Last week we discussed Henry Merton's book on The Big Silver Melt, about when silver rose in value and millions of coins met their fate in the melting pot. But a century earlier the value of silver moved quickly in the other direction.
Here's an excerpt from a paper titled THE INCREDIBLE COLLAPSE OF THE VALUE OF SILVER COINS
IN THE 19TH CENTURY
̶ DON’T BLAME COMSTOCK! from a conference held at the University of Padova on November 30, 2012, “Coin Finds and Historical-Economic Processes in the Ancient World:
Ten Years of Research 2002-2012”.
The silver standard did not die a natural death. It was deliberately killed. A proper search for the assassins was never carried out. There was never a post-mortem. In this paper we focus on the conspiracy as it might have unfolded between the two dates: April 9, 1865 (the day General Lee of the Confederacy surrendered at Appomattox to General Grant of the Union marking the end of the War Between the States) and January 1, 1879 (Resumption Day, when payment of the victorious Union’s currency, the greenback was resumed in gold specie ̶ but not in silver).
In the 19th century silver coins did most of the money-work in the world. The turnover of silver coinage (the value of silver coins times their velocity) was at an all-time high, eclipsing the turnover of gold coinage by far. Inept governments did not follow the lead of Isaac Newton, and they tried to enforce a rigid exchange rate between the two monetary metals (called the Mint ratio). This system was called bimetallism ̶ a stillborn idea.
Bimetallism did not stabilize the exchange rate. On the contrary, it has destabilized it. The natural monetary system is based on silver and gold valued at a variable rate, as Newton’s monetary system in Britain did. Bimetallism was the disease, the demise of the silver standard was the unfortunate consequence. In the Western countries by 1879, in India by 1893, in China, the last stronghold of silver, by 1935, silver was demonetized. Between the two dates 1879 and 1935 the world witnessed a most spectacular event: the collapse of the value of silver by more than 80% in a little over half of a century. Silver fell from $1.29/oz in 1873 to 25¢/oz in 1935. Putting it differently, the gold/silver price ratio rose from 15:1 to more than 80:1. Never in history, ancient or modern, have markets put such fancy values on gold in terms of silver.
All this can be neatly explained in terms of the Quantity Theory of Money. The richest silver vein ever, called the Comstock Lode was discovered in Nevada in 1858. Surplus silver inundated the economy and lost most of its value due to the oversupply and the lack of matching demand.
But this explanation will not satisfy those of us who consider the Quantity Theory of Money as a mere mechanical metaphor. As a theory it is bound to fail because it is trying to give a linear explanation of highly non-linear phenomena. January 1, 1879, Resumption Day, when the payment of the greenback in gold (but not in silver) specie was resumed, coincided with the date when the Latin Monetary Union in Europe closed its last Mint to silver ̶ marking the end of the silver standard in the Western countries. The coincidence is ominous.
No satisfactory explanation has been offered in the literature for the fact that the closing of the Mints to the free coinage of silver was the starting point of an unprecedented destruction of wealth world-wide, due to the relentless fall in the price of silver during the following 55 years.
To read the complete article, see:
THE INCREDIBLE COLLAPSE OF THE VALUE OF SILVER COINS
IN THE 19TH CENTURY
̶ DON’T BLAME COMSTOCK!
Wayne Homren, Editor
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