[In this essay from 1896, Sumner addresses the arguments of supporters of bimetallism, and instead supports a gold standard.]
William Graham Sumner
Some of the silver fallacies were stated by Mr. St. John in his address before the silver convention with such precision that his speech offers a favorable opportunity for dealing with them.
He says that “it is among the first principles in finance that the value of each dollar, expressed in prices, depends upon the total number of dollars in circulation.” There is no such principle of finance as the one here formulated. The “quantity doctrine” of currency is gravely abused by all bimetallists, from the least to the greatest, and it is at best open to great doubt.
When the dollars in question are dollars of some money of account that can circulate beyond the territory of the State in which it is issued, the quantity doctrine cannot be true within that territory. It may be noted, in passing, that this is the reason why no scheme of the silver people for manipulating prices in the United States can possibly succeed. Silver and gold will be exported and imported until their values conform throughout the world, and prices fixed in one or the other of them will conform to the world’s prices, after all the trouble and waste and loss of translating them two or three times over have been endured.
The quantity doctrine, however, means that the value of the currency is a question of supply and demand, and everybody knows that to double or halve the supply does not halve or double the value, or have any other effect that is simple and direct. If it did have such effect, speculation would not be what it is.
Mr. St. John goes on to argue that our population increases two millions every year, on account of which we need more dollars; that the production of gold does not furnish enough to meet this need, and that, therefore, prices fall. This argumentation is very simple and very glib. Prosperity and adversity are put into a syllogism of three lines.
But if we can avert the fall in prices and adversity by coining silver, it must be by adding the silver to the gold that we now have. “High” and “low” prices are only relative terms. They mean higher and lower than at another time or place; higher and lower than we have been used to. If misery depends on ten-cent corn we are advised to cut the cents in two and we shall get twenty-cent corn and prosperity. Corn will not be altered in value in gold, or outside of the United States, and, as all other things will be marked up at the same time and in the same way, its value in other things will not be altered by this operation.
When we get used to twenty-cent corn it will seem just as low and just as “hard for the debtor” as ten-cent corn is now. Then we can divide by ten and get two-dollar corn, by adding free coinage of copper. When we get used to that we shall be no better satisfied with it. We can then make paper dollars and coin them without limit. Million-dollar corn will then become as bitter a subject for complaint as ten-cent corn is now. The fact that people are discontented is no argument for anything.
The fact that prices are low is made the subject of social complaint and of political agitation in the United States. Prices have undergone a wave since 1850. They rose until about 1872. They have fallen again. They are lower than they were at the top of the wave all the world over. This fact, the explanation of which would furnish a very complicated task for trained statisticians and economists, is made a topic of easy interpretation and solution in political conventions and popular harangues, and it is proposed to adopt violent and portentous measures upon the basis of the flippant notions that are current about it.
But what difference does it make whether the “plane” of prices is high or low? If corn is at forty cents a bushel and calico at twenty cents a yard, a bushel buys two yards. If corn is at ten cents a bushel and calico at five cents a yard, a bushel will buy two yards. So of everything else. If, then, there has been a general fall, and that is the alleged grievance, neither farmers nor any other one class has suffered by it.
It is undoubtedly true that a period of advancing prices stimulates energy and enterprise. It does so even when, if all the facts were well known, it might be found that capital was really being consumed in successive periods of production. Falling prices discourage enterprise, although, if all facts were known to the bottom, it might be found that capital was being accumulated in successive periods of production.
“Between 1850 and 1872 the debtors made no complaint and the creditors never thought of getting up an agitation to have debts scaled up. The debtors now are demanding that they be allowed to play ‘heads I win, tails you lose’.”It is also true that a depreciation of the money of account, while it is going on, stimulates exports and restrains imports.
But who can tell how we are to make prices always go up, unless by constant and unlimited inflation? Who can tell how we are to avoid fluctuations in prices or eliminate the element of contingency, risk, foresight, and speculation?
It is also true that, although high prices and low prices are immaterial at any one time, the change from one to the other, from one period of time to another, affects the burden of outstanding time contracts. Men make contracts for dollars, not for dollar’s-worths. Selling long or short is one thing; lending is another.
Borrowers and lenders never guarantee each other the purchasing power of dollars at a future time. If the contracts were thus complicated they would become impossible. Between 1850 and 1872 the debtors made no complaint and the creditors never thought of getting up an agitation to have debts scaled up. The debtors now are demanding that they be allowed to play “heads I win, tails you lose,” and Mr. St. John and others tell us that they have the votes to carry it, as if that made any difference in the forum of discussion.
Increase in population does not prove an increased need of money. It may prove the contrary. If the population becomes more dense over a given area, a higher organization may make less money necessary. If railroads and other means of communication are extended, money is economized. If banks and other credit institutions are multiplied, and if credit operations are facilitated by public security, good administration of law, etc., less money is needed.
If these changes are going on at the same time that population is increasing (and such is undoubtedly the case in the United States), who can tell whether the net result is to make more or less currency necessary? Nobody; and all assertions about the matter are wild and irresponsible.
If it was true that an increase of two millions in the population called for more dollars, how does anybody know whether the current gold production is adequate to meet the new requirement or not? The assertion is arithmetical. It says that two quantities are not equal to each other.
The first quantity is the increase in the currency called for by two million more people. How much more is needed? Nobody knows, and there is no way to find out. The silver men have put figures for it from time to time, but the figures rested on nothing and were mere bald assertions.
The second quantity is the amount of new gold annually available for coinage in the United States. How much is this? Nobody knows, because if an attempt is made to define what is meant it is found that there is no idea in the words. The people of the United States buy and coin just as much gold as they want at any time.
Hence two things are said to be unequal to each other, when nobody knows how big either one of them is. It may be added that it makes no difference how big either one of them is. How much additional tin is needed annually for the increase of our population? Do the mines produce it? Nobody knows or asks. The mines produce, and the people buy, what they want. The case is the same as to gold.
We find, then, that Mr. St. John begins with a doctrine that is untenable; then he asserts a relation between population and the need of money that does not exist; then he assumes that this need is greater than the amount of new gold produced, although neither he nor anybody else knows how big either one of these quantities is.
This is the argumentation by which he aims to show that prices are reduced and misery produced by the single gold standard. It is the argumentation that is current among the silver people. Not a step of it will bear examination. The inference that we must restore the free coinage of silver to escape this strangulation of prosperity falls to the ground.
