Money Mischief_ Episodes in Monetary History - Milton Friedman [57]
Under either gold or silver, or for that matter under bimetallism, it is necessary to have small-denomination coins. Under a gold standard, full-bodied low-value coins would be excessively small. Redish argues that the British solved this problem by using overvalued silver coins whose convertibility at nominal value was guaranteed by the mint. That could also be done under a silver standard, and it was done under the U.S. legal bimetallic but de facto gold standard from 1837 to the Civil War.
Whatever may prove to be the merits of Redish's ingenious rationalization of the British action, it was certainly not a foregone conclusion at the time that resumption would be on gold rather than silver, though it does seem to have been taken for granted that resumption would be on a monometallic basis. For example, David Ricardo, in his pamphlet The High Price of Bullion ([1811] 1951, p. 65), wrote: "No permanent measure of value can be said to exist in any nation while the circulating medium consists of two metals, because they are constantly subject to vary in value with respect to each other.... Mr. Locke, Lord Liverpool, and many other writers, have ably considered this subject, and have all agreed, that the only remedy for the evils in the currency proceeding from this source, is the making one of the metals only the standard measure of value."
As regards gold versus silver, Ricardo, in his influential pamphlet Proposals for an Economical and Secure Currency, favored silver, writing ([1816] 1951, p. 63):
Much inconvenience arises from using two metals as the standard of our money; and it has long been a disputed point whether gold or silver should by law be made the principal or sole standard of money. In favour of gold, it may be said, that its greater value under a smaller bulk eminently qualifies it for the standard in an opulent country; but this very quality subjects it to greater variations of value during periods of war, or extensive commercial discredit, when it is often collected and hoarded, and may be urged as an argument against its use. The only objection to the use of silver, as the standard, is its bulk, which renders it unfit for the large payments required in a wealthy country; but this objection is entirely removed by the substituting of paper money as the general circulation medium of the country. Silver, too, is much more steady in its value, in consequence of its demand and supply being more regular; and as all foreign countries regulate the value of their money by the value of silver, there can be no doubt, that, on the whole, silver is preferable to gold as a standard, and should be permanently adopted for that purpose.
In subsequent testimony in 1819 before a committee of Parliament, Ricardo ([1819a] 1952, pp. 390–91; see also [1819b] 1952, p. 427) shifted to gold because "I have understood that machinery is particularly applicable to the silver mines, and may therefore very much conduce to an increased quantity of that metal and an alteration of its value, whilst the same cause is not likely to operate upon the value of gold."
Greater stability of value was a valid economic reason for favoring one metal over the other, but the technical prediction that induced Ricardo to decide that gold was likely to be more stable than silver proved erroneous. Silver production fell relative to that of gold until the discovery of the Comstock Lode in 1860, and machinery came to be at least as applicable to the mining of gold as to the mining of silver. However, the assertion that gold