and Knights of Labour is based, with a dim perception, on the effect which credit produces on prices, but they fail to see that there would be no credit at all unless there was behind it a backing of gold or of silver with an honest value. The cheque on a bank issued by an individual or the note issued by a nation rests equally on the ability to pay in standard money. The 1,000dol. note of the United States can be exchanged at will for 1,00odol. of gold; but the 1,000dol. note of the Argentine Republic will now obtain less than half that amount of gold. Coined money is coined credit because long experience shows that, with a small amount of variability, especially in relation to gold, the same payment will obtain any particular service. The banking system of the United States is not nearly so advanced as it is in England, but Mr. Atkinson estimates that its paper credits are from fifty to a hundred times the amount of money in circulation, including gold, silver, and national notes.

The farmers feel that they are heavily taxed to support a protective tariff, and they sigh for relief, but they look for it in the wrong way. They have a surplus of crops amounting to 12 per cent. of their produce to export, and they find that the prices for food are governed by the quotations at Mark-lane, and, in regard to cotton, by the mart in Liverpool. Nations interchange commodities in payment, using gold only to settle the balances of exchange. England is not going to pay American farmers gold for their produce if it is to receive in return for its goods either silver at a fictitious value, or, still worse, "the thought of legal tender power imprinted in the highest style of art on greenbacks with silk threads." England, in such a case, would buy food from nations willing to take her goods in exchange, and containing only a small percentage of currency lunatics.

This leads us to inquire what is likely to be the effect of the changes recently made in the interests of the silver fraternity, and of those which are likely to be made in the same direction by the present Congress or the new one which begins next March. There are two questions: first, the probable effect of the present law which limits the amount of silver to be purchased, and, second, the effects likely to follow a new law for the free coinage of silver to all who take it to the Mint.

Bland's Act and the present Silver Act practically mean the same thing, except as to the quantity of silver bought. Under the Bland Act 2,000,000oz. were purchased cach month; under the new Act 4,500,000oz. must be bought, though after July they need not be coined, the silver being represented in circulation by certificates. At present these, though not lawful tender, as well as the paper dollars, which are so, are at par with gold, in the ratio of one to sixteen, because the Treasury has ample gold to redeem them, and, even when not under obligation, is willing to exchange the silver equivalent for gold. How long will this par be maintained ? The Act has not been successful in keeping up the price of silver to the par value, which is 59d. (accurately 58.98d.) per ounce. A few months ago the increased demand under the new Act raised the price to 54ğd., and the silver men rejoiced that it was on the high road to par. But its price fell to 47d., and in dismay they clamoured for a new Act to compel the Government to buy all the excess of silver in the market, amounting to 5,000,000oz. or 7,000,0000z. In the second place, we have to consider whether the country can continue to absorb the 60,000,000dol. of silver or its representative notes which must be issued annually. There is a void to be filled by the withdrawal of bank-notes, which are no longer profitable for issue, and these amount to about 80,000,000dol. or 90,000,000dol., though a portion of this sum is already provided for. For a year or two this hiatus may keep up the par. The growth of the country, by the experience of the past, seems only to require an increase of from 20,000,000 to 30,000,000 silver dollars for retail transactions, so that in time the Treasury would have to hoard annually from 30,000,000 to 40,000,000 of silver, because it could not put it into circulation. This occurred in 1886, when the hoarding of silver notes by the Treasury reached 90,000,000. This hoard vanished under the prosperity of recent times. Although no immediate evil is likely to ensue, it is obvious that even the present Act must in a few years lead to a premium on gold, and most probably to the reduction of the United States to the lower commercial rank of a nation with a silver standard. Mr. Windom, the Secretary of the Treasury, sees this clearly enough, for he said, in April last: "This nation will step down from its present proud position, and take its place on the

financial basis of China, India, and South America." Already gold is disappearing, though probably it is not leaving the country but is being hoarded by bankers in anticipation of a crisis not yet imminent under the present Silver Act, but which would inevitably arrive, like a cataclysm, when the Congress passes a law for free coinage of silver.

