I'm looking at bimetallism now. Found out why the US silver dollar weighed 371.25 grains of pure silver in 1792, or 24.75 grains of fine gold - - the experts who reported to Alexander Hamilton told him that the Spanish silver dollar weighed roughly 371 grains of fine silver - - which was probably short weight, and the commodity price ratio of silver to gold was 15:1 at the time.
In other words, at the time that the values were established, they were (more or less) the commodity prices of the metals.
Which makes perfect economic sense to me. (Actually, I have no idea whether the Spanish government set the price of silver as a commodity or whether it was set by the free market. Another question.)
Until foreign coins were outlawed, Spanish and Latin American whole silver dollars and cut up pieces made up at least 30% of US money. Due to a shift in the ratio of silver to gold, gold was more valuable as bullion, so it did not circulate as money until later.
The problem with using both silver and gold as money was the fixed ratio, which gave rise to arbitrage opportunities whenever the real ratio deviated from the fixed ratio. So eventually they all decided to pick one metal, instead of allowing the metal exchange values to swing based on market value.
One of the most fascinating things I've read about it is that the reason the Bank of England decided to go with gold is that David Ricardo consulted with experts who assured him that mining techniques were more efficient for mining silver than gold, so that silver would likely be produced in a greater ratio, which would make the exchange rate less stable, so he recommended to Parliament in 1819 that gold be adopted when switching to monometalism. In fact, it turned out that mining methods were more efficient for mining gold than silver, and that gold prices were less stable than silver prices.
At any rate, the other great nations followed Great Britain onto the gold standard, for better or worse.
Which isn't at all the same as the gold exchange standard. I wonder how many gold bugs can explain the difference between the gold standard and the gold exchange standard? No hints, now. |
