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Af
C A
Appreciation of Gold.
^n €^Qii}K
«Y
WILLIAM FOWLER, LL.H.
(K//..I,. 0/ Universil). Collc:^, iMi.don.)
(:ASSELL & COMPANY, Limited
'■OXnoN,^PAJ,ls, NEW yo,,K if MF.LmUKNE.
1886.
«
PREFACE.
I REGRET that this paper is so long ; I should have
cut it down, had I not been much interrupted during
its progress.
I wish to make one explanation. I have no prejudice
against the use of silver as money. It appears to me to suit
some nations and not others — why, it is not useful to
discuss here. The larger part of the population of the world
app(.'ar to prefer it ; but that fact is hardly an argument for
the resumption of its use by us. Formerly we used it as
our standard and our legal tender money. To John Locke
it seemed the one natural money. We gave it up for
reasons which appeared to very competent men to be
sufficient.
I cannot see anything in the events which have happened
to induce us to take it up again. It has not become more
stable in value in recent years, and it seems likely to be
less stable than ever.
If silver be alive and strong, we may leave it to the care
of those who are naturally concerned in its future. If it be
dying, let us take heed lest we should find ourselves tied to
a corpse.
William Fowler.
P.S. — Since writing this Essay, I have seen an argument
for a double money based on the history of our National
IV
PREFACE.
Debt. It is said that, as part of the Debt was created
when debtors could pay in silver or gold, it was not just in
1816 to tai.e away this option, and compel payment in gold
in any event.
Far the larger part of the existing Debt was created
between 1797 and 1816, on a paper basis, when cash pay-
ments were suspended; or since 181 6, under the single gold
standard. The argument therefore does not apply to the
whole Debt.
Moreover, apart from this, it seems to be forgotten that
thirty-five years ago it was fully expected that the sovereign
would be depreciated ; but compensation to the P\md-
holder was not proposed by any responsible person. Now,
by another turn in events, an advantage is alleged to have
arisen to the holder, and it seems hard to take it from him.
He must take his chance. It is quite jwssible that the
phenomena of 1850 may be repeated. Discoveries of gold
are much talked of. It seems to me that the settlement of
1816 ought not to be disturbed in the interest of any set,
whether creditors or debtors. The turn of the debtors may
come again, and, if it comes, they ought to have it.
Certainty and stability, so far as legislation can give
them, are what we need, not fluctuating laws about money.
Variations of supply and demand must come, and will
cause many gains and losses ; but hasty legislation, as
in Germany and America, has wrought fiir more mis-
chief than natural changes have effected. From these
cases we ought to take warning, and exercise the greatest
caution in dealing with our laws about money.
of
[:reated
just in
in gold
created
sh pay-
;le gold
to the
Appreciation of Gold.
en that
ivereign
Fund-
Now,
to have
)m him.
hat the
of gold
ment of
my set,
)rs may
in give
money,
nd will
ion, as
e mis-
these
Tjeatest
TiiL fust point in this discussion seems to be the definition
of our meaning when we speak of "appreciation of
gold." 'I'hese words may mean that a given weight of
gold will purchase more of most articles of consumption
than it would have purchased in years gone by ; or, in other
words, that prices generally, as measured in gold, have
fallen ; or it may include the hint of an opinion that gold
has become scarce, and therefore dear. That many prices
have fallen is a fact which no one disputes ; but much dis
jiute arises when we inc^uire into the cause of such fall. Of
course prices may have fallen (i) because, with a tolerably
even supply of gold, the supply of other articles has developed
with astonishing rapidity in consequence of modern inven-
tions affecting production or distribution; or (2) because the
sujjply of gold has fallen away, so that a scarcity of money
available for exchange has arisen ; or (3) possibly these
two causes may coincide — that is to say, the su])ply of
gold from the mines may be contracting at the very time
when other articles are brought forward in greatly increased
proportion.
