CHAPTER VII. OF THE DIFFERENT KINDS OF DEPRECIATION TO WHICH A METALLIC CURRENCY IS LIABLE.

IN discussions upon a metallic currency, the term depreciation or diminution of value, is frequently employed, and as it is necessary that the reader should be acquainted with the different kinds of depreciation to which reference may be had, they will be here pointed out.

The first is that general and gradual diminution in the value of the precious metals, which has resulted, and which may possibly hereafter result, from the discovery of new mines, or from the discovery of economical modes of extracting and refining the ore, by which the aggregate mass of gold and silver in the commercial world has been, or may be, augmented faster than the demand. The most remarkable depreciation resulting from this cause that has ever taken place, was that which commenced with the discovery of the mines of America about the middle of the sixteenth century, and which has been generally considered to have regularly continued, with some occasional interruptions, down to the present period.*

The second species of depreciation is that to which the metallic currency of a country may occasionally be for a short time subject, by an extraordinary importation of coin, not in the course of its regular distribution throughout the commercial world, but by some unusual event. A memorable example of this species of depreciation occurred in the United States somewhere about the year 1805, at which time there was war between Great Britain and Spain. The Spanish government, not finding it easy to evade the British cruisers in the Gulf of Mexico, which closely watched the exports of coin from Vera Cruz, made a special contract with the house of Hope & Co. of Amsterdam, of whom it had obtained a loan, by which authority was furnished to that house to receive in Mexico large amounts. In order to procure this coin, bills on Vera Cruz were sold in the United States by Hope & Co. through their agent, David Parrish, upon terms favorable to the purchasers, with the privilege of importing cargoes of merchandise into Mexico, to a class of responsible merchants, who fitted out fast sailing vessels, which could elude the British ships of war, and by means of that arrangement, many millions of Spanish dollars found their way into the United States, not called for in the ordinary course of trade, and not merely in transitu on its way to Europe, for most of it was here exchanged for coffee and other merchandise, and thus entering for a time into the circulation of the country, occasioned a depreciation of the currency to an extent plainly discernible.

A third species of depreciation is that which results from the wear and tear of the coins of a country, by which they lose in weight, and consequently in value. In some countries this diminution in the weight of the coins has been permitted to exist to such an extent before a new coinage has been ordered, as materially to affect the rate of exchange, the par of which calls for ounce against ounce, and consequently in such cases, the true par has differed from the nominal par, precisely to an extent equal to the depreciation.

A fourth species of depreciation is that which arises from the frauds of governments, by which their coins, whilst they retain the same denomination, are diminished in weight or in purity, or in both, so as to contain a less quantity of gold or silver in them than before, whilst they are declared to be legal tenders for the discharge of a debt for an equal number of pieces, contracted before the alteration took place. Many discreditable transactions of this species of fraud might be enumerated, amongst which are the following:—

The successive frauds in France by which the livre or pound of silver has been reduced to the livre or franc, equivalent to less than one-fifth part of a Spanish dollar.

The successive frauds in England, by which the pound of standard silver, originally coined into twenty equal parts, called shillings, has been coined into sixty-six equal parts, also called shillings, of which twenty are made a legal tender for the payment of a debt contracted at a time when twenty shillings contained a pound of silver.

The recent fraud practised in the United States by the act of 28th June, 1834, by which the gold coin called the eagle was reduced in weight and deteriorated in purity. Prior to that year the eagle contained 247½ grains of pure gold. By that act it was reduced to 232 grains of pure gold. Prior to that act its standard was twenty-two carats, that is, eleven parts of pure metal to one of alloy. By that act its standard was reduced to about 21.58 pure metal to 2.42 of alloy, the two operations reducing its value 68 cents, that is, from ten dollars to nine dollars 32 cents, whilst it was made a legal tender for all debts contracted before the 28th of June, 1834, as well as for those contracted after that date for ten dollars. By the act of 18th January, 1837, this fraud was slightly rectified, by augmenting the weight of pure gold in the eagle to 232 grains, as will be seen in the first note to Chapter 2, Book 4.

Changes in the intrinsic value of the coins of a country made in the manner here referred to, necessarily show themselves in the rate of the foreign exchanges. A palpable example is now before our eyes, in the case of the late alteration of our gold coinage, by which the par of exchange on England, when measured by gold, became altered to the whole extent of the diminished weight of pure metal in the eagle. As for example: prior to the 28th June, 1834, the British sovereign, which is the metallic pound sterling, if coined at our mint, would have produced $4.56½ and a fraction in gold currency, and consequently the latter would have been the true par of one pound sterling measured by gold. Under the present coinage, the same British sovereign can be converted into $4.86 and a fraction in gold currency, and consequently the latter is now the true par of one pound sterling, as was particularly shown at p. 32.

A fifth species of depreciation is that which results from the creation of paper money as a substitute for gold and silver, which operates upon the value of the total existing mass throughout the commercial world, precisely like the discovery of new mines. It will be shown in the proper place that the introduction of paper money into any country necessarily drives out a portion of its metallic money, and thereby augments the quantity previously existing in other countries, the inevitable effect of which is, to depreciate it there below its previous value.

I am aware that the term fraud as applied to the reduction of the weight of pure gold in the American eagle, is not an acceptable term to many people. It is certainly a harsh expression, and Congress might have avoided the imputation conveyed by it had it enacted that the laws of the 28th of June, 1834, and the 18th of January, 1837, should have had no application to contracts made anterior to the former date, thus leaving the rights of all creditors unimpaired. It is true that up to this time, creditors have not sustained any material injury from the operation of these laws, inasmuch as debtors have generally found it as profitable to pay in silver, which creditors have at all times been obliged to receive, as in gold; but this is an incident which could not have been positively foreseen, and which may, in fact before long cease to operate, for under the new proportions between gold and silver, the banks find it more advantageous to pay in gold than in silver, the quantity of gold contained in the eagle of the present coinage, being worth in the markets of Europe, less than ten silver dollars. That this is the case, may be inferred from the fact, that where our merchants import specie from Europe, they give a preference to gold, and where they export specie they give a preference to silver, which would not be the case if the legal proportions established an exact equivalency.

That this position, may not, however, rest upon mere inference, I will establish it by proof which cannot be disputed.

The price of Mexican dollars in London within the last two years has fluctuated between 4s. 9¾d, and 4s. 10½d. per ounce. They were quoted on the 27th February, 1838, at the former rate, and at the end of December, 1839, at the latter. Since January, 1840, to the date of the last advices, (the 10th of April,) the price has been 4s. 10¼d, and as American dollars are of the same standard as the Mexican, that is, nine parts pure silver to one of alloy, the same value may be attached to them. Now as the weight of the American dollar is 412½ grains, its value in British money is at this period 4s. 2d., and consequently, the value of ten silver dollars is £2 1s. 8d.

But the quantity of gold contained in the eagle, if sent to England and coined into British currency would only be worth £2 1s. 1d, as may be ascertained from the fact that the eagle contains 232 grains of pure gold, and the sovereign, or pound sterling, 113 grains.

For (omitting the fraction,) if 113 grains are equal to £1, 232 grains are equal to £2 1s. 1d.

This difference of near seven pence sterling, equal to about fourteen cents, upon ten dollars, shows that a gold eagle is now worth one and four tenths of one per cent less than ten silver dollars in England, and if it has not shown itself in the United States, it is simply on account of their legal forced equivalency, by which silver is undervalued as compared with gold, precisely as gold was undervalued as compared with silver, prior to the 28th of June, 1834.* It matters not that at this day the difference is of a comparatively trifling amount. If it be but the tenth part of one per cent. the charge is established. But how do we know that in the course of time the proportions between gold and silver may not fall back to one to fifteen as they stood forty years ago, in which case not a debt would be discharged in silver, and consequently, creditors on all contracts, such as bonds, ground-rent deeds, annuities, state, city, and county loans as well as the loans of rail road, canal, and other corporations, contracted before the 28th of June, 1834, would be defrauded by law of six per cent of the amount of their debts? This is a grave question, and one in relation to which more will be said in the chapter “On the impolicy of adhering to our present mint proportions between gold and silver,” in Book the Fourth.*

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