exporting point by our comparatively high rate of interest. Make Make money too plentiful, then, and you take away one of the inducements for foreigners to leave money here; and the only money which they will take away is gold money. Issue too much silver or silver notes and you both make money too cheap and create a fear of the proximity of the silver basis. It is true that no governmental issues of money can hold down permanently the rate of interest, but the first effect is to make money plentiful, and therefore to cause exportation of the kind of money that foreigners want.

If the issue of new money should have the effect of putting prices up, or of holding them above the normal level, there would necessarily be a still stronger tendency in gold to leave the country. Foreign exchange would be kept at the goldexporting point, because Americans were buying or holding too large quantities of stocks, bonds, or merchandise. When new issues of money are absorbed by the people, the absorption can have a very bad effect in fostering speculation, and if it

have this effect the inevitable collapse is sure to be disastrous, in a degree propor tionate to the height of the speculation fever. But it must not be assumed that new issues of money necessarily affect prices. Indeed, when prices are affected, the circumstances are peculiar, as we shall see in Chapter XII., on The Old Volume of Money Theory.

Gresham's law, under which "a cheaper or depreciated currency always tends to displace a more valuable one,"1 should be studied carefully, because, in our case, gold slips away so easily. If we put the rate of interest below the level which suits the conditions of trade, if we create or foster a feeling among foreign buyers or holders of American securities that a foolish financial policy is likely to be adopted, we inevit ably move the rate of foreign exchange up to the gold-exporting point, or we keep the rate above the normal rate, that rate which would prevail if these abnormal factors were not affecting it. Gold may

'The Principles of Political Economy, Simon Newcomb, Ph.D., LL.D.

be actually exported, or the importations of gold which otherwise would take place may be prevented, but, as in the course of a year gold generally moves both ways. across the ocean, the net loss in a year, from bad financial laws, must be felt. At some future time, perhaps, we may do very well without foreign financial assistance, but at present it certainly would be wise for legislators to fully acquaint themselves with the actual workings of foreign exchange.

I do not think it requires any argument to prove that foreign exchange cannot be held at the gold-exporting point for a very long time without Americans seeing the inevitable consequence, and seeing the propriety of securing for themselves the coming premium on gold.

NOTE TO THIRD EDITION.-In 1893, 94, 95, American hoarding of gold was very strongly stimulated by gold exportation. Gold exportation was caused to some extent by an unusual factor, that of certain governments paying a premium on gold or paying the loss indicated in the current rate of exchange.

CHAPTER IX.

DISCUSSION WITH REPRESENTATIVE ADVO

MR. H

CATES OF SILVER.1

who favors American silver exclusively, finds no difficulty in answering the champion of all silver, Senator Stewart; but the difference between the two gentlemen appears to be only in degree, and I think it fair to call it lucky for them that they are not proposing to run their own affairs in the manner suggested by them for the United States. Apologizing to these gentlemen for being personal, the importance of the subject leads me to ask: Would not Senator Stewart's friends clap him into an asylum,

1 In the summer of 1891, the New York Evening Telegram opened its columns to a general discussion of the silver question. The author's part in that discussion is reproduced here, after careful revision, and with many additions. He has not been so anxious to avoid repeating himself as he would have been if the silver question were less important, and he believes that reiteration is sometimes in order.

sooner or later

and would not Mr. H-
be placed out of harm's way?

The Senator suggests the free coinage of all silver, and this means that the United States should buy, at $1.29 an ounce, the world's stock or surplus of what it values at less than $1 an ounce.' As a rule, sane people do not pay more than the market price of anything and do not try to change the world's market price at the expense of their own pockets.

Let us see what would happen if the Senator should have his way. The fact that there is an immense surplus of silver in the world is proved by there having been a great increase in production and a great decline in market price; and if there is not enough silver for the United States to draw upon there are surely plenty of mines which at higher market prices could. produce any lacking quantity. If now we pay $1.29 per ounce that price would become the market price, but only at the point of delivery to the United States Mint. At all other points the bullion dealers would necessarily fix the price at $1.29 per

1 Less than seventy cents in 1896.