Encyclopedia of Money: Symmetallism

Symmetallism is a type of monetary system in which a standard monetary unit is equivalent to a fixed number of ounces of gold, coupled with a fixed number of ounces of silver. The standard monetary unit becomes equivalent to a bundle of two precious metals, combined in a fixed, unchanging proportion. As an illustration, the dollar might be set equivalent to 0.0242 ounces of gold, plus 0.3878 ounces of silver. The term symmetallism seems to have been coined by Alfred Marshall, a prominent economist around the turn of the century who proposed a symmetallic system as an answer to world monetary woes. Symmetallic systems were not without precedent, however, because the ancient kingdom of Lydia

is credited with striking the first coins from a metal called electrum, which was a mixture of gold and silver found in a natural state.

During the last half of the nineteenth century, the world’s major trading partners engaged in a monetary tug of war between a bimetallic system, based upon gold and silver, and a monometallic system relying strictly upon gold. England favored a gold standard, which eventually displaced a bimetallic standard that France and the United States had championed without success. The bimetallic system, like the symmetallic system, made use of two metals, but it set a fixed value for each metal in terms of the other metal. Under a bimetallic system a government might officially set the value of 15 ounces of silver as equal to 1 ounce of gold, and would stand ready to exchange gold for silver at this ratio. Because officially fixed values often varied from freely fluctuating market values, the bimetallic system worked less successfully in practice than in theory. In contrast to the bimetallic system, the symmetallic system does not fix a ratio of value between two metals, but fixes the value of a composite unit composed of a fixed quantity of each of two metals. A monometallic system circumvents the complications of two metals and fixes the value of a monetary unit in terms of a fixed weight of a single metal. Under the post–World War II monometallic gold standard, the United States officially fixed the price of an ounce of gold at $35.

The last quarter of the nineteenth century saw a spreading wave of mild deflation in the face of the strict discipline of a worldwide gold standard, in which the world gold supply did not keep pace with the monetary needs of an expanding world economy. Alfred Marshall held out the symmetallic system as a means of avoiding the awkwardness of the bimetallic standard, while adding to the world’s stock of monetary metals, and venting deflationary pressures. He also argued that the value of a composite quantity of gold and silver would fluctuate less than the values of gold and silver separately. He advanced his proposal to the Gold and Silver Commission in the United Kingdom in 1888.

Marshall’s proposal apparently made little impression on policy makers at the time, but academic economists found it a fruitful idea that could be expanded. They saw no reason why the number of commodities in the composite standard had to be limited to two, or why the commodities had to be precious metals. They extrapolated Marshall’s concept into schemes that included all the commodities in the wholesale price index as part of the composite monetary commodity. These kinds of extensions of Marshall’s idea surfaced in the 1980s as anti-inflation policies stood at the top of research agendas in economics.