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The Theory of "Cost of Production," not applicable to the Precious Metals.

It is necessary now to examine the reasons of the radical divergence of opinion before referred to on the "cost of production theory," applied to the precious metals, and forming the basis of the "intrinsic monetary system."

Del Mar says:—"The doctrine erroneously held to-day throughout the world with regard to the value of the precious metals, is that it represents their cost of production, and upon this doctrine rest both law and administration.

The analogy is, the value of commodities generally, such as manufactured goods, is known by experiment to be limited and conditioned by the cost of production; being true as to these commodities, the principle has been deemed to be true as to all commodities, including the precious metals. It can nevertheless be shown that in respect not only of the precious metals, but also of improved land it is not true.

The production of the precious metals cannot be regulated at will like that of other commodities, the production of the precious metals is the result of chance. Conquest or the discovery of rich mines may increase an already full market, or their failure intensify a preexisting dearth. This is not the case with other commodities except land. When any other commodity becomes scarce or plentiful, then its price rises above or falls below the customary level, diminished or increased production which can be regulated at the pleasure of man, soon restores the old price to its former level, or confirms the superior equity of the new one. In these cases the cost of production determines the price. All other commodities are commercial ones. Land and the precious metals are to a certain extent' political commodities.' Land altogether is a political commodity; the precious metals are partly political and partly adventitious; they are political as far as they are acquired by conquest, they are adventitious as far as they are acquired by mining.

The price of improved land or of the precious metals does not regulate their acquisition, and neither excessive nor insufficient acquisition regulate their price, for if the production cannot be controlled by will, it is due to causes beyond man's bidding or foresight, and the metals produced under such conditions may either cost nothing (like conquest and slavery of conquered nations), or it may cost far more than it is worth (from free mining), when thrown upon a market already filled with the accumulation of ages."

As the question whether or not the value of the precious metals is derived from the cost of their production is all-important in the enactment and disposition of public measures relating to money, the facts of the arguments must be clear—(1) That a portion of the vast accumulation of the precious metals which the world possesses, whatever its origin, was obtained by the present possessors through conquest and the slavery of the conquered races, and, therefore, presumably cost little or nothing: (2) That a second portion was obtained through domestic slavery and serfdom, the cost of which is impossible to ascertain: (3) The third portion was obtained by free page 20 mining, and at a cost very far in excess of the market value of the metals. If, after these conclusions, fortified by history as they are, it be insisted that nevertheless there must be some economic law which determines the value of the precious metals, the answer is that that law is the "volume of the currency."

"Notwithstanding the fact that these metals when obtained through conquest and slavery cost little or nothing, they possessed, when conquest and slavery were the sole means of their production, a higher value than they do now. During the Dark Ages for example, prices were much lower, and the value of gold and silver much higher than it is now—their cost was nothing, while their value was high. Since the era of free mining these metals have cost mow to produce than they fetched in the market, It follows here again that their value could not have been derived from their cost of production. It is evident that not cost of production but something else regulates their value. That something is 'quantity'—the accumulated stock—and since gold and silver coins may be over-valued in the law and made to pass for a higher value than bullion, and since other things besides gold and silver circulate as money, and serve precisely the same purposes and are readily given or taken for them, it is the accumulated stock, or in other words the volume of all money or currency that regulates the value of any portion of the mass."

What the precious metals cost to produce is therefore a matter of little or no consequence, except as a means of refuting the fallacious doctrines which have been founded upon this question—and these fallacies have never been admitted by practical men.

Mr. Joseph Harris, who in his connection with the British Mini was well acquainted with these conditions, published an essay in 1757 on money and coins, which for information and soundness of doctrine is unequalled, says—"The value of bullion doth not like other things conform to its cost of production at the mines." Any given sum or quantity of money will have its value in a certain proportion as it is a part of the whole stock or quantity in currency, and any increase or diminution of the whole will, in proportion, lessen or increase the value of any given sum—without respect to cost of production.

Mr. Wm. Jacob writes in his history of the precious metals to the same effect. Mr. Lewis Garnett, Manager of the San Francisco Assaying and Refining Works—writes in 1869—in his work, Rapid decline of the precious metals in the U.S.A.—"Nearly all writers persist in repeating the old dogma of the economists that the value of the precious metals depends upon the cost of production—whereas such has never been the case."

The conquerors and plunderers of past ages did not imperil their lives and souls to establish competitive industries, therefore to base a monetary theory as the economists have upon the hypothesis that the gold which these adventurers obtained was worth no more than the value of their labour as mechanics, is to build up a monstrous absurdity. In the search for gold and lust for plunder whole races have been put to the sword, continents subjugated, religions and civilisations destroyed.

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It is the peculiarity of monetise metals, that when they are produced upon or near an economical basis, only sufficient of them will be sought for to make good their loss by attrition or demand for the arts—this fact has been admitted by Adam Smith and others, but the reason for it is more significant than the fact—this reason is that the metal produced beyond those requirements is added to the stock of money and this falls in value as it increases in volume— ence all new metal is produced at a continually increasing loss.

When the value of gold and silver conforms to the economical cost of their current production and "free coinage" prevails—the coins which happen to be in a country cannot be increased at pleasure by industrial means,(Adam Smith admits this) because any addition to the coins would lower the value of the whole stock and also that of the material of which they were made—that is—prices of commodities, labour, etc., would rise—this would arrest mining, and the arrest of mining would diminish the product of bullion, and thus lower the stock of coins to its previous limit.

"And here it may be remarked that the production of any valuable raw material out of which money is permitted to be made ad libitum, must of necessity become at some time unprofitable because every atom of it obtained is sooner or later added to a stock which is itself the measure of the value of the remainder. The greater the stock of this material—say gold or silver—the less will each pound of it, newly extracted from the earth, purchase of other commodities, that is as the stock or volume of money is increased, so its value or any part of it falls, and prices of commodities rise. A time must therefore come when the mere cost of subsistence—for even slaves must be provided with food—and of supplies for the mines, will overcome the value of the product, and the system, and with it money and government and civilisation must come to an end. To the comprehensive mind metallic money seems like one of those machines designed by illiterate mechanics for perpetual motion—it carries with it its own negation; and though it may go for a long time without showing any signs of failure, in point of fact it has begun to fail from the very instant when it was first set in motion."