent interest; now they bear four and five per cent. The same proportion holds good of United States bonds and of municipal indebtedness. Every decade has seen a great decline in the rate of interest. If, now, money is getting scarce, and if, as our silver friends claim, the quantity of money regulates its value, then interest should be three or four times as high as we find it. While I do not claim that the fall of interest, which has taken place in Europe as well as America, absolutely proves that the value of money has not risen, I do think it very good evidence of the fact; and it certainly shows that the "bankers' conspiracy" theory of the free-silver men is one of the wildest ideas ever put forth by men outside of insane asylums.

II. Having briefly considered what may be called the direct evidence bearing on the subject, it remains to consider the indirect—the circumstances occurring during this half century which would naturally have an influence on the value of gold money. One of the most prominent of these is the growth of banks and the popularization of checks. The first English bank was established just two hundred years ago. "Since 1840 the banking of the world has increased about eleven fold—that is, three times as fast as commerce, or thirty times faster than population."

In 1870 the Bank of Germany did about seventy-five times the business it transacted in 1820. A like state of affairs prevails in the United States. A very large proportion—some say ninety-five per cent—of the country's business in done by checks which supply the place of currency, and diminish to their extent the necessity of the use of gold. Fifty years since comparatively little business was done through banks. In this way the currency, while maintaining its quality, has been vastly expanded; so that the actual currency (counting checks) circulating in the United States to-day is perhaps one hundred times what it was in 1845. Banks and the use of checks also save the loss of gold arising from shipwreck and other accident, and, by storing it quietly in vaults, save the loss by abrasion which would occur if it were actually used in business.

A great economy in the use of gold has been made by modern electroplating inventions. Few things are now made of solid gold. Solid gold watch cases are superseded by "filled," which are stronger and wear sufficiently well. Plate, too, has largely gone out of style, a circumstance which is a principal cause in the decline of silver. "Official returns of silver stamped in Great Britain for plate and ornament show an annual average of 1,091,000 ounces in the years 1821-'50, and only 790,000 ounces in the decade ending 1880."[6]

But the most tangible and solid evidence that can be found on the subject lies probably in the history of the production of gold. On page 174 of the Report of the Director of the Mint for 1894 is a table giving a statement of the annual product of gold from the discovery of America. It may be summarized as follows:

Periods. Average annual product.
1493 to 1520 $3,855,000
1701 to 1720 8,520,000
1801 to 1810 11,815,000
1850 to 1855 132,613,000
1890 118,849,000
1893 157,222,000

Prior to the Californian period the average product for three hundred and fifty years was about $8,794,000. Before 1493 it was still less. The value of gold therefore—its standing relatively to other commodities–may be said to have been determined by this long-continued rate of production. Then almost in the twinkling of an eye came the Californian and Australian discoveries. The annual product of gold became nearly twenty times what it had been: and this rate of production has not only been substantially maintained, but is now showing a rapid increase. The extraordinary contrast between the annual product of gold prior to and after 1850 deserves a diagram:

World's annual product of gold, 1493 to 1850
World's annual product of gold, 1850 to 1893.
Total product, 1493 to 1850, $3,158,233,000.
Total product, 1850 to 1893, $5,240,878,000.

It is therefore difficult to imagine that gold has appreciated fifty per cent, or to any other extent, in the face of this wonderful and continuous production.[7] The facts above stated—its standing relative to labor, land, and commodities not greatly affected by modern conditions, the economy in its use effected by banks and checks, and its novel rate of production lead me, on the contrary, to think that since 1845 gold has suffered a slight decline, tiling like twenty-five per cent.[8] The decline was much discussed and feared about 1855 owing to the then novel rate of production; but men get used to all wonderful things, and cease to consider what they get used to. Nevertheless, the force of vast production continues to operate year after year.[9]

So much for the past of gold; now for its future. In 1877 Dr. Suess, of Austria, an eminent geologist, startled the economic and financial world by proving to his own satisfaction that the world's production of gold was destined to decrease and in no very long time to become insignificant. His theory was based on the fact that gold, being one of the heaviest metals, would naturally, during the molten period of the earth, have sunk very far from the surface—too far to be mined successfully. This theory, though not corroborated by any direct or historical evidence, obtained considerable currency, and was an important factor in promoting the sentiment for bimetallism.

Like the other scientific theory that no man could ride a two-wheeled vehicle because of the perpetual tendency to fall over, and another, supposed to be based on the laws of motion, that a ball-pitcher could not "curve" a baseball, this theory has proved to have no foundation in fact. It is now evident that the production of gold for the next fifty years will be altogether unprecedented. This production has been vigorously stimulated by fresh discoveries of mines, by new and cheap mining processes, and by the fall of silver, leading miners to pay greater attention to the other metal. The operation of the latter factor is best seen in Colorado, where the production of gold rose from $5,300,000 in 1893 to $7,527,000 in 1893, and to about $12,000,000 in 1894. The production for 1895 in Colorado is confidently expected to reach $20,000,000. The Director of the Mint is of opinion that the production of the United States rose from $33,014,981 in 1892 to about $39,500,000 in 1894, while other good authorities put the production for 1894 at $50,000,000. The annual product of other great producing countries shows a large increase of late years. In his notable article in the North American Review,[10] Mr. Preston states that the world's production of gold for 1893 was "the largest in history, amounting in round numbers to $155,522,000." The product for 1894, however, very largely exceeded—probably by twenty-five per cent—the product of 1893. There is scarcely any assignable limit to the gold known to exist in the world or even in the United States. It is said that simply by the removal of the restrictions on hydraulic mining California can produce half a billion of gold. The quantity easily obtainable in Colorado is stupendous. Other parts of the United States are also rich, while Australia and Russia probably possess a stock equal to our own, and are increasing the annual output every year.

