limited coinage of silver coins smaller than a dollar, and to order that they should be coined, as at present, only from bullion purchased by the government at the market price. At the same time the weight of these subsidiary coins was reduced by one seventh to insure their being retained in circulation.

The discovery of gold in California, in 1848, and in Australia, in 1851, suddenly increased the world's supply of gold by an unprecedented amount. In fact, the careful estimates of Dr. Soetbeer indicate that as much gold was produced in the third quarter of the nineteenth century as in the preceding three centuries and a half following the discovery of America. The result was to increase the discrepancy between the mint ratio and the actual market ratio of exchange of gold and silver, although the production of silver had also been greatly increased. Gold was brought to the mint for coinage in enormous amounts dition that lasted even after 1861, when paper currency began to be used almost exclusively as the medium of exchange.

a con

In a general revision of the coinage laws, enacted in 1873, the silver dollar was dropped from the list of coins that could be manufactured at the mint. Although this action was almost unnoticed at the time, a fictitious significance has, in subsequent years, been attached to it. Silver was practically "demonetized," that is, its free and unlimited coinage was actually prevented, by the establishment of the ratio of 16 to 1 in 1834. The act of 1873 gave legal recognition to an existing fact.

But a sudden depreciation in the value of silver, which began at about this time, brought the question of bimetallism again into the foreground. Since the seventeenth century the market ratios of gold and silver had fluctuated only between relatively narrow margins, and in no year since the establishment of the United States mint had the average annual price of an ounce of gold been less than 15 or more than 16 times the price of an ounce of silver. In 1875, however, the market ratio fell to 16 to 1; by 1878 it was 18 to 1; by 1886 it was 20.8 to 1; and in 1894 it was 32.6 to 1. It is evident that if the opportunity for

The causes of this unprecedented decline in the relative value of one of the precious metals were complex and intricate. The following may be mentioned,

the free and unlimited coinage of silver at the ratio of 16 to 1 had still existed, there would have been another sudden change in the actual monetary standard. Gold would have been underappraised by that ratio, and would have disappeared from circulation, and silver would have taken its place. It was the realization of this fact, coupled with the knowledge that the silver standard would mean a " cheaper dollar," that led to a popular agitation for the free and unlimited coinage of silver which continued for more than twenty years.

The first tangible result of this agitation was a compromise measure, the Bland-Allison Act, passed by Congress in 1878, which instituted the limited coinage of silver dollars by authorizing the Secretary of the Treasury to purchase at market prices not less than $2,000,000 nor more than $4,000,000 worth of silver bullion per month, and to coin it into dollars. The results of this enforced coinage were satisfactory to neither party to the controversy. The amount of silver coined was in excess of the demand for that bulky kind of money, even though as much as possible was put into circulation in the form of silver certificates, and although the government tried to favor the distribution of silver by paying the expense of transporting it to the localities where it was wanted. The movement in favor of the unlimited coinage of silver continued to gain in strength, however, its advocates claiming that "more silver," rather than less, was needed.

A second compromise was effected in the Sherman Silver-Purchase Act of 1890, which provided for an increase in the amount of silver purchased to 4,500,000 ounces each month, which was to be paid for in treasury notes. These treasury notes were to be full legal tender, and were redeemable in gold or silver coin at the discretion of the Secretary of the Treasury. The silver was to be coined only so rapidly as was found necessary for the redemption of the treasury notes. The increase in the amount however, as contributing circumstances: (1) Cessation of an extraordinary demand for silver in India which had existed since 1850; (2) Stoppage of the unlimited coinage of silver in several European countries; (3) Discovery of large silver mines in the United States; (4) Increase in the value of gold, as evidenced by a general decrease in the prices of commodities.

of silver purchased was a concession to the advocates of the unlimited coinage of silver; the fact that the circulating medium based immediately on these purchases was composed of treasury notes, which were injected into circulation in proportion to the market price of the silver purchased, was a concession to their opponents.

The soundness of the principles embodied in the Sherman Act was soon tested by a period of financial and industrial depression. Gold had to be exported to Europe in large quantities to settle an adverse balance of trade, and the government found difficulty in maintaining its own gold reserve, which was already seriously threatened by a decline in customs receipts, accompanied by an increase in federal expenditures. The gold reserve was at that time simply the amount of gold in the treasury that was available for the redemption of other forms of money, especially the United States notes, or greenbacks, that had been first issued during the Civil War, but which did not become actually redeemable in gold until 1879. During this scarcity of gold the banks were able to secure gold for their own reserves or for export by presenting United States notes at the treasury for redemption in gold. Under the law the notes had to be immediately reissued, and were used in government payments, but no sooner was this done than they were again returned by the banks for redemption in gold.