The in^i^ortance of the question involved in this discus-
sion arises 1. > n the fact that the existing depression in many
trades is by some attributed, mainly, if not entirely, to the
fall in prices arising from a change in the supply of gold, so
that a remedy is sought in some change of currency
and especially in an endeavour to increase the use of
silver as money, in order to counteract the alleged scarcity
of gold.
APPRECIATION OF GOLD.
The causes of depression have been much discussed in
various publications of the Club with especial reference to
the Free Trade controversy. There does not seem to be
much prospect of any responsible English Minister adopting
Protection as a means of reviving our trade. The interests
involved are too numerous and too antagonistic to give rise
to any general demand for Protective duties. A manufac-
turer who demands Protection for himself, clings to cheap
food and chea]) raw materials ; and the farmer who longs for
a duty on cereals desires to have clothes, machinery, etc., at
the lowest possible prices.
But it is (juite possible for those who differ as to Protec-
tion to agree in the proposition that "something must be
done '' for the good of r^\ Producers feel keenly the loss
arising from a fall in prices, and they snatch at any proposals
which may possibly check so disagreeable a process, without
reflecting much on the ultimate consequences of hasty
changes.
The general principles involved do not seem to be dis-
puted on either side ; but differences arise as to their appli-
cation where facts are so complicated and numerous. Money
being used both as a measure of value and as a means of
making exchanges, it is obvious that, if the demand for pur-
poses of exchange should greatly increase without an increase
of sui)ply, we might have a real scarcity of money, so that
its " value,'' by reason of this demand, might rise, or " appre-
ciate," when compared with other articles. So money might
lose in part its fitness as a " standard " of value. On the
other hand, supplies of bullion being pretty constant, the
value of money might " depreciate " in exchange, if through
changes in the machinery of credit there should arise a
decrease in the demand for actual money for exchange.
Perfect stability cannot be secured by any arrangements,
so long as commercial changes are so continuous and
important. We cannot have a perfect standard ; but the
question now arises whether we are not safer with " a
]jound " or unit of value consisting of a given weight of one
metal, than with a pound payable in either of two metals at
the option of the payer.
The first point seems to be that we should clearly
understand the facts as to the supply and demand of the
APPRECIATION OF GOLD. 7
precious metals since 1849, and endeavour to decide
whether gold is or not really " scarce."
Comparing the two metals — gold and silver — it is curious
that, whereas in 1850 the stock of silver was estimated at
thirty-two times in weight that of gold, it is now sujiposcd to be
about nineteen times; and vere thcr prices regulated merely
by the stocks of the two melals at ditferent periods, the price
of silver should now be 102 pence per ounce, instead of
43 pence (Mulhall, " History of Prices," p. 17). Silver has
fallen, although the stock of gold has increased far more
than that of silver ; but the demand for gold has increased
more rapidly than that for silver, although India and
China have absorbed great amounts of silver during the
l)ast twenty-five years.* There seems indeed to be no
obvious and permanent connection between the price of
silver in Europe and the stocks of gold and silver. Silver
did not rise materially from 1852 to 1857, when the
annual production of gold increased, while that of silver
remained stationary (see Appendix A), and in the period
since 1872 silver has fallen in Europe far more than can be
accounted for by changes in the production of the precious
metals, considerable as these have been. The explanation
would seem to be that in the former period there was no
special change in the position of silver in Europe, no new
supply and no altered demand, and France was able to
absorb a very large amount of gold ; whereas in the latter
period there was an enormous nc«»' supply of silver from
Germany and the United States, aiv'* ^ sudden destruction ot
* The American figures are as follows : —
Total production of gold in 36 years from 1849 to 1S84 — ^^776, 595,000
„ „ ,, silver ,, ,, ,, ,, ,, ,, —;i^45o, 000,00c
Dividing 1850 to 1884 in periods of five years, the supply of gold is
as under : —
1850—54
.. ^'105,000,000
Or per year
,. ;^2I,0OO,0O0
1855-59
138,000,000
27,600,000
i860 — 64
112,000,000
22,400.000
1865-69
112,000,000
22,000,000
1870—74
100,000,000
20,000,000
i«75— 79
109,000,000
22,000,000
1880-84
100,000,000
20,000,000
II APF'HKCI \TlnV n|- coi I).