But the most surprising and, so to speak, revolutionary facts regarding gold that have recently come to light are those concerning the great Witwatersrandt mines of South Africa. There gold is found in enormous quantities and in a cheaply workable form in a new geological situation—"in strata the component parts of which are pieces of quartz held together by a clayey cement." A part of this tract—about one fifth of the whole—has been separately explored by a mining expert sent by the German Government and by a distinguished American mining engineer, Mr. Hamilton Smith. Each of these gentlemen concluded that the minimum amount of gold obtainable from the tract surveyed was upward of a billion dollars. These mines began production in 1887, when their product was about $500,000. In 1893 it was nearly $30,000,000. It is therefore not hazardous to predict that from this one mine will come in the near future enough gold to double the total existing stock of about $4,000,000,000.

There is therefore, in my opinion, not the slightest fear of an appreciation of gold arising from its scarcity. It is as certain as anything can well be that the abundance of gold will be such as not only to prevent a rise in its value, but materially to accelerate its fall. It is not probable that the increased production will be relatively as great as that of the Californian period; but the absolute increase may well be larger, and it would not be surprising to see an annual production of $300,000,000 worth of gold by the end of this century. The real danger is that gold will fall so much as to cause a contraction of credits; for no one will voluntarily give credit in a falling commodity or depreciating money standard. As the greater part of the world's business is done on credit, this possibility is most serious. It would be difficult to borrow large sums on long time for the construction of railways and other great works if capitalists were convinced that after ten or twenty years they would receive in full payment of a dollar of the present value of one hundred cents a dollar of the value of seventy-five cents.

Probably, however, the world will soon get used to the great increase in gold production, and cease to pay any attention to it, as was the case in the Californian period. Now, as then, we may expect that the vast gold production now going on will result in a rise of the general price level, in wages, and in the great relief of the debtor class. Barring the possibility of foolish experiments in currency legislation, which, in spite of much noise in irresponsible quarters, is but small, we are entering on an era of great prosperity, where all business will sail along triumphantly on an ever-rising tide of gold.

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  1. Never until the past few months have the "gold" men seemed to put forth their case in public argument. Their feeling seemed to be that the silver agitation was a piece of childish folly which required simply a little soothing talk about international bimetallism and "increased use of silver," and other Utopian schemes. Accordingly, the silver men have really had the field to themselves, and have filled the air with talk about the "appreciation" of gold, "the crime of '73," etc., almost without contradiction; so that the public mind has given far more credit to these fairy tales than could otherwise have happened.
  2. This fact, which must be well known to men like Senators Teller, Jones, and Stewart, renders it difficult to acquit the leading advocates of free coinage of deliberate hypocrisy, when they so loudly declaim about "the crime of 1873" (which Senator Stewart himself voted to enact), and the "dollar of our daddies," which was practically non-existent.
  3. For the excellent discussion as to the price variations of the different commodities, the reader must be referred to the article itself, which is a good antidote for the reckless assertions and hasty theories current on this subject.
  4. Mulhall, Dictionary of Statistics, p. 461.
  5. Ibid., p. 9.
  6. Mulhall, History of Prices, p. 11. "Notwithstanding the great increase which has taken place in the means of all classes during the interval, the average Englishman of the present day consumes less gold than the Englishman of fifty years back." (J. E. Cairnes, Essays, p. 134.) M. Chevalier likewise finds a decrease in the consumption of gold for tableware purposes during the present century, both in England and France.
  7. J. E. Cairnes (Essays, p. 115) states the gold production of the three hundred and fifty-six years from 1492 to 1848 to have been, in round numbers, £400,000,000—an amount nearly supplied, as he states, every decade at the present rate of production.
  8. M. Chevalier, in his once celebrated book on the Depreciation of Gold, says that since 1492 silver has fallen in the ratio of six to one and gold four to one—i. e., that gold is worth only twenty-five per cent what it was in 1492.
  9. In volume clviii of the North American Review, p. 464 (April, 1894), President E. B. Andrews, of Brown University, asserts that "it is universally admitted that since 18'73 there has been an extraordinary appreciation of gold." This is a very easy way to settle a question. For my part I do not think there is much more evidence of a rise since 1873 than since 1845. Land has risen, wages have risen, cheese, butter, eggs, beef, and many other commodities have risen, and interest has fallen—all going to show that gold has continued to fall. The only commodities which have fallen greatly are those like iron, in which great inventions have been made, tending to reduce the cost of production, or, like coal, where the extension and improvement of railways, canals, and telegraphs have quickened and cheapened transportation. The Suez Canal, Indian railways, and western railroad building in the United States have naturally had a profound effect on the prices of wheat, corn, and cotton. In Mr. Atkinson's article, above referred to, this claim of an appreciation of gold since 1873 is not admitted, but controverted. Instead of being "universally admitted," this alleged appreciation is, in my opinion, generally denied by the best authorities on the subject, among whom Mr. Atkinson stands high. It is true, however, that gold has not depreciated since 1873 so fast as in the fifties. The reason is not far to seek. The production of the Californian period was extremely sensational, so long as it was new, and led men to fear that gold would be a drug in the market—thus "bearing" the price of gold.
  10. January, 1895, p. 46.