No. 201.
Mr. Welsh to Mr. Evarts.

Sir: I send you copies of two communications on bi-metallism by George McHenry.

I think you will find these papers interesting.

I have, &c.,



[From the Bullionist of July 12, 1879.]


To the Editor:

Sir: Most persons who argue in favor of a bi-metallic currency fail to recognize the fact that, except during the period of transition from silver to gold in the last century, there has never in reality been any standard of value but one. The transformation, so long as it was taking place, disturbed values, and rendered them uncertain and fluctuating. A double standard is, and has ever been, a legal fiction, a sheer delusion. Scales took the place of barter, and coinage was invented to take the place of scales. Although gold as well as silver coins were manufactured from the outset, the gold coins for ages were merely tokens of the standard of value—silver. In 1490, the first gold token was coined in England; it contained 240 grains of fine gold, and represented 20 silver shillings, then coined at the rate of 45 to the pound weight. As the silver shillings were reduced in weight, to suit the financial exigencies of the state, so were the gold tokens. In 1545, the gold unit contained only 192 grains, 48 shillings being then coined out of a pound weight of silver. In 1605, the gold unit contained 155 grains, with silver at the rate of 62 shillings to the pound weight. In 1612, gold rose 2 shillings an ounce above the mint price, and ceased to circulate. In 1620, without any alteration in the silver coinage, a new gold coin was emitted weighing 140 grains. In 1661, the gold tokens were declared to be worth 23 shillings and sixpence. In 1663, the gold imported from Guinea was coined into “pounds” of 119 grains each and nicknamed “Guineas.” Soon afterwards, as the silver coins were getting worn, the “Guineas” rose to 22 shillings and sixpence, and, as the silver coins became clipt, the “Guinea” touched 30. This was in 1695. The light-weight silver coins were called in, and with the complete restoration of the full-weight silver coins in 1698, the “Guineas” fell to 22 shillings. In 1717, they further fell to 21 shillings, were declared of that value, and gold for the first time was made a legal tender equally with silver. This was the origin of the double standard, which, as will be shown, did not work in practice. The “Guineas” used in settlement of large transactions varied in price, generally at a premium, partly owing to the impossibility of fixing a relative value of silver and gold, and partly owing to the silver coins again becoming worn and dipt, and being only fit for small transactions. Consequently, in 1774, silver was declared to no longer be a legal tender, in sums above £25, except by weight—62 shillings to the pound. This was the first step toward the overthrow of silver as a standard of value. As a further and conclusive step in the gold direction, England, in 1816, ordered the sovereign to be coined, with one shilling less gold in it than the “Guinea,” and the legal tender in silver was restricted to 40 shillings—66 to the pound weight. This was the earliest creation of silver token currency.

England was the first country to adopt the double standard, the first to abandon it, and the first to make gold the sole standard of value. The transformation occupied precisely a century, during which time England had become the center of finance. At the end of the period gold found itself, as it has remained ever since, the international money of account, having in that respect completely exchanged places with silver. It is a mistake to suppose that all the loanable capital in England belongs to Englishmen. As Philippi, Venice, Genoa, and Amsterdam, each in turn, were, London is now, and has been for the best part of a century, the banker of the world. The “balances” remaining here no more belong to the people here than the deposits in the London and Westminster Bank belong to that bank. The entire foreign commerce of North and South America, of the East and West Indies, of China and Japan, and of a large portion of Continental Europe, is conducted through bills on London. Outward cargoes [Page 442] no longer pay for inward ones, as in former times, the exporters now being a different class of persons from the importers. Hence the cargoes both ways are paid for at London, and the “balances” here are consequently greater than under the old supercargo system. Bills are remitted to meet bills, and they are drawn against gold as much as upon any article that is solely merchandise. But gold, being the standard of value, is never exported when the exports of other articles are equal in value to the imports. This is even so with the United States—a gold-producing country. The “balance of trade” is nothing more nor less than a balance of an imaginary international account current, and that balance must be paid in gold. If there were anything else to pay it with, the gold would not come forward.