Free coinage of silver, which, by present appearance, seems likely to become law of the United States during the present year, means that anyone can take silver to be coined at the mints, and that either 25 gr. of gold or 4121gr. of silver shall constitute a dollar of legal tender. Of course, such a law could only be enforced for domestic use, because the moment the silver dollar is used for international exchange it becomes a commodity at market price, representing at present prices, 81 cents to the stranger and 100 cents to the American. According to the Gresham law, which is invariable in its action, the depreciated metal will drive gold out of circulation except at a premium. The practical demonetisation of gold, now amounting to 689,000,000dol., must produce serious effects. If the United States is forced to adopt a silver standard, all debts contracted in gold would at one fell swoop be converted into silver debts, and the capital and interest would fall by the difference between the nominal and real value of the silver dollar as expressed in terms of gold. At present that is about 18 per cent., but a few years ago it was as much as 30 per cent. This is the reason that the Farmers' Alliances have joined the silver fraternities. They look with hope to the time when their mortgages will be cut down to silver value. British interests will be deeply affected by the change, because there is so much of our gold invested in American securities. It is highly probable, when capitalists realise that the Senate, the House of Representatives, and the President will really agree upon a measure of free coinage, that there will be a rush for foreclosure of debts on the existing gold basis, and that a serious panic will result.

The answer to these fears given by the free coinage party is that the country can absorb all the silver offered for conyersion into coin, and that it will still remain on a par with gold. But we have already seen that the accumulation of a small surplus of silver, only amounting to one month and a-half of Government purchase, has

knocked down the price of silver by 18 per cent. from the maximum. Let us see how the facts stand.

On account of the new improvements in the production of silver in Colorado, Montana, and Idaho, the cost of production has been reduced to about 30d. per ounce. Colorado produced between 5,000,0000z. and 6,000,0000z. in 1878, and Montana less than half that quantity, but each of them now produces about 20,000,0000Z. annually. The product of the whole world in twelve years, 1878 to 1889, has increased from 73,476,0000z. to 126,000,0000z., or has augmented by 72 per cent. Under this increase of supply beyond the demand the price of silver in the open market has fallen. The gold value of the silver dollar still remains at the legal ratio because the public know that the Treasury is able and willing to exchange it for gold. With a free coinage of silver this confidence would be rudely shaken, because gold would disappear by hoarding and exportation, and in the face of a largely increasing production of silver its gold value must ultimately fall still further. Hitherto the effect of the Act has been rather to produce contraction than inflation, resting as it practically does on a gold basis. The gold foundation will necessarily dwindle away under the friction of a free coinage of silver, and then silver currency will be, like inconvertible paper, a fiat money domestically, though a mere commodity internationally. The desire of the United States to be a selfcontained nation deludes it into the belief that it can support itself financially without international links with other civilised countries. The fact that it produces both gold and silver within its borders has tempted it to take a double standard with a legal ratio. But even the present Act, which fixes a limited amount of silver issue, cannot be supported by native silver alone, and certainly not by native gold. The native produce of gold in 1889 was valued at 32,817,000dol., and of these 16,697,000dol. were used in the arts and not in coinage. The import of gold in that year was 12,061,520dol., but the export amounted to 50,948,273dol. So that, as a net result, the United States lost 22,766,753dol. in gold. With silver it is different, for the native product in 1889 was 50,000,0000Z., equivalent to 64,646,464dol., and if imported silver be added, to 73,412,464dol. This would be ample for the silver coinage under

the new Act. But the exigencies of trade required the use of 8,766,000dol. of silver for the arts, and for exportation 40,730,014dol. more were removed, so that the net gain of silver was only 23,195,332dol. in value.

Still, there will be no lack of silver for coinage as long as 50d. in the silver dollar is exchangeable for 59d. in the gold dollar. Mexico alone, on the borders of the United States, has a silver produce valued at 41,000,000dol. How soon the gold will disappear from the country, or from circulation, so that the double standard must be reduced to one of silver, will be an interesting subject of experience. The bimetallists in England no doubt see this clearly enough, but they base their hopes of the continuance of a double standard on the belief that all European countries will come to a common agreement of a fixed legal ratio between gold and silver. Until the United States have more fixed ideas as to currency this event is not likely to be realised. Last spring the English Bimetallic League trumpeted loudly their joy when they saw the price of silver rising under the new demand of the United States for a silver currency. True, they did not see the prices of commodities rising as they anticipated, and they were struck dumb when the price of silver again fell. But the League has, within the last few weeks, issued a new manifesto, though the fanfare on this occasion is like the sound of penny trumpets as compared with the brazen clang of last year. The new manifesto says: "This Act is undoubtedly a valuable and substantial step towards the utilisation of silver as money. It does not, however, establish an open mintage of silver." The chances. are that the latter desire will soon be accomplished, and the experiment will be a valuable one for Europe, even if it lead to a commercial panic. Bagehot was right when he said that the astounding experiments of American legislation were important in their failures because they established the stable truths of political economy. As a believer that the gold standard of England is necessary for its position as the great financial centre of the world, I hope that we may keep in the straight path without being tempted by the invitations of Demas, in the form of the Bimetallic League, to abandon the strong citadel of gold in order to join "the silver fraternity."

LYON PLAYFAIR.