CAUTION: This post not for the casual precious metals window shopper. This extensive report for committed sound money sleuths only! This teaser excerpt is from the 4th Edition published in 1898.

"Money Makes the World Go Round"..... but, only if it 'klinks', 'jingles', and 'clanks'. Anything less and the world will not 'go round' as we know it.

Laughlin, J. Laurence (1850-1933)

Head of the U. of Chicago Economics Department, founder of the Graduate School of Business there, and founder of the Journal of Political Economy, J. Laurence Laughlin brought his interest in monetary systems and the practical workings of free markets to general academic attention in the United States.

Part II, Chapter XIII

The Continued Fall in the Value of Silver since 1885

.XI

II.XIII.1

§ 1: The events affecting the relative values of gold and silver since 1855 are so striking and so unprecedented in the whole previous history of the precious metals that we are practically face to face with a new problem. In the previous editions of this book issued to 1885, the decline in the value of silver relatively to gold from about 1:15½ in 1870 to about 1:20 in 1885 seemed momentous enough to require the most serious investigation; and this change of value had stirred the liveliest discussion among students of money. But the problem presented by the changes since 1885 are far and away so much more phenomenal that our attention is forcibly arrested. By reference to Chart XV, it is seen that the really revolutionary action in the downward movement of silver has come since 1890. From a ratio of about 1:20 we have to discuss a change to a level of 1:34. In the short period between September, 1890, and March, 1894, the price of silver fell to one-half its value on the former date (the average monthly ratio for September, 1890, being 1:17.26, and for March, 1894, 1:34.36).


No such change has ever before been recorded in the history of gold and silver.


Neither the famous output of silver from the South American mines in the sixteenth century (see Chart V), nor the greater production of silver in Mexico about 1761-1820 (see Chart VI), had anything like such an effect. To what causes can this last and greatest change in the relative values of gold and silver be attributed? This, without doubt, is the most absorbing and interesting part of our whole inquiry. In order to address ourselves properly to this question, we shall first recount the recent events which, in Europe, have had an important bearing upon it.

II.XIII.2

§ 2. In order to gain a more complete conspectus of the intentions of European countries regarding gold and silver, brief mention should be made of the action of Holland. In 1816, September 28, a legal double standard was established at a ratio of 1:15.87 between the silver guldens (9.61 grains fine) and the ten-gulden gold pieces (6.056 grains fine gold). This legal rate did not conform to the market rate, especially before 1821, and as gold bought more coined silver than silver bullion, gold went to the mints, and silver, except clipped coins, was withdrawn from circulation. To correct this difficulty the ratio was changed, March 22,1839, to 1:15.60, without success.

II.XIII.3

After long debates in the Chambers on the question of a double standard, the single silver standard was established, November 26, 1847, on the basis of the silver gulden (10.945 grains fine) as a unit.

II.XIII.4

The action of Germany in 1873 led Holland to suspend the coinage of silver (provisionally) on May 21, 1873 (and definitively December 3, 1873). The curious state of affairs was presented of a country stopping the free coinage of silver, when not allowing the coinage of gold. By a limitation of the silver coins, which yet retained their function of legal payment to the state and between individuals, they were saved from depreciation. This, however, was not a sound position, and June, 1875, the Dutch mint was opened to the coinage of gold (the relation to the over-valued silver guldens being 1:12 5/8), while the coinage of silver (except for subsidiary purposes) remained suspended. As is the case with the silver thaler in Germany, the Dutch silver gulden remains, an unlimited legal tender; but silver coins are not immediately redeemable in gold.*91 Holland, therefore, although a small country, has felt the influence of the events which are leading all European commercial countries to the gold standard. See Complete TABLE OF CONTENTS