The workings of this "endless chain" by which gold was pumped from the government treasury were aggravated by the fact that the treasury notes authorized by the Sherman Act were used for the same purpose. Although they were payable either in gold or silver coin, they were actually redeemed on demand in gold. This was at the urgent insistence of President Cleveland, who believed, with good reason, that a refusal to redeem them in gold would probably have forced the silver standard upon us, by destroying the exchangeability of silver and gold. and thus putting an end to their parity, and that it would certainly have injured the credit of the government and put it to a disadvantage in the bond sales that were needed to replenish the gold reserve. Under the operations of the Sherman Act

the government was virtually exchanging gold coin for silver bullion at a time when gold was sorely needed when the gold value of the purchased silver was steadily depreciating.

The gold reserve sank from $190,000,000 in 1890 to $95,000,000 in 1893. In June of the latter year the closing of the mints of India to the unlimited coinage of silver gave an added impetus to the downward movement of the price of that metal. These facts led Congress, in a special session called in 1893 for that purpose, to order, though with obvious reluctance, that the purchase of silver under the Sherman Act should be stopped.

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The agitation for the free and unlimited coinage of silver continued. however, and with increased vigor, and it was made the sole issue in the presidential campaign of 1896. It was alleged that the yet continuing industrial depression could be alleviated only by 'more money” and “cheaper money." It was claimed by many intelligent people that the unlimited coinage of silver would not drive gold from circulation, but would increase the value of silver and decrease the value of gold until they met at a parity established by the desired legal ratio of 16 to 1. The most effective argument of the protagonists of silver was found, however, in the admitted fact that the value of gold, as shown by changes in the general price level, had been increasing. All indications pointed toward a continued decrease in the annual production of gold, and a consequent further decrease in prices. This, it was argued, was a hardship to those who had borrowed money on long time obligations, such as mortgages, because they would be forced to repay in value or purchasing power more than they had borrowed.1

This agitation was, in fact, simply one of a series of cheap money movements that have characterized the economic development of the United States, and which have sprung from the fact that the opening up and developing of new lands have called for expenditures in amounts far beyond the resources of the actual settlers. Newly settled regions have usually been debtor regions, and there is more than mere coincidence in the fact that demands for cheap money have always been voiced most loudly on the frontier. This does not mean that a cheap money movement is essentially dishonest; that it represents the conscious attempts of debtors to escape the payment of their lawful debts. The life and vigor in this movement for the unlimited coinage of silver was put into it by men who saw the imputed value of their assets sinking and the difficulty of paying their debts increasing in a financial crisis for which they were not individually responsible. Money funds were

1 This argument raises the problem of the standard of deferred payments, which is to be considered in Chapter XVI.

Cf. C. J. Bullock, Essays in the Monetary History of the United States, Part i.

nard to get because personal credit, the foundation of bank credit, was lacking. This scarcity of money funds was confused, naturally, if erroneously, with the scarcity of "money" in the sense of standard money, gold; and the remedy was sought in an action that would give more and cheaper standard money.

The defeat of the advocates of bimetallism in 1896 would probably not have stopped the agitation for the unlimited coinage of silver, had it not been for the return of prosperous conditions, coupled with an enormous increase in the world's annual production of gold, which has brought with it a general increase in prices.

The single gold standard was formally and definitely recognized by law in 1900. All of the silver bullion purchased under the Sherman Act has been coined, and silver dollars sufficient in amount to retire the treasury notes have been set aside for that purpose. These treasury notes (which should not be confused with the United States notes, or greenbacks) are accordingly on substantially the same basis as silver certificates. Up to June 30, 1915, their amount had been reduced from $156,000,000 to $2,250,000. No silver dollars have been coined since 1904, and under the present law no more can be coined unless Congress should authorize the special purchase of bullion for that purpose.

The Gold-Exchange Standard. Within the past twenty years gold has been accepted more generally and more definitely than ever before as the standard money metal of the world. The change from a silver standard to the gold standard is often a difficult and expensive national undertaking, but it brings the advantages of a more stable unit of value and of increased facility in making international payments. In 1915 the silver standard prevailed only in China, Persia, Paraguay, and three Central American countries.1

In a number of places in which it is impossible, for one reason. or another, to introduce gold as part of the actual medium of exchange, the silver standard has been replaced by the goldexchange standard. Where this standard exists the currency of the country consists largely of silver coins, put into circulation by a system of limited coinage. These coins are maintained at a fairly definite gold value, higher than that of their bullion. 1 Report of the Director of the Mint, in Finance Report, 1915, p. 456.