ADOPTION OF GOLD STANDARD 885 quate to satisfy the needs of all nations. It was long contended, and is still by many thoughtful persons, that a much better monetary system for the world would be one which combines both gold and silver. Some countries, like England and her colonies, which have long had the gold standard, might continue on that basis. Others, like Mexico and China, which are accustomed to silver only, might maintain the silver standard. The best interests of all would be served, it is argued, if the remaining countries, which use both gold and silver, could agree upon some scheme of " international bimetallism" which would establish a fixed value relation between gold and silver and insure their continued use as the standard money materials of the world. For a time it seemed as though the fears of bimetallists Triumph in reference to the insufficiency of the gold supply were well of Gold grounded. Gold prices did, as we have seen, fall with alarm- Standard. ing persistency, and the effect of the steady decline on the temper of the business community was decidedly unfavorable. If the suggested remedy could have been applied in 1873, the results might have been generally beneficial. Nothing was done, however, notwithstanding repeated international conferences, and after 1897, when gold prices began to rise again, the principal reason for action was removed. At present it is the general consensus of opinion that "international bimetallism, even if economically and politically practicable, is no longer needed and that any international agreement that is made should have for its object the extension of the gold standard to the few countries that are still on silver and paper bases, with a view to giving greater stability to foreign exchange relations. In other words, gold has been accepted as the standard of value of the world, and the monetary problem of contemporary interest to practical business men is how to extend this standard to countries which for special reasons do not care to make gold coin, even on a limited scale, their medium of exchange. In the United States the agitation for bimetallism assumed The Free a more radical form than in Europe, the demand being made Silver that the country embark alone upon the attempt to maintain Agitation. a constant value ratio between gold and silver by throwing Future of the Gold Standard. its mints open to the free coinage of the cheaper metal at the mint ratio of 16 to 1. This was made the dominant issue in the presidential campaign of 1896, when the Republicans opposed to the Democratic declaration in favor of the free coinage of silver a somewhat vague indorsement of international bimetallism. Again in 1900 free coinage was an issue, but already the reasons for the agitation had been withdrawn and there seems little likelihood of a revival of the question, at least in the same form. So fast has history been made in this field that what was but yesterday a burning political issue is now a question of merely historical interest. § 212. The future of the gold standard hinges upon the question whether the value of gold is likely to show a fair degree of stability in coming years, and whether any more stable standard, which is equally convenient in other respects, is attainable. As to the first point, present indications are believed to be very favorable. The transition to the gold standard has been accomplished, or is in a fair way to be accomplished in the near future, for the whole commercial world. Under these circumstances there is every reason to anticipate only that gradual increase in the world's demand for gold that will result from the gradual growth of the world's wealth and expansion of its exchange transactions. On the side of supply, production in the immediate future promises not only to be ample, but to be governed more exactly by the normal expenses of production than it ever has been in the past. DisInfluences coveries of new sources of supply and inventions affecting Steadying methods of mining and refining have, during the last ten years, advanced gold production in many parts of the world to the precision of a manufacturing industry. In quartz mining in the Rand district in South Africa and in placer mining in the low-grade gold-bearing soils, which it is now profitable to treat by means of expensive hydraulic appliances, the expense of producing gold can be accurately estimated and the output can be increased or decreased on a considerable scale as changes in the value of the product make either course desirable. Thus the normal expenses of production promise to be the regulator of the value of gold in the future, as they have been the Value of Gold. THE MULTIPLE STANDARD 387 of other freely reproducible goods in the past. During the last ten years a readjustment has been going on in consequence of the discovery of new gold fields and of cheaper methods of recovering the precious metal. But unless the discovery of other and even cheaper sources of supply intervenes, the fall in the value of gold cannot long continue because every advance in prices which accompanies it makes gold mining more expensive. Materials, tools, machinery, wages and other items of expense rise as gold falls. As a result the margin at which gold mining continues to be profitable is a progressively higher one and the production of gold must be checked correspondingly. It would be idle to venture to prophesy in regard to the future course of the value of gold, but this at least may be said: Unless new and cheaper sources of supply are discovered, there is every prospect that its value will be more stable during the next decade than it has been at any period during the last sixty years. Standard. § 213. Those who believe that the gold standard will one The day be superseded base their faith, not on any alleged ad- Multiple vantage of some other commodity standard of value, but upon dissatisfaction with all commodity standards. Perfect stability of value is certainly unattainable along this line. One remedy suggested is the adoption of an immaterial standard, called the "multiple standard," whose value may be kept uniform by artificial regulation. The plan is somewhat as follows: Since the value of the monetary unit is determined by the relation between demand and supply, and since paper money is the medium of exchange preferred in the more advanced countries, let each government take upon itself the regulation of its monetary system and substitute fiat for self-regulating money. Let a special department of issue and redemption be created to adjust the supply of such money to the demand for it in such a way that the general level of prices shall be kept uniform from month to month and year to year. This may be done, it is suggested, by issuing additional legal-tender paper notes as prices tend to fall and withdrawing such notes -perhaps by the sale of low interest-bearing bonds-as prices rise. The measurement of prices might be made by means of index numbers in some such way as was described in Section 209 and the effort would be to keep the index number constantly at 100. Space will not permit discussion of the possibilities of a fiat, multiple-standard monetary system. There is, perhaps, no good theoretical reason for asserting that such a system could not be maintained by a country that was politically and commercially ready for it. On the other hand, no extended argument is necessary to prove that practical business men will continue to view the plan as unworkable until the defects of the gold standard have been so conclusively demonstrated that there is a more widespread demand for a different system than has yet developed. REFERENCES FOR COLLATERAL READING *Clare, A B C of the Foreign Exchanges; *Pierson, Principles of Economics, Part II., Chap. III.; Goschen, Theory of the Foreign Exchanges; *Johnson, Money and Currency; *Laughlin, Principles of Money; Walsh, The Measurement of General Exchange Value; *Taussig, Silver Situation in the United States; Principles of Economics, Chaps. XVIII-XXII.; *Walker, International Bimetallism; *Sound Currency Redbook (published by Committee of the New York Reform Club); Russell, International Monetary Conferences; *Fisher, The Purchasing Power of Money. CHAPTER XXII THE TARIFF QUESTION Domestic § 214. The difference between foreign and domestic trade Foreign is a difference of degree only. It happens that the continent and of Europe is divided up among more than a dozen different Trade sovereignties, and this causes trade among its different parts Compared. to be largely foreign. On the continent of North America, on the other hand, it happens that only three sovereignties are represented. Of these the United States alone controls an area nearly as large as the continent of Europe and presenting equally striking diversities of soil and climate. Trade. among different sections of, the United States is domestic, and yet the same considerations which, for example, cause California to produce oranges, lemons and olives for the rest of the country, cause Italy to produce the same things for the rest of Europe. In both instances trade results from the efforts of men to realize the economies connected with a territorial division of labor, that is, to devote each particular area to those products for which it is best adapted, while securing from other areas, by means of exchange, their special products Although foreign and domestic trade are thus controlled Peculiariat bottom by identical principles, economists are in the habit ties of of singling out foreign trade for special treatment, partly because it is frequently subjected to regulations from which domestic trade is exempt, and partly because back of these regulations are differences in race, nationality and political ideals which play their part in shaping economic conduct. One effect of these differences has already been noted, that is, the unreadiness of workmen to give up home and country for the sake of the higher earnings that may be obtained in other places. In consequence of this "immobility of labor," differences in wages between different countries persist generation after generation and play their part in shaping foreign Foreign Trade. |