RELATION TO MONEY AND PRICES

gold contracts could not be enforced, and in consequenceinterest rates were exceptionally high.

§2. United States Coin and Currency Bonds

A more definite test may be made where two standardsare simultaneously used. An excellent case of this kindis supplied by comparing two kinds of United Statesbonds, one payable in coin and the other in currency.From the prices for which these bonds sold in the marketit is possible to calculate the interest realized by theinvestor. The currency bonds were known as currencysixes and matured in 1898 and 1899. The coin bonds se-lected for comparison were the fours of 1907. The tableon page 402 gives the rates of interest realized in the twostandards, together with the premium on gold.

Several points in this table deserve notice. In 1870the investor realized 6.4 per cent in terms of gold butwas willing to accept a return of only 5.4 per cent cur-rency. Why should a gold bond be thus inferior to apaper bond? This has become intelligible in the light ofthe theory which was explained in Chapter II. It meantthe hope of resumption. Just because paper was depre-ciated below gold and there was a chance of bringing itup to par, there was in prospect a great rise in its value,as compared with gold. It was not until 1878, just beforeresumption, when the prospect of any further rise dis-appeared, that the relative position of the two rates ofinterest was reversed. After resumption in 1879, whenpaper money did reach par with gold, the two bond ratesremained very nearly equal for several years, until fearsof inflation from Greenbackism and Free-Silverism againproduced a divergence. The quotations for 1894, 1895,and 1896 showed a considerably higher rate of interest

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