A. ON THE RELATIVE VALUE OF GOLD AND SILVER,

From the National Gazette, of January 26th, 1822.

Messrs. Editors:—In the autumn of the year 1820, an article written by me was published in your Gazette, explaining the cause of the disappearance of gold from the United States. It was there shown that, in spite of all the attempts made by the laws of various nations, to establish fixed proportions between gold and silver, those two metals had confirmed their right to be governed by the same laws of supply and demand, which regulate the relative value of all other commodities, and had actually in the market of the trading world assumed proportions different from those which had for many previous years been maintained. It was also shown, that one ounce of gold was at that time worth in Europe near sixteen ounces of silver, and that so long as the laws of the United States decreed that the proportions should be as one to fifteen, gold would not circulate, but would be exported from the country, in payment of debts, or in exchange for silver. The truth of that assertion has been verified; for although during the year 1820, gold was coined at our mint to the value of $1,319,030, and during the year 1821, to the amount of $185,325, yet not a gold coin is any where to be seen in circulation.

During the last session of congress, this subject of the disappearance of gold was considered by a committee, who made a report, recommending an alteration of the legal proportions, so as to make them correspond with the proportions which were at that time supposed to exist in Europe. At the present session, the same matter will probably come before the committee, to whom the subject of the coinage has been referred; and as it is an important one, a few observations in relation to it may not at this time be inappropriate.

Any attempt to fix by law, what cannot be fixed by nature, carries on its face an air of absurdity. Without animadverting upon the policy which led our predecessors to follow the footsteps of many of the European nations, and which may perhaps be justified by the then existing state of the country, it is certainly not the part of wisdom to pursue a course, which the lights of science and experience so clearly prove to be unsound. The very fact that gold and silver have departed from the proportions established by our laws, is ample proof that no such laws should ever have been enacted; and the certainty of a future change, is equally conclusive against any further legislation on the subject. Even since the date of the report of the committee above referred to, a more wide separation between the two metals has taken place; and had a law been enacted a year ago, agreeably to their suggestion, it might possibly have required an additional one in the present year to give it effect. The truth is, that until the physical and moral causes, which operate upon a currency, shall combine to establish an immutable relation between gold and silver, laws to determine their relative value can be nothing more than temporary expedients, at war with the true interests of the country, and the genuine principles of political economy. No nation ought to attempt to create two legal tenders; and as we have virtually, at least for a time, got rid of one of them, we ought not to be hasty in restoring it.

In a discussion upon this subject, it is not essential to consider the question, whether a gold or silver coinage is to be preferred. Many weighty arguments might be advanced in favor of each, but as the American people are best acquainted with silver, and as most ancient contracts stipulate for the payment of silver coins, there would seem to be a propriety in adhering to that metal; especially, too, as the universal establishment of banks of deposite, obviate almost entirely the expense and inconvenience of transporting and counting large sums. I take it for granted, that if one metal was alone declared to be a legal tender, that metal would be silver; and under that impression, I submit my remarks.

The first objection against an alteration of the relative legal value of gold and silver, is that there would be no certainty of the new proportions being maintained for any length of time in the general market.—Gold might rise still higher, and in that event the law would be of no avail. Or gold, might fall, and in that case, the silver would all be exported from the country, upon the principle that gold now is, as being the dearest of two commodities, which are declared by law to be equally legal tenders in discharge of the same debt. In case of such an event as the exportation of all our silver, it is easy to foresee what evil consequences would result. Gold would become the only circulating medium, and as it is impossible that the ordinary transactions of life could be carried on with such small pieces of gold as would correspond with our small silver coins, congress would be compelled to pass another law to bring silver back, and there would be no end to our legislation on the subject. If silver should be legislated out of the country, and afterwards be legislated back again, the nation would lose the whole value of the expense and risk of a double transportation, without an equivalent in return.

The second objection against this measure is, that it would be an improper interference with the rights of all creditors, public as well as private, in relation to contracts, existing at the time of the change. By the present laws, an individual or the nation has its option, in discharge of a debt, to pay one ounce of gold or fifteen ounces of silver; but if the proportions were altered as proposed, creditors could be compelled to receive in satisfaction of their claims, a less quantity of gold than they stipulated for. It is true, that no absolute injury would be sustained by creditors, so long as the new proportions should be maintained in the market, because with the new quantity of gold they could purchase as much silver, as the debtor had contracted at his option to pay. But the case would be widely different in the event of a falling back in the market to the present proportions. All debts would then be paid in gold, and creditors would be compelled to take in discharge of their contracts, a less quantity of gold than they had bargained for.

Whether or not congress possesses the power of enacting laws which shall thus impair the obligation of contracts, it is not necessary here to inquire. Be that as it may; it is a matter of deep concern, to the people of this republic, that their representatives should cautiously shun every measure, which has a tendency to countenance those frauds upon creditors which some European nations have practised, by debasing their coins, or by diminishing their weight without altering the denomination. The pound sterling was originally a pound of standard silver, which was coined into twenty equal pieces called shillings. The same quantity of silver is now coined into sixty-six shillings, twenty of which are a pound sterling. The livre of France, now worth less than nineteen cents, originally was a pound of silver of the French standard, which is nine-tenths pure metal and one-tenth alloy. Let it never be said, that the American eagle contained at one period of time two hundred and seventy grains of gold, eleven parts fine, and one of alloy, and at another, a different weight or a different degree of purity. Although an alteration of our mint proportions, may not be as flagrant a violation of the public faith, as those above referred to, yet we have seen that creditors, by its operation, may be deprived of their just rights, in case of a restoration of the present legal proportions, of one to fifteen, when perhaps, as a remedy for that evil, the next step might be to reduce the quantity or to alter the purity of the silver contained in the dollar, and thereby authorise a second fraud more odious than the first. Tampering with the metallic currency of the nation is a dangerous employment, and if it be commenced, there is no foreseeing where it may stop.

But it may be asked, is it not necessary that something should be done in relation to our coinage? In answer to this question I would reply, that if it is at all desirable that gold coins should be struck at our mint, it should be upon a different principle from that which prevails. The whole present expense of our gold coinage, is an absolute loss to the nation. Nearly all the pieces which are coined are exported to Europe, where they are exchanged for their proper equivalents, and melted, and thus our mint is occupied at no trifling cost, in assaying and stamping, free of charge to the owners, the bullion which our merchants are daily shipping abroad. I would suggest that the further coinage of eagles and their fractional parts be abolished, and that authority be given for the coinage of new pieces to be called by new names, to contain respectively an ounce, a half an ounce, and a quarter of an ounce of standard gold.

Between these pieces and silver no proportionate value should be attempted to be established, but they should be left to find their value in market like all other commodities. The advantage of such coins over the eagles would be, that as every body would soon become acquainted with their weight, without being obliged to resort to books in order to ascertain the precise number of pennyweights and grains contained in them, the mode of estimating their value in silver would soon become familiar, and those who possessed them would have less difficulty in exchanging them for their proper equivalents, than they would have with any coin, of which the weight could not be universally and readily recollected. The circumstance of the British and American standards being the same, would render this course the more advisable. The quotations of the price of gold and silver, which are brought by every ship, would keep us as regularly advised of the value of an ounce of gold, as of a barrel of flour; and there is every reason to believe, that as the fluctuations in the relative value of the two metals are not diurnal or monthly, nor even always annual, the proposed coins would find their way very readily into circulation.

It is a fact, familiar to all who are acquainted with the affairs of the western country, that depreciated bank notes pass amongst the merchants there, with perfect facility for what they are worth; and to such a system has this practice been reduced, that the newspapers regularly publish the prices current of bank notes at the principal money markets to be referred to as the scale of value. So would it be with gold coins of a well known weight and standard, which might even maintain for a long period together something like a settled proportion to silver. An additional reason why eagles cannot readily pass by weight, is that the idea of their being by law the equivalent of ten silver dollars, is so deeply rooted in the minds of the community, that it would be next to impossible to eradicate it. Those only who understand the subject, or whose trade renders them conversant with it, are acquainted with the true value of an eagle, and they are thereby enabled to take advantage of those who are less enlightened than themselves. But, let a new coin make its appearance of a familiar and well known weight, untrammeled by legal proportions, new views would present themselves to the public, and even common minds would be able to comprehend, what now appears to them to be enveloped in mystery. Suppose further, that this new coin, instead of containing an ounce, should contain the precise quantity of gold contained in the sovereign, or true pound sterling, lately emitted from the British mint, what incalculable benefits would not result? The important question of our exchange with England, would be exhibited in its true light, and the whole clamor about the balance of trade, an excess of imports over exports, and the necessity of laws to restrict the former, would cease, and leave our law makers at liberty to study the true interests of the country. It would then be seen, that the high nominal exchange on England is not the result of a balance of trade against us, but chiefly the effect of a change in the relative value of gold and silver, and that the gold pound sterling is the equivalent of 484 cents, and not 444 cents in silver.*

It has been inquired by some, in case such a coin as the one first suggested were authorised, whether it would not be advisable, in order to give it a currency by tale, to declare by law that it should be receivable in all dues to the government, as the equivalent of a fixed quantity of silver? I reply, that such a course would be liable in a great degree to the objections urged against the principle of establishing legal proportions; and I do not conceive that it would be attended with any advantage sufficient to counterbalance the risk of being obliged to take the gold, if at any time it should so fall in relation to silver, as to make it the interest of the public debtor to discharge his obligations in the former rather than in the latter metal, in which case the government would be a loser of part of its revenue, and, in addition to that, be obliged to become bullion dealers for the purpose of selling the coin paid into the public treasury. It would also be giving a forced currency to a coin, which, if it cannot find its way into circulation by the operation of natural means, had better not circulate at all, and would be laying the foundation for a course of legislation, which might ultimately be productive of mischief. If no such law should be enacted, the price of an ounce of gold would regularly conform to the variations of the market, which, being in their nature slight and gradual, could produce a serious loss to nobody. Whereas a law to establish a fixed value in payments to the government might be repealed at a moment unexpected by those who had received the coins at such valuation, by which a considerable loss might fall upon many, who were not conversant with the principles which determined the proportions.

It has also been asked, upon the supposition of the establishment of new mint proportions conforming to the actual relative value in the markets in Europe of gold and silver, what would be the effect of a seignorage on coins, that is, a charge for coinage at the mint, in restraining their exportation? To this question I would reply.

1. That if the seignorage were of an equal per centage upon both metals, it would leave the matter where it stood, inasmuch as their relative value would remain the same, as if no seignorage was exacted; and that as regards the question of exportation, the seignorage would be a nullity. The causes which operate upon the precious metals, in driving them from one country to another, have reference only to the intrinsic worth of coins, and not to their denominations. The quantity of silver contained in a Spanish dollar, would be just as much subject to the laws of exportation, as it would be, if it was denominated a French crown, and declared by our laws to be the equivalent of 110 cents; and so would an eagle be just as liable to exportation, if it was called by any other name, and declared by law to be the equivalent of eleven dollars.

2. That if the seignorage was charged upon one of them only, it would be difficult to foresee upon which of them it ought to be charged; for in the course of the ensuing five years, it is quite as possible that silver will rise in relation to gold, as that gold will rise in relation to silver.

3. That if it be placed upon gold only, under the impression that goldmight rise still further, it ought to be ascertained, in order to render it effective, how far gold will rise, which is impossible; for unless the seignorage be equal to the extent of the departure of gold from the proportions existing at the time of fixing the seiguorage, it would be of no avail. A seignorage of six per cent. on the present eagles, had it been originally imposed, would not have prevented their exportation; for at $10 60-100 a-piece, they would constitute a more profitable remittance to Great Britain, than bills purchased at the present rate of exchange.

A very small seignorage on gold, therefore, might answer no purpose, as a measure restrictive of exportation; for if it were limited to one or two per cent. a change in the relative value of gold and silver abroad to that extent, would neutralise it, if gold should become more valuable, whilst a high seignorage would unquestionably be productive of injurious consequences. This will be shown from the following illustrations, founded upon the assumption of one to sixteen as the new mint proportions, deducting five per cent for the seignorage, the market proportions being also one to sixteen.

First. So long as the market and mint proportions of the two metals remain exactly the same, gold may be coined as fast as it is brought into the country; for if the holder of one hundred ounces can get it promptly coined at the mint into ninety-five ounces of pieces, which are declared by law to be a legal tender of the equivalent of sixteen hundred ounces of silver, it will be the same thing to him, whether he does so, or sells it in the market for sixteen hundred ounces of silver.

Secondly. In case gold and silver should vary in the market, and assume a greater difference than the new mint proportions of one to sixteen, the event attempted to be guarded against, then no more gold would be sent to the mint; for the possessor of one hundred ounces of that metal, who could exchange it in the market for even a small fraction more than sixteen hundred ounces of silver, would not be willing to have it coined into ninety-five ounces, which he could by law only pass for 1600 ounces of silver. As regards the coins which had been previously emitted, they would continue to circulate, until ninety-five ounces of them would sell as bullion for more than 1600 ounces of silver, and they would then be exported, because the possessor of them would in that case be able to sell them in the market for more than their legal value. This event, if the coins were new, would happen when the new market proportions should be about one to seventeen; but if they were old, clipped, or worn, it would not happen until afterwards.

Thirdly. A high seignorage on gold would operate as a bounty on counterfeiting, and might even be sufficient to induce ingenious rogues to manufacture gold coins of full weight and of the true standard.—This might be done to advantage in those countries from which we should derive our gold when restored to circulation, and we might perhaps import eagles of foreign manufacture of lawful weight and purity, at a cheaper rate than that at which they could be procured at our mint, in the same manner as, it is supposed, many a cask of copper cents has been imported.

Fourthly. If, however, on the other hand, gold, instead of rising, as is supposed under the second head, should fall in the market in relation to silver, and bear the proportion of one to fifteen, in that case, great quantities of gold would be sent to the mint to be coined, for the simple reason, that the possessor of one hundred ounces could, by that means, procure ninety-five ounces of coin, equivalent in the payment of debts to sixteen hundred ounces of silver, whereas, by selling his hundred ounces of gold in the market, he could procure but 1500 ounces of silver. In such an event, the silver would leave the country to be exchanged for gold in order to be coined, and in a few months silver coins would be as scarce as gold ones are now, excepting indeed the small ones, which are so diminished in weight by friction, as already to have lost a considerable part of their intrinsic worth.

In addition to the above observations, it must be kept in mind, that all the objections urged against a variation of the mint proportions, as regards the obligation of contracts, apply with equal force against the adoption of a seignorage, inasmuch as creditors would be compelled, in discharge of debts, to accept a less quantity of gold, than they originally stipulated for.

It may perhaps be useful to some readers to know what are the existing proportions in the relative value of gold and silver in the European market. Of this matter we know nothing more at this moment, than what is furnished by the London quotations, which owing to the facility of intercourse, and the cheapness of transportation of the precious metals between that city and the principal continental cities, may be considered as furnishing materials for an estimate, not far from the truth. By dates of November 2, we learn that dollars were 4s. 9½d. per ounce. The mint price of gold, which is also the present market price, is 3l. 17s. 101/2d. per ounce. These two prices stand in the proportions of 1 to 16¼ and a small fraction, but as the purity of each metal is not precisely the same, a nice calculation would vary a trifle from these proportions.

HUSKISSON.

---