Having considered theoretically the limitations and possible merits and defects of the money systems now in use, we shall next consider in how far the money under such systems conforms in practice to the chief requirement,—stability of value.

Economic writers do not claim that either gold or silver is, or has been, of invariable value; but many of them do claim that gold is more nearly invariable than any other commodity, and that it is sufficiently so for money purposes, the changes in value being slight and covering long periods of time, so that from year to year they are almost imperceptible. Other writers claim that silver has been, of recent years at least, more stable in value than gold, and is therefore a better measure of value.

The merits of these claims can be tested, in the same way that the stability of value of any commodity can be tested, by a comparison of the average purchasing power of each metal at different times.

Prof. F.A. Walker, in the work already cited, observes, regarding money value under the gold standard as tested by average prices:—

"Not to speak of the enhancement, many fold, of the value of money through the Silver Famine of the Middle Ages, or of the sudden and extensive decline which has been referred to as taking place between 1570 and 1640, it is estimated by Professor Jevons that the value of gold fell 46 per cent. between 1789 and 1809, that from 1809 to 1849 it rose 145 per cent., while between 1849 and 1874 it fell again at least 20 per cent." Coming down to more recent times, we have more full and accurate data, and there have been several careful compilations and averages of prices made in different countries. The report of the Finance Committee of the United States Senate, 52d Congress, on "Wholesale Prices, Wages, and Transportation," known as the "Aldrich Report," is doubtless the most accurate and complete examination of prices in this country from 1840 to 1892 that has ever been made. This report also gives for comparison the tables of Soetbeer and Sauerbeck (two of the most distinguished European statisticians), and the table of the Economist (London) as to foreign prices, all reduced to the same basis, and to United States money units in gold.

In order to facilitate comparison of these data, the tables have been platted as diagrams in Plate 1. All the tables were prepared by taking the prices of a selected list of commodities for the year 1860 as 100, and calculating the variations in the price of each commodity from the price of that year as a percentage of rise or fall. The average of these percentages for each year represents, therefore, average prices for that year, as compared with 1860, and it is these averages which are platted in the diagrams.

The list of commodities selected by the Senate Committee embraces 223 articles for the years subsequent to 1860. Prior to that time the number was less, varying from 85 to 223, according as data were to be had.

Dr. Soetbeer's table shows prices in the port of Hamburg, Germany, of 100 commodities, mostly raw materials, joined with the export prices of 14 commodities (manufactures) in England, from 1851 to 1891.

Mr. Sauerbeck's table shows English prices of 56 commodities from 1846 to 1891.

The Economist table also shows English prices of twenty-two commodities from 1860 to 1892.

The discrepancies between these different authorities, as shown by the variations in the lines of the four diagrams, call for a few words of explanation.

It would naturally be expected that some differences in average prices would exist between different countries, and part of the discrepancies may be accounted for in this way, since there are included in all the tables, among other commodities, such as wood and coal, of which the prices might vary considerably in different countries independently of one another.

Several changes in the tariff in this country during the last fifty years would account for some discrepancies between United States prices and the others. Furthermore, the method by which these tables were in the main prepared, that of taking simple averages of the percentage of rise or fall in price, thus giving to each commodity the same weight in the result, regardless of its importance in commerce, is open to serious objection, and doubtless accounts for many of the discrepancies that exist. For example, the great rise in prices during the period of our civil war, as shown in the Economist and the United States tables, above those shown in the other two tables, is doubtless due to the fact that in the Economist table, four out of the twenty-two commodities in the list are either raw cotton or cotton manufactures, and the great rise in price of cotton during the war (a rise of from 300 to 400 per cent.) is given an undue importance in the result. The same cause may affect the United States table, to some extent, but a more potent factor in this table is the circumstance that this country, during the period, was using an inconvertible paper money in which all prices were expressed, while gold was a commodity subject to speculation, and the price of which was much affected thereby; and, in reducing currency prices to gold prices, for this table a somewhat abnormal result is produced.

The Economist list, it must be said, contains too few commodities to be a reliable index of all. The United States list is sufficiently large, but the articles selected may be open to some criticism.

The lists of Mr. Sauerbeck and Dr. Soetbeer are preferable, but all are open to the objection, above noted, of not giving a weight to each commodity in proportion to its importance, and none of them can therefore be regarded as anything but approximations to the truth. They embrace, however, the best information on the subject extant.

The United States Committee did, in fact, endeavour to balance their own list in accordance with the relative importance of the articles in another table, but the result is not wholly satisfactory, as the weighting of the averages was done by groups of articles instead of individually for each. It represents, however, probably the most accurate information as to the purchasing power of gold in this country from 1840 to 1892 that can be obtained, and as such has been platted in Plate 2, in a reverse form; that is, assuming that the 223 articles of the list, weighted according to their importance, fairly represent all commodities, and that therefore their value as a whole is constant (since the values of all commodities cannot rise or fall simultaneously). The diagram shows the relative values of gold for the different years as a percentage on the value of 1860 taken at 100. In other words, it shows the relative average purchasing power of gold in this country in the different years.

With these explanations of the diagrams, and the limitations of the tables from which they were platted, we can proceed to consider their points of resemblance and what they teach.

It is evident from all of them that a great decline in average prices has been going on, almost continuously, since 1873, in the various commercial countries. This is a fact conceded by all students of prices.

What is equally apparent, however, but does not seem to be so generally appreciated, is the violent fluctuation in prices, or in the value of gold, from one year to another, amounting in many instances to from 5 to 10 per cent. in a single year, and, during the war, to much more. Doubtless if the tables had shown the fluctuation of prices by months or days, instead of the averages for each year, a much greater variation in the value of gold would have been apparent at times, and within a shorter period than a year. Furthermore, the prices of staple commodities (and most of the commodities in all the tables are staples), while representing correctly the character of the changes in price of all commodities, would naturally not vary as much as the prices of many more speculative articles of commerce. It is probable, therefore, that gold has varied in value to a greater extent, and within shorter periods, than is shown by the diagrams.

It would be impossible to trace all the various causes that have produced these changes in money value, but a few of the more prominent ones may be indicated as showing their great variety and force.

From 1840 to 1849 a great decline in prices is noticeable, similar to the decline that we know has been going on in the last twenty years. This is doubtless due in both cases mainly to increasing demand for money, caused by growing population and expanding commerce, and which the supply of gold and silver or substitutes therefor did not keep pace with. From 1850 to 1857 prices generally rose, owing to the increased gold production in Australia and California, aided doubtless by the increased use of credit which rising prices always stimulates. The collapse of this credit in the panic of 1857 sent prices down again. The slow recovery from this condition was greatly enhanced by the breaking out of the Civil War, during which thousands of men were destroying instead of producing, thus raising the prices of nearly all commodities by decreasing the supply and increasing the demand relative to gold, while meantime the demand for gold was lessened by the use of paper money in this country. The disbanding of the armies at the close of the war, and the return of labour to productive enterprises, lowered prices rapidly during 1867, 1868, and 1869. From this depression they recovered almost as rapidly in the era of development from 1869 to 1872, the large production of silver from the Nevada and other discoveries during that period assisting greatly in this recovery, and the usual extension of credit at such times also contributing. This credit collapsed in the panic of 1873, and the demonetization of silver by several European nations about the same time prevented any increased production of silver from affecting the decline which then set in, and which has with one or two reactions been continuous ever since.

In the light of the facts, shown by these diagrams, any claim for even approximate stability of value for gold, or for the money as a whole on the gold basis, under the systems now in use, is preposterous. Moreover, the change has been, of late years, of the worst kind,—an increase of money value. If it were steady, its effects could be calculated and discounted to some extent, but caused, as it is, by a variety of forces of varying strengths, the increase is at some times wholly nullified, or even turned to a decrease, by extensions of credit, while again it is doubled in effect by the withdrawal of such credit.

The reason for this great decline in prices, or the increased value of gold, is not far to seek when we consider the relative strengths of the forces acting on gold value. Population, wealth, and diversity of occupations have all increased greatly over the whole civilized world, requiring a much greater amount of money to do the business of the world. There has been, to be sure, as an offset to this, a considerable increase of banking facilities and some greater use of credit paper in its various forms; but all these were in large use prior to 1873, and their increase can hardly have been so great as to meet the demands of growing commerce. Furthermore, of the other forces tending to raise the value of gold, the annual product of that metal has not increased materially, though the demand for it for other than money purposes has increased largely, leaving a less increment to neutralize the waste and to increase the supply of it. And lastly, many countries, as we have seen, about the year 1873 so changed their monetary laws as to use a much greater amount of gold, and a less amount of silver or paper. The United States alone, it is estimated, now uses about $600,000,000 of gold coin, while in 1873 it used practically none.

The effects of this increase in the value of money have been—as the effects of falling prices always are—detrimental and disastrous in all gold-standard countries, to an extent that cannot be measured. Offset at times by increased use of credit, enterprise and industry have been able to rise to a success that an honest money would make their normal condition, only to be dashed down again by the collapse of credit with nothing to take its place.

Silver-Standard Prices.

There is a quite prevalent belief that the value of silver has fallen greatly since 1872. This is a natural sequence to the belief that gold has been stable in value, as the gold price of silver has declined from $1.32 per ounce in 1872, to $0.82 per ounce in 1892 (and since then the decline has been much more). This fall of about 38 per cent. must be deducted from the rise of from 24 to 41 per cent. (according to the different authorities) in the value of gold, in order to show the true change in the value or purchasing power of silver. It is evident, therefore, that the value of silver has been much more nearly constant than that of gold.

This is confirmed by the statement of Mr. David A. Wells, in his work on "Recent Economic Changes," p.236. There, Mr. Wells remarks:—

"In exclusively silver-using countries, like India and Mexico, the decline in the value of silver has not appreciably affected its purchasing power in respect to all domestic products and services; but the silver of such countries will not exchange for the same amount of gold as formerly, and it might be supposed that, owing to this change in the relative value of the two metals, the silver of India, Mexico, and other like countries would purchase correspondingly less of the commodities of foreign countries which are produced and sold on a gold basis. But the people of such countries have not thus far been sensible of any losses to themselves thereby accruing, for the reason that the gold prices of such foreign commodities as they are in the habit of buying have declined in a greater ratio since 1873 than has the silver which constitutes their standard of prices."

He also says, in an article in The Forum for October, 1893: "Testimony was given to the recent British Commission on Indian currency, that within the last twenty years half of the silver prices of commodities in India have risen and the other half fallen."

In Plate 2, the dotted line shows the variations in the value of silver since 1872. This diagram is platted from calculations of the percentage of decline in the gold price of silver, taking the price of 1872 as 100 (this was also practically its price from 1840 to 1872, since the ratio of 15½ of silver to 1 of gold was maintained within narrow limits during that time), and deducting these percentages of decline from the percentage of increase in gold value.

In considering the relative constancy in the value of gold and silver, the lines representing each should be compared with the level price line of these metals in 1872. It will be noted that while silver has kept closer to this line than has gold, and on the average has varied but little from it, yet the fluctuations in the value of silver from year to year are quite as marked as in the case of gold.

It will also be noticed that prior to 1872, under a bi-metallic standard, both metals, while maintaining a constant relation to each other, fluctuated in value quite as extensively as either alone has done since.

The facts here shown as to the experience of this and other countries for the past fifty years, bear out the theoretical conclusions before stated, that the value of money, under any of the systems that have been used, is subject to violent fluctuations from year to year, due to a great variety of causes which are entirely beyond control, and that neither silver nor gold singly, nor both combined, has ever proved a reliable standard of value.