Although the East Indies, like all other countries, had from the earliest times gold as well as silver coins, silver was the only standard of value there until 1768, when the gold “mohur,” an ancient token coin, was made legal tender with the silver rupee, at the rate of 1 to 16. India was thus the second country that made gold a standard of value. The United States, in 1792, was the third, by adopting the double standard—1 to 15. France, in 1803, was the fourth, when she ordered gold to be coined and made legal tender in the proportion of 1 to 15–½ of silver. Belgium, at the same time, was the fifth, and acted on the same basis. Gold, however, ceased to be a legal tender there in 1850, but was restored to that function in 1861. Nearly all the other countries of Europe have since adopted gold as a standard of value, some of them as the sole standard. The relative values of gold and silver in India were altered in 1793 to 1 to 14.861, and again in 1818, to 1 to 15, the valuation there becoming the same as that of the United States; but in 1834 the United States adopted the original appraisement of India—1 to 16. In 1835 India recurred to silver as the sole standard of value, when her gold coins became, as previous to 1766, token currency. The double standard failed as thoroughly in India and the United States as in England. When gold was valued in India at 1 to 16 for silver, gold was practically the sole standard of value there. When it was valued at 1 to 15, silver became practically the sole currency. In like manner, when gold was valued in the United States at 1 to 15, silver was practically their sole standard, and when gold was altered to 1 to 16, it took the place of silver. In other words, between 1792 and 1834, gold would not remain in circulation in the United States. After the alteration, in the latter year, of the ratio from 1 to 15 to 1 to 16, the silver coins gradually disappeared, and were replaced by light Mexican coins. To remedy this, in 1853 the half-dollars and lesser silver coins were reduced in weight 6.91 per cent., and their legal tender was restricted to five dollars. In 1873, the silver dollar of 412½ grains—1 to 16—which had become obselete as a circulating coin, was demonetized. In 1877 it was remonetized, but practically it is only a token—as much so as the half-dollars and lesser silver coins.

From 1803, when France “fixed” the relative value of gold to silver at 1 to 15½, until 1873, silver varied in value only about 2½d. per ounce. Notwithstanding this slight variation, silver sometimes, and gold at other times, commanded a premium in France. But for her yearly imports and exports of both metals there would have been no fixity of value at any moment between them. The depreciation since 1873 has been owing in great degree to the appreciation of gold, caused partly by lessened production and partly by the German bank reserves and military chest supplies being in gold instead of silver as formerly. There is as much silver in actual circulation as before; it has not been demonetized, in fact, only as a legal tender, except for limited amounts.

Gold has been the real standard of value in all countries since Great Britain, the clearing-house of the world, made it so in 1816, as international transactions since then have been on a gold basis. This may seem strange to the uninitiated, but it is nevertheless true, as every one familiar with first class commerce well knows. Export values always determine internal values, and, as export values are based upon gold prices—international money, so to speak—so must be internal values, whether expressed in greenbacks, paper lire, or rupees. The purchasing power becomes precisely the same when depreciated currencies are reduced to the only true standard of value—gold. There is never any margin, taking freights and charges into account, between prices at the exporting and the importing points. The importing points, in fact, dictate prices to the exporting points, more so now than ever, in this telegraphic age, the cables acting as levelers of values. Commercial transactions are based upon prospective rises in values; hopes that are frequently disappointed. Hence the introduction of the new term in commerce, “futures,” there being nothing to go upon in the present. The idea in the minds of theorists that first class commerce is carried on, like retail trade, with an assured profit, is erroneous. Even bankers, as a rule, are not well “up” in this respect.

It is asserted that gold suits countries wherein the transactions are large, and silver suits those wherein they are small. It so happens that all countries have both large and small transactions, and the assertion, therefore, is founded on a fallacy. Silver is still used and will continue to be used to as great an extent as ever for the hand-to-hand transactions of life. Gold is never hoarded where it is the acknowledged standard [Page 443] of value. If the silver and paper money countries would adopt gold openly as their standard, their gold hoardings would reappear, and, possibly, would be equivalent to several years’ production of that metal. This in itself would raise the value of all commodities, silver included. With the reappearance of the gold hoardings of India, and a more extended paper currency than now exists, issued on a gold basis, and convertible into gold at the financial centers—an operation facilitated by the telegraphic system—the silver rupees, restricted to proper limits as to legal tender, would soon become token currency for their full face value. To fix the present relative value of gold and silver for India would be futile and mischievous, as it would have to be refixed over and over again. Such “fixing” would cause the natives, not well-informed in the science of finance, to believe that they were not getting their money’s worth. In any circumstances the rupee ought to be retained as the unit token of value, for the people have been long accustomed to it as such. It is not necessary that the money unit should be represented by a coin of full legal tender. Great Britain had no such coin until the sovereign appeared in 1817. The francs of France, Belgium, and Switzerland, the lira of Italy, the drachma of Greece, the peseta of Spain, are merely tokens, and only legal tender to the extent of 50. Their single as well as their double units are 0.835 fine, while the full tender silver pieces are 0.900. The mark of Germany is a silver token, only legal tender to the extent of 20. The crowns of Denmark, Sweden, and Norway are silver tokens, and legal tender in sums of 20 when in 1 and 2 crown pieces, and in sums of 5 when in smaller coins.

In the Bankers’ Magazine (New York, November, 1876), Mr. Goschen wrote: “Silver and gold have been in partnership for the purpose of doing the work of circulation for thousands of years, and I think that it is not in the interest of the world that the whole weight of the burden should be borne by gold alone.” These remarks of Mr. Goschen were written only a short time after the report of the committee on the depreciation of silver, of which he was chairman, was submitted to the House of Commons. He does not seem to have been much benefited by the testimony taken by that committee. It is true that “silver and gold” have been “in partnership” as currency for many centuries. It is not, however, proposed to dissolve that partnership, only to alter the style of the firm to “gold and silver.” Under the new firm, as already stated, there will be as much silver in circulation as under the old, for notes, checks, bills, and bookkeeping only economize the use of gold, not silver. To repeat, gold has become the standard of value, and silver, therefore, must take a back seat, and good-naturedly permit gold to go to the front, the place to which it is now fairly entitled.

Your obedient servant,



[From the Bullionist, July 19, 1879.]


To the Editor:

Sir: As supplementary to my letter of last week, may I ask space to present a few further facts and remarks on the silver and gold question, particularly with reference to India?

The subjoined figures, in sterling money, are based upon an assumed valuation of the silver rupee, ten to the sovereign. They commence with the time (1835) when India discarded gold as a legal tender, and retained silver as the sole standard of value. To this retrograde movement may be traced the present condition of affairs, of which nothing would have been heard if gold had then been proclaimed the sole standard and silver had been reduced to token currency, or even if the policy just before adopted by the United States had been imitated. Both countries, it will be seen, were in the same monetary difficulty; one acted wisely, the other unwisely. When India, in 1766, made gold a standard of value, it was at the rate of 1 to 16 for silver. The United States in 1792 fixed it at 1 to 15. India, in 1793, made it to 14.861, and in 1818 exactly 1 to 15. Gold being thus undervalued in the East and in the West would not circulate freely as currency. The United States in 1834 “took the bull by the horns,” and fixed the ratio at 1 to 16, or, to be precise, 1 to 15.980. This caused large importations of gold from Europe, and a large outflow of silver thereto. India, instead of following suit, the next year, in 1835, demonetized gold, leaving silver in possession of the field.

[Page 444]

The total imports of silver, mostly in bullion, into India, were as follows:

1835 to 1877, inclusive £242,949,096
The total exports of silver same time 44,730,529
Surplus imports of silver over exports 198,218,567
The silver coined, 1835 to 1877, inclusive, amounted to £219,482,551
Of which was old silver recoined 21,457,534
Excess of silver imported over coinage 193,550

A large portion of the silver coined has been converted into ornaments; that is to say, the coins themselves are linked together for necklaces, bracelets, &c. The surplus imports of silver within the period may be thus classified, in order to show the values before and after the discovery of gold in California and Australia:

1835 to 1847 £22,845,408
1848 to 1877 175,273,159

The world’s production of silver since 1848 was about £360,000,000; so India absorbed nearly one-half.

The total imports of gold, mostly in sovereigns, into India, were as follows:

1835 to 1877, inclusive £108,119,339
The total exports of gold same time 5,118,284
Surplus imports of gold over exports 103,001,055
The gold coined 1835 to 1877, inclusive, amounted to 2,224,163
Excess of gold imported over coinage 100,856,892

A large portion of the surplus imports of gold into India, as is the case with silver, is in use as ornaments; the remainder is hoarded, and used to settle transactions entered into upon a gold basis. The people of India are fond of personal decoration; the upper classes adorn themselves with jewels and gold, and the peasantry with silver. Although the peasantry live in wretched houses, the value of the ornaments they possess oftentimes exceeds that of their furniture and utensils.

The surplus imports of sold within the period may be thus classified:

1835 to 1847 £4,688,224
1848 to 1877 98,312,831

The world’s production of gold since the year 1848 was about £600,000,000; so India absorbed over one-sixth.

The European and United States mints are open to the public for the coinage of gold. Except in the cases of the United States trade dollar, which is not a legal-tender, nor even a token—coined only for export—and of the mints of Mexico and South America, the coinages of silver on both sides of the Atlantic are on account of the respective governments. The Indian mints are open to the coinage of both metals. The fixed charge for coining is 2 per cent., supplemented by other charges, which run the cost up to about 2½ per cent. The silver imports, being, mostly in bullion, nearly all pass through the mints; while the gold imports, being mostly in sovereigns, render it unneccessary to incur that expense in respect to them.

It is right that gold, being now the international standard of value, should be coined on account of all comers, and that the wastage in connection with the handling of it, slight as it is, should be borne by those who use it. On the other hand, it is right that the respective governments should fabricate the money of the masses—the silver token currency—make the profit on the same, and redeem the coins when worn. This example, set by England in 1816, is a gain to the governments, for the profit on silver is greater than the losses by wear and expense of recoinage, and a saving to the community, who suffer no loss by the use of token currency, which answers their purposes as well as if it were the standard itself. Virtually, it is convertible into the standard, being equivalent to a government “promise to pay” in gold.

If India were to adopt gold as her sole standard of value, the transition from silver would be no more disturbing (if as much) than was the reversion from greenbacks to gold in the United States, as the discount on silver is not so great as that upon greenbacks was. Actual values would not be affected, There would, of course, be an apparent shrinkage for awhile, but the purchasing power on the gold basis would be precisely [Page 445] the same as on the silver basis, no more, no less. If a 10-rupee gold piece were coined of the exact value of the sovereign, it would circulate side by side with it as the Australian sovereign does. All accounts between the United Kingdom, Australia, and India would then be simplified. The silver rupees would become tokens of the value of the English florins, or near enough for all practical purposes, as for facility of calculation, it is only necessary that the marks or measures or weights, so to speak, of the standard of value, should divide and multiply with exactitude. The rupee is 180 grains standard; the florin 174.18, both with l-12th alloy; and as the Indian mints do not redeem the worn coins as the mints of Europe and the United States do, the rupees in circulation may be no heavier than the florins, or not even so heavy. Let the Indian Government take the profit on all the future coinage of silver and redeem the coins when worn, and thus save the loss to the peasantry, who can badly afford it. That loss tends to keep up the system of barter in India, which retards the absorption of silver, and thereby prevents a rise in its intrinsic value as compared with gold. The silverists, in their blindness, do not see this; neither do they see that if India were to adopt the gold standard the large amount of gold hoarded there would reappear, and would aid in restoring the values of all other commodities, silver included. Among the gold hoardings of India there must be at least 15,000,000 unpunched sovereigns which would answer for a like number of 10-rupee gold pieces without recoinage, or 150,000,000 gold rupees. Punched sovereigns to the number of 35,000,000 more would probably find their way to the mints for recoinage into 350,000,000 gold rupees, making a total of 500,000,000. These, with the paper currency, to which reference will presently be made, will be sufficient to conduct all the large transactions. The payments to actual producers in India are so small that silver will continue to be largely used, even when the currency is placed upon a gold basis. The present silver circulation cannot be over 1,400,000,000 rupees. They will all be needed, and more too, as when the worn silver coins become redeem able for full weighted coins or receivable for taxes they will gradually displace “cowries” and barter. As things are, one-fourth the people of India never see a coin. The adoption of gold as a standard of value would cause no drain from other parts of the world, and the surrender of the gold hoardings would create a large amount of potential capital. It is gold, not in use as hand-to-hand currency, but which might at any moment become so, that forms that capital. Gold is never hoarded in countries where it is the recognized standard of value.

The government paper currency of India, introduced March 1, 1862, is on the increase. It is secured by government bonds and coin and bullion, just like that of the Bank of England. The amount of notes in circulation in India is about £12,000,000. Were gold the sole standard of value in India, the paper money would be greatly increased, as paper represents and economizes the use of gold in large—not silver in small—transactions.

When the coinage act of 1835 was adopted, there were two kinds of silver rupees in circulation—the sicca and the sunnut—both of greater value than the new rupees. 100 sicca rupees were equal to 106f, and 106⅔ sunnut rupees to 104½ new rupees. Agreements, therefore, which were based upon “siccas” or “sunnuts” were carried out in accord with their respective values in the new rupees. So, if India adopts the gold standard, a similar arrangement can be made without injustice to any one, debtor or creditor.

No less than thirteen European countries have assimilated their gold coinages, namely, France, Italy, Belgium, Switzerland, Greece, Austria, Hungary, Sweden, Denmark, Norway, Finland, Roumania, and Spain. Their gold coins are 0.900 fine, and are exactly 310 to a kilogram. The gold pieces of Holland are nearly so; but a miss is as good as a mile. The standard legally in Great Britain, Germany, Portugal, and Turkey, and practically in the United States and Japan, is gold; but their coins do not assimilate with those of the other countries mentioned, although, practically, their standard of value—gold—is the same. When coinages of the standard do not assimilate, weighing comes virtually into practice. In paper-currency countries, where the premium on gold does not exceed 15 per cent., silver is at a discount as compared with paper money. This proves that gold, whether legalized or not, is the real standard of value, and that depreciated paper money merely represents it in an inflated manner. The silver coins of many countries of Europe, the United States, and South America are identical in intrinsic value; but, excepting in the countries of the Latin Union, the respective silver coins do not circulate outside their own localities. This is another evidence that gold is, after all, the real standard of value.

Your obedient servant,