(kinaiid by ilic cessation of free coinage by the Latin Union,
to say nothing of increased drafts on India by her (lovern-
nient in I.ondon. It is not wonderful that silver has fallen
heavily in recent years. 'I'he wonder is that it did not' rise
when there came that siuMcn and enornious increase in the
production of gold. (See Aj)i)endix 1!.)
'i'o us in lOngland, silver, as money, is of no more con-
se(|uence than coDper, it being only token money, and not
legal tender foi more than forty shillings. So far, the
changes in the \alue of silver in luirope would ai)j)ear
to have assisted the people of India by giving them more
f ivourable markets for their produce, while silver i)rices in
in(lia have not risen.*
T
<i»
* Tlic rcrent letter rif Secretary Manning to the House of I\e|>rosonta-
tixcs in \Vasliint;t()n offers some important points for our consideration.
(March 2, lSS6;)
Tlic unit of value in the United States of America is the jjoM
dollar, and hoth gold and silver arc legal tender ; l)ut there is not free
coinage of silver, hut a forced coinage of at least 2.C)oo,fXX) doil.us per
nxiiitli, wliich coins are legal tender for loo cents each, though only
worth ahout 75 cents at this moment.
The Americans dare not have free coinage of silver, as they fear
that they shoidd lose their gold and have it all rcphurd hv silver, so
long as silver can be bought at a low price in I'.uroi e. The result
would be a silver and jiaper circulation, with a gold unit of value — a
nominal gold dollar, witli only silver and ])aper ohtainalde. Therefore,
they desire an arrangemi'nt with l-urope, so as to create a price for
silver by agreement, which would prevent import of silver from luirope
and export of gold from America.
It is clear that the Americans shrink from a silver standard of
value, an<l they at the snme time desire to u^c silver as largely as pos-
sible as legal tender, not token money. They not only have great
stocks of gold and silver but they produce both, and therefore for
vnrious reasons they desire to make use of both metals as money and
not to cast discredit on either.
Their present situation affords a good illustration of the difficulties
which may arise from using two metals as legal tender money, even
though the unit of value be by law most clearly defmed to be in one
metal only. Just the same difficulty arises in France, where the stock
of silver held is very large, and yf course the Ciovernment desires to
avoid, if possible, any loss on that holding.
The United States Secretary denounces forced coinage, and longs
for free coinage of silver, with complete legal tender, as the only reason-
able way of getting a proper supply of coin, because thus peojile supply
themselves, and will not use or keep more or less coin than they require ;
whereas the State cannot know what is required, and a fixed and forced
r\
APPKFCIATfON OF r.OTP. 9
The present sitiintion sceins to be as follows. ince 1H50
there has been in Kiiropc, America, and Australia (which
include the great civilised conununities, and those where
uold is chiefly used as money) a great increase of popula-
tion, estimated at about r 17 millions, or nearly 45 per cent
I )uring the same jicriod there has been a great increase of
productive power over the whole world (probably 50 per
cent.), esjjecially in the same countries ; and, ahnig with this
extension of poi)ulation and ])roduction, a great develop-
ment of trade.
Tile trade of the world is at least four times as great as
it was in 1850, and the mere weight of goods moved is six
times as great as it then was. Such changes cannot occur
without causing a need for more money available for
exchange of commodities, and this increased cpiantity has
])ex-n su]){)lied, partly by the discovery of great su|)plies of
gold and silver, and ])artly by a great extension of credit ;
so that, as a final result, we have large stores of coin and
l)ullion in circulation or reserve, and the interest pnid on
money lent for short periods has been lower than in any
recent period of our connnercial history; but we have, at the
same time, a scale of ])rices lower than that of 1850. All
this trade has been done — and that with fewer ])anics and
alarms than in former times— great masses of produce have
been moved and exchanged, and the enormous increase in
the total produce has only caused a slight fall of ])rices in
thirty-five years. The flill may be great in some cases, when
measured from 1873 ; but it is slight when measured from
1850. It would seem probable that, all other things being
the same as they are nrw, we must have seen a far greater
fall in prices if there had been no increase of g(jld and
rirculaliiin takes no account of real needs. But he is liamperrd hy tlio
slate of the silver market. He dares not a^k America to act alone.
The following; figures are interesting : —
Total gold in United .States Treasury on Januarv 30,
1886 ' '...
Total standard silver dollars coined same date
Gold certificates outstanding including "^
< those in >
Silver ,, ,, I Treasuiy. )
I oial gold in United States, January, 18S6
/■5O,CX3O,0OO
/44. 000, 000
/■2 7, 800,000
^25,ooo,ooc
;{^ 1 06, 000. 000
10
APPRECIATION OF GOLD.
silver. The mere extension of credit, however important,
might not alone have sufficed to maintain even the prices of
1850. In 1850 every one expected that gold would soon
buy less goods than formerly. The result has been that a
given weight of gold will now buy more than at any time in
the present century. How far the change depends on
supplies Oi money, and how far on other causes, is the
question of interest about which so much is being said
and written. Gold did depreciate. It is now slightly
appreciated, but greatly depreciated as compared with what
its value would have been had n new supplies come forward.
It is often forgotten in discussions on the effect of the
increase of production that, however great that increase, the
articles produced are quickly used up and done with. They
are exchanged and dealt with, and they cease to be. But
the case is not so with the precious metals. They accumu-
late by reason of their durability, and an increase of stock is
comparatively a permanent addition to the fund available for
exchanges.* In any given year the increase of articles to
be moved may be great, but the movement of this increased
product does not involve the consumption of the precious
metals, except by wear and tear. They do the work, and
are ready to do it over again. It follows that we cannot
regard the accumulation of goods as a cumulative increase,
as is that of the precious metals ; and therefore the increase
of the metals tends far more towards maintaining prices
than does the increase of production towards the reduction
of prices.
It is, however, said that gold must be soarce, because the
annual supply is much less than it was thirty years ago, and
because so much gold was absorbed by America, Germany,
and Italy in a single decade. It is alleged that 200 millions
was thus absorbed; but there seems to be an insufficient grasp
of the facts and a theoretical defect in the argument as to
the so-called "absorption."
* Compare Secretary Manning's letter to Secretary of Treasury
(U.S.A.), cited above, p. 17 : "Standing over against the vast aggregate
of human commodities, mostly perishable, which sinks and swells with
seed time and harvest, as the seasons change, and of which the uncon-
sumed ana more or less imperishable part is so small, the monetary metals
of the world are the most trustworthy attainable measure of value."
•
APPRECIATION OF GOLD.
It
In the first place, it is not sufficiently noted that the
circulation of notes by the ^ank of France, over the amount
of bullion held, increased by ^91,000,000 from January,
1870 to November, 1873. This great movement arose no
doubt from the war and the war-indemnity, but it must
have had an effect on prices in Europe, and should be set
against the supposed absorption of gold. Much of the gold
coined by Germany came, no doubt, from France, and its
production was assisted by means of this great issue of notes.
It is surely clear that gold coined by (iermany was quite as
much money, and quite as useful, as gold hoarded by
French peasants and traders. It is also clear that coined
gold, whether coined in the usual course or in an unusual way,
as in Germany, America, and Italy, is gold in its most useful
form for purposes of money. It does not seem, therefore,
to be sound reasoning to assume that gold so coined is
somehow "absorbed," so that demands for coinage, as such,
must tend to lower prices. The gold is there, although
the localities in which it is stored or used may be
changed. It would be absurd to treat it as a new supi)ly of
money; but, on the other hand, it seems absurd to treat it as
a disappeared factor in the general supply of money, and as
if it had ceased to influence prices.
A similar vemark may be made as to the annual absorp-
tion of gold for coinage. The coinage turns the gold into
money proper, and such a use of the gold does not take it
away and hide it out of sight and make it impotent.
There is of course a loss of metal by wear and tear of
coins every year, and a certain amount is really absorbed in
manufactures and decoration. This is variously estimated
at from ;^5, 000,000 to ;^ 12,000,000 a year, and, whatever
it may be, it is clear that this gold is removed from all
influence on the money market and on prices.
The idea, however, seems to be that if Germany," Italy,
and America had stuck to silver and shaky notes, we might
have had more available gold here and in France ; and in
consequence a higher range of prices. This is certainly not
clear as to the gold obtained by Germany, for much of that
came, as has been said, from French hoards. It is not easy
to say exactly what would have happened, had Germany
taken no gold from France and had America resumed specie
ll:
[
12
APPRECIATION OF GOLD.
payments on a silver basis. The important fact is that the
supply of gold has sufficed to give to Germany, Italy, and
America all the gold they have required for the modification
of their currencies, and vet to leave to other countries
ample working balances. It is also worth noting as to the
American resumption that cautious people in London
expected great pressure here in 1879, ^^ consequence of
American demands; whereas, in fact, 1879 was a year of
extreme ease, following as it did on high rates of discount
and considerable alarms during the autumn of 1878, when
large amounts of bullion were attracted to this side.
It is c[uite clear that capital, in the form of money loan-
able for short periods, has been very abundant during recent
years, even in countries like England, where a real scarcity
of bullion at once acts upon the short loan market, and
increases the rate charged for the use of ** money." The
average Bank rate of the past ten years has been slightly
over 3 per cent., whereas it was more than 4 per
cent, during the twenty preceding years, and tb- "mar-
ket rate " for discount has been in recent yea. lower
tlian the Bank rate in a larger proportion than was formerly
the case.
If we want gold we have to raise the rate of discount to
get it; and although, durii.g the period in question, other
countries have bought and used large amounts of gold,
we have secured all that we have required at comparatively
low rates. We have not perhaps wanted so much as on some
other occasions, by reason of low values of produce, although
this period has included tim.es of great activity; but, at any
rate, it is perfectly clear that the recent history of our money
market affords no confirmation to the assertion that gold
has become scarce. On the contrary, so far as it goes, the
evidence points the other way, and tends to show that the
supplies available have been more than sufficient, even for
demands which have sometimes been of an extraordinary
nature.
It is worth observing that our foreign trade has been
transacted in recent years with a smaller proportion of actual
shipment of bullion and specie than formerly. The total of
our imports and exports from 1866 to 1875 was in round
figures ;^6,ooo,ooo,ooo, and the total of bullion and specie
r
APPRECIATION OF GOLD.
13
imported and exported wasinthe same period ;^53o,ooo,ooo ;
but the total of our imports and exports from 1876 to 1885
was p{^6, 700,000,000, and this vast amount was moved with
the aid of ;^493,ooo,ooo of bullion and specie. If we take
the gold alone, we used about ^^3 2 7, 000,000 in the former
decade, against ;,^2 78,000,000 in the latter. The figures of
the total trade in the later period are somewhat misleading,
as of course the trade was even larger than it seemed, if the
amounts had been corrected for the fall of prices. So the
diminished use of bullion is really more important than it
seems. ■**■ (See Appendix C.)
* It is interesting to note that those countries which do the most
trade are not those whicli reciuire the most coin. For instance, (jrcat
Ikilain uses about ^4 per head of her population, and France altout ^^S,
and, according to Mr. Mulhali's tal)les, the ratio of metallic money
used in different countries to the total conniierce of each country is as
follows : —
Per cent.
Spain and Portugal... ... ... ... 100
r' ranee ... ... ... ... .. 85
United States ... ... ... .. 58
Italy ... ... ... ... 40
Germany ... ... .,. ... ... ,^4
Great Britain ... ... ... ... 20
We require the least coin, because we have developed nur banking
system so that instruments of credit do the work of money.
It is also well to notice that in our own home trade there is a
marked falling off in the use of bills of exchange since 1N74. There
may be some reduction in the business done, but not sufticient to account
for the change in the stamps used. It is more likely that loans from
banks and book debts have taken the place of bills, and it is |)robably
also the fact that many firms, having accumulated much capital, u.se
much more cash than in past years, .so that many payments are made at
once which used to be deferred and drawn lor. It is at any rate
notorious that banks have long complained of the scarcity of bills, and
the figures which follow quite explain that complaint : —
1874.
Inland and foreign bill stamps... ^^985, 000
18S5.
Inland... /, 342, 132
Foreign /^ 3(^2,9^1
U7o5,ii3
So that Inland have fallen since i874/"3Jo.oco, or almo.st exactly one-half
Foreign estimated for 1874.
Inland
;/;303,ooo
;^682,CXX5
14
APPRECIATION OF GOLD.
"I'hose who are familiar with the course of the money
market will remember that the semi-panic of the summer of
1875, when enormous failur 00k place, was surmounted
without a high Bank rate, and that the feature of 1876 was
an excessively low market rate — so low that vast sums of
money were lent **at call" during long periods at half to one
per cent, per annum, and this before the general fall in prices
had taken place, and at the very time when the effect of
German operations on silver was first fully felt, and the
Indian exchange fell to is. 6d. the rupee.
Trade was no doubt depressed in 1876, and of course
this was one cause of the want of demand for money, and the
heavy fall in rates ; but if gold were ever scarce, it should
have become so when German demands had been so long
" absorbing " bullion on all sides. The general opinion was
that during 1873 and 1874 German demands had diminished
supplies of gold here; but by 1876 this special demand
seems to have ceased, and as soon as it ceased the market
assumed an aspect of excessive abundance of loanable
capital*
* Mr. Giffen, in his second series of Essays on Finance (p, 80 et seq.),
argues that the money market has been mere disturbed since 1874 than
was common previously — "feverish," as he puts it. The basis of the
argument is that there were high and low rates in the same year on
several occasions, as, for instance, in 1875 and 1876.
Great difficulties were surmounted in 1875 ^V reason of an excessive
supply of money throughout the year.
No one who really was engaged in the money market would ever
speak of the money market as " feverish " in 1876. As a matter of fact,
1876 was, as above mentioned, a year of extreme ease in the money
market. The same remark will apply to most of 1877 ; and as to 1878,
there was no serious pressure until the failure of the City of Glasgow
Bank and its consequences caused an alarm which would have ended
in panic had there been any real scarcity of money.
Eighteen hundred and seventy-nine was another year of extraor-
dinary ease in money, though the rate did rise in the autumn to 4J
per cent.
Mr. Giffen (p. 81) admits that the five years from 1880 to 1884
inclusive have been " less disturbed," though it would seem that, if the
supply of money from gold were then continually decreasing, the con-
trary result should have been experienced.
However explained, the fact remains that the years since 1873 have
not been years of *' feverish " money, if compared with former periods,
say from 1856 to 1873, when gold supplies were very large, and, till
APPRECIATION OF GOLD.
IS
It is interesting, as showing the real condition of the
money market, that in the decade from 1866 to 1875
inclusive there were 109 changes in the Bank rate of
discount, whereas in the decade from 1876 to 1885 there were
only 61 changes. The condition of affairs must have been
far more " feverish " in the former than in the latter period.
The history of the great banks of Europe, during recent
years, certainly lends no aid to those who dwell on the
scarcity of gold, and even M. Cernuschi, the eminent
advocate of bimetallism, in a letter to the Economist dated
in April, 1886, says that the scarcity of gold is "purely
imaginary," and he refers, in confirmation of this view, