Demonetization of Gold

Gold has an intrinsic value, says the monometallist, which makes it the
money of the world. It is sound and stable, while silver fluctuates. See
how much more silver an ounce of gold will buy than in 1873, but the gold
dollar remains the same, worth its face as bullion anywhere in the world.

But suppose there had been a general demonetization of gold instead of
silver, how would the ratio have stood then? Would not the same reasoning
prove silver unchangeable, and gold the fluctuating metal?

Oh, nonsense! it is impossible to demonetize gold, because the civilized
world recognizes it as an invariable standard by which all commodities are
measured in value. The supposition is absurd. It would be very much like
deoxygenizing the air.

But, my dear sir, gold has been demonetized, and not very long ago,
either, and very extensively, too. It was deprived of its legal tender
quality by four great nations, comprising some seventy million people;
demonetized because it was cheap and because the world's creditors
believed it was going to be cheaper; the demonetization, so far as it
went, produced enormous evils, and nothing but the firmness of France and
the far-seeing wisdom of her financiers prevented the demonetization
becoming general on the continent of Europe, which would have reversed the
present position of the two metals in the public mind.

Of the many singular features in the present overheated controversy,
probably the most singular is the fact that comparatively few bimetallists
know of, or, at any rate, say much about, this demonetization of gold,
while the monometallists ignore it entirely, and many of them, who ought
to know better, absolutely deny it.

So extensive was this demonetization of gold, and so far-reaching were its
consequences, that it may easily be believed that it was the beginning of
all our misfortunes, and that the crime of the century, instead of being
the demonetization of silver in 1873, was really the demonetization of
gold in 1857; for that was the first general or preconcerted international
action to destroy the monetary functions of one of the metals and throw
the burden upon the other, and it first familiarized the minds of
financiers, and especially of the creditor classes, with the fact that the
thing might easily be done and that it would work enormously to their

It may also be said that it led logically to the action of 1867, which was
but the beginning of a general demonetization of silver.

The history of gold demonetization is full of instruction and is here
given in detail.

In 1840-45 the world was hungering for gold. All the leading nations had
just passed through financial convulsions which shook the very foundations
of society. Several American states had either repudiated their debts
outright or scaled them in ways that to the English mind looked dishonest,
and there was a general uneasiness among the creditor classes of the
world. A universal fall of prices had produced the same results with which
we are now so painfully familiar. In the half century terminating with
1840 the world had produced but $529,942,000 in gold coinage value, and
$1,364,697,000 in silver, or some forty ounces of silver to one of gold;
yet their ratio of values had varied but little, and the variation was not
increasing. Why? Monometallists have raked the world in vain for an
answer. Bimetallists point to the only one that is satisfactory, namely,
the persistence of France in treating both metals equally at her mints.
But there were grave apprehensions that France alone could not maintain
the parity, and so, as aforesaid, all the world was hungry for gold.

And in all the world there was not one observer who dreamed that this
hunger would soon be far more than satiated, and the philosopher who
should have predicted half of what was soon to come would have been jeered
at as a crazy optimist. In 1848 gold was discovered in California, and
three years later in Australia. The supply from Africa and the sands of
the Ural Mountains had previously increased, so that in 1847-8 it was
equal to that of silver. But how trifling was this increase to what
followed. In 1849 there was still a slight excess of silver production,
and in 1850 the proportion was but $44,450,000 of gold to $39,000,000 in
silver. Then gold production went forward by great leaps and bounds. How
much was produced?

Well, the estimates vary greatly. Soetbeer places the amount at
$1,407,000,000 by the close of 1860; but Tooke and Newmarche have put it
about $100,000,000 less. In the same era the production of silver varied
but a trifle from $40,000,000 a year. A committee of the United States
Senate, appointed for investigating the facts, reported that in the twelve
years ending with 1860 the gold produced was $1,339,400,000; and in the
next thirteen years, ending with 1873, it was $1,411,825,000. Thus, in the
thirteen years following the California discovery the stock of gold in the
world was doubled, and in the twenty-five years ending with 1873 it was
more than tripled. Several economic writers have made the statement very
much stronger than this, and M. Chevalier, in his famous argument for the
demonetization of gold, written in 1857, declares that the production of
gold as compared with silver had increased fivefold in six years and
fifteenfold in forty years, and that, owing to the export of silver to
Asia and its use in the arts, there would, in a very little while, be no
possible method of maintaining the parity of the two metals in money at
any ratio which would be honest and profitable.

And what was the real fact? The ratio, which in 1849 was 15-78/100 of
silver to 1 of gold in the London market, and the same in 1850, never sank
below 15-19/100 to 1, and never rose above the ratio of 1849 till after
silver was demonetized. Why this wonderful steadiness? The answer is easy.
In the eight years of 1853-60 France imported gold to the value of
3,082,000,000 f., or $616,000,000, and exported silver to the value of
$293,000,000; in short, her bullion operations amounted to $909,000,000.
She stood it without a quiver; she grew and prospered as never before. She
resolutely refused to change her ratio. Her mints stood open to all the
gold and silver of the world, and thus did she save the world from a great

Scarcely, however, had the golden flood begun when the moneyed classes and
those with fixed incomes raised a loud cry. From the laboring producers no
complaint was heard. They never complain of increased coinage. In the
United States we knew nothing of this clamor, for we then had no large
creditor class, no great amount of bonds, and very few people interested
more in the value of money than in the rewards of labor. In Europe,
however, all the leading writers on finance and industries took part. In
1852 M. Leon Faucher wrote: "Every one was frightened ten years ago at the
prospect of the depreciation of silver; during the last eighteen months it
is the diminution in the price of gold that has been alarming the public."
In England, the philosopher DeQuincey wrote that California and Australia
might be relied upon to furnish the world $350,000,000 in gold per year
for many years, thus rendering the metal practically worthless for
monetary purposes, and another Englishman, as if resolved to go one
better, declared that gold would soon be fit only for the dust pan. M.
Chevalier took up the task of convincing the nations that gold should be
demonetized as too cheap for a currency, and of course the interested
classes soon organized for action.

Holland had already begun the process in 1847, but had managed it so
awkwardly that her condition is not easily understood or described as it
was in 1857. The estimated amount to be thrown out of use was only half
the real amount, and in the attempt to avoid a small evil they produced a
very great one.

Austria was at that time involved in trouble with her paper money system,
and thought the cheapening of gold offered a fair opportunity to come to a
metallic basis. The reasoning of her statesmen was singularly like that of
General Grant in 1874, when he pointed to the great silver discoveries in
Nevada as a providential aid to the restoration of specie payments, being
at the time in sublime ignorance that he had long before signed an act
demonetizing silver, and thereby depriving this country of the benefit of
such providential aid. But the strength of the creditor classes was
entirely too much for Austria and Prussia, and the German States allied
with them almost unanimously declared for throwing gold out of
circulation. A convention had been held at Dresden in 1838, with the view
to unifying the coinage, but little had been accomplished, and now a
convention was called at Vienna, which was attended by authorized
representatives of Prussia, Austria, and the South German States. It was
there stated that, besides various minor coins, there were three great
competing systems in Germany, namely, those of Austria, Prussia, and
Bavaria. It is needless to go into details of this once famous convention,
but suffice it to say that the following points were agreed upon: (1) The
Prussian thaler was to be the standard for Prussia and the South German
States, and was to be a silver standard exclusively. (2) The Austrian
silver standard was to prevail throughout that empire. (3) The contracting
powers could coin trade coins in gold, but none others, except Austria,
which retained the right of coining ducats, and these gold coins were to
have their value fixed entirely by the relation of the supply to the
demand. "They were not therefore to be considered as mediums of payments
in the same nature as the legal silver currency, and nobody was legally
bound to receive them as such;" in short, none of the gold coins permitted
by the convention were to be legal tender, but all were to be mere trade
coins precisely for the same purpose as the trade dollar once so famous in
the United States. The result, of course, was to make silver the standard
and gold the fluctuating money or token money. The effects of this
convention remained with but little change till 1871.

Of course, gold at once became "dishonest money." It was worth less than
silver, and a regular gold panic set in. Holland had already demonetized
most of her gold coinage, that is, had deprived it of the legal tender
quality, and Portugal now practically prohibited any gold from having
current value, except English sovereigns. Belgium demonetized all its gold
at one sweep, and Russia prohibited the export of silver. Thus, in an
alarmingly short space of time five nations had practically demonetized
gold, and others were threatening to do so, and the world was rapidly
being taught that gold was the discredited metal, while silver was the
stable and sound money.

Some curious and a few amusing results followed. Among a certain class in
England a regular panic broke out, and in Holland and Belgium even the
masses of the people became suspicious of gold and disliked to take it in
payment. In the latter country a few traders hung out signs to attract
customers, to this effect, "L'or est recu sans perte," meaning that gold
money would be taken there without a discount. It is probably not known to
one American in a thousand that the practice of inserting a silver clause
in contracts became at that time so common in Europe that it was actually
transferred to the United States, and in England life insurance companies
were established on a silver basis. Several American corporations
stipulated for payment in silver, especially of rents, and to this day a
New England establishment is receiving a certain number of ounces of fine
silver yearly under leases then drawn up.

It is equally interesting to note in the literature of that period
arguments against gold almost word for word like those now used against
silver. The financial managers threw gold out of use and then urged its
non-use as a reason for its demonetization. "None in circulation,"
"variation shows impossibility of bimetallism"--such were the phrases then
applied to gold, as we now find them applied to silver. An artificial
disturbance was created, and then pleaded as a reason for further

All this while the financiers of England were bombarded with arguments and
prophecies of evil, but her geologists pointed out clearly that Australian
and Californian products were almost entirely from the washing of alluvial
sands and consequently must be very temporary. Her statesmen believed the
geologists rather than the panic-stricken financiers, and so she held for
gold monometallism.

But it is to France that the world is indebted for maintaining the parity
through those years of alarm and panic. M. Chevalier urged upon French
statesmen the importance of returning to the system which had been in
force previous to 1785, when silver was the standard and gold was rated to
it by a law or proclamation. The proposition was actually brought forward
in Council and urged upon the Emperor that silver should be made the
standard and gold re-rated in proportion to it every six months. The net
result was, by France taking in gold and letting out silver, that in 1865
that country had a larger stock of gold than any other in Europe. Suffice
it to repeat that several nations, including seventy million people,
actually demonetized gold, deprived it of its legal tender, and treated it
as a ratable commodity; while France, single-handed and alone upon the
continent of Europe, was able to absorb the enormous surplus of gold and
maintain the parity by the simple process of keeping her mints open to
both at the ancient ratio.

Thus ended the scheme to drive gold out of circulation and base the
business of the world upon one metal, and that the dearer metal, silver.
But suppose the scheme had succeeded; suppose France had been less firm;
what a wonderful flood of wisdom on the virtues of silver we should have
had from the monometallists! How arrogantly they would have denounced
us--who should, I trust, in that case have been laboring to restore gold
to free coinage--how arrogantly they would have denounced us as the
advocates of cheap money, dishonest tricksters, repudiators! How they
would have rung the changes on "dishonest money," "fifty-cent gold
dollars!" What long, long columns of figures should we have had to prove
the stability of silver, the fluctuating nature of gold! What
denunciations, what sneers, what gibes, what slurs would have filled the
New York city papers in regard to those Western fellows who want to
degrade the standard! How glib would have been the tongues of their
orators in denouncing all who advocated the remonetization of gold as
cranks, socialists, populists, anarchists, ne'er-do-wells, and
Adullamites, kickers, visionaries, and frauds! Is there any practical
doubt that we should have witnessed all this? None whatever; in fact,
something of the same sort was heard in Europe at the time of the
demonetization of gold. It all goes to show that self-interest blinds the
intellects of the best of men so that they readily believe that which is
to their interest is honest, but that the farmer who seeks to raise the
price of what he has to sell thereby throws himself down as dishonest. Of
course, the successful demonetization of gold would have brought about an
enormous appreciation of the value of silver, since it would have thrown
the whole burden of maintaining the business of the world upon one metal,
and equally, of course, we should have had the same attacks upon the
owners of gold mines that we now have upon the owners of silver mines. As
the withdrawal of silver from its place as primary money and its reduction
to the level of token money has thrown the burden of sustaining prices
upon gold, so unquestionably would the reverse process have occurred had
gold been reduced to token money in place of silver. All this we know
would have taken place from what actually did take place, and this makes
important the history of the demonetization of gold.

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