It is therefore evident that the establishment of bimetallism tends to make the market price of gold and silver alike conform to the mint prices set by law, and to make their market ratio con form to their mint ratio. This conformity could not be effected if, in the first case above, the silver mines were so prolific that they could keep the market glutted despite an increased demand, so that it would continue to be profitable to carry bullion to the mint—for the coined silver would entirely displace the gold and silver monometallism would supplant bimetallism. Nor could the conformity be effected if, in the second case above, the de mand for silver were insatiable, for then silver would disappear from circulation and gold monometallism would prevail. Theo retically, however, for ordinary variations in the relative valua tions of these metals, bimetallism would be an effectual conform ing force.
Effect of Two Legal Tenders The displacement of one metal by the other, resulting in the establishment of equilibrium between market and mint prices, operates more exactly if both metals are full legal tenders at the mint ratio. It is the seller who decides the form of payment he will accept; if asked to take the coined metal overvalued at the mint, he can refuse outright, or can accept it at a discount, or— what amounts to the same thing—ask a higher price for his goods. In paying debts previously contracted, however, legal tender laws apply, and the payer can tender any lawful money, and he will normally pay the metal which is overvalued at the mint. That is, if the silver dollar is a legal tender and silver is selling on the market at $1.20 per ounce, a debt of $1 can be paid with $.928 worth of silver, by first having the silver coined. The metal overvalued at the mint tends to displace the undervalued and to be the circulating medium. This is Gresham's Law. The legal tender quality therefore helps to drive the undervalued metal from circulation, the only prevention for which is to specify in the contract of debt the tender that will be acceptable. Prices tend to be quoted in the overvalued medium and therefore its purchasing power tends to equal its debt-paying power.
Owing to the higher price level, the country becomes a good one in which to sell and a poor one in which to buy, the balance of trade becomes adverse, and balances must be settled. In international trade, where no international legal-tender laws exist, the seller of goods determines the money medium that is acceptable, and international balances are normally settled in gold; if the seller lives in a silver or bimetallic country, silver may be acceptable. The supply and demand of the metals is therefore international in scope, and if the mint prices of the various countries differ each metal will tend to move to the mint that pays most for it. To be successful, accordingly, bimetallism
requires international concert at fixing mint prices.
The Limping Standard The United States adopted bimetallism in 1792 and continued it with more or less success until 1873 when the free coinage of silver was given up; after a few years (1876) a limited coinage on government account with high seigniorage was adopted. In 19oo a system of gold monometallism was undertaken, but the old undervalued coins were left in circulation. A country thus hav ing the concurrent use of two metals, one full legal tender and freely coined, the other full legal tender but not freely coined, is said to have a "limping standard." Relation of Seigniorage to Value of Coins Given free coinage, a seigniorage charge increases the value of the coined metal by the amount of the seigniorage. The state either keeps a part of the bullion, which it does not coin, or it holds back a portion of the coined metal. So long as the public is willing to accept the coins as money, the value of coins differs from that of the bullion by the amount of the seigniorage.
The seigniorage might be taken out in four ways: i. The coins might be of the same weight as formerly, but the government might not coin all the bullion presented; the toll of bullion is its seigniorage.
2. Keeping the coins of the same weight as formerly, the mint might coin all the bullion presented, but not deliver back all the coins; the toll of coins is its seigniorage.
3. The mint might decrease the amount of bullion put into the coins and not coin the amount of the bullion kept out.
4. It might decrease the amount of bullion put into the coins, and coin all the bullion, but hold back part of the coins.
The first and third methods would not increase the number of coins in use; the second and fourth would both increase the num ber of coins and raise the price level.
But the entry of seigniorage, especially when large, into the coins of a country presupposes that the public has faith in the government. So long as the public allows the government to ex tract the seigniorage and continues to accept the coins generally as before, the light-weight coins will perform all the monetary functions as well as, or better than, the heavier coins. Assuming this public confidence, the determination of the amount of seignior age is an arbitrary matter for the government. The percentage of seigniorage may range from o to zoo per cent. There is no essential reason why the amount of metal in, say, the dime might not be more or less than it is at present; that is, there is no essen tial reason why the government should not take more or less seigniorage than it now does, provided the public continues to accept the coins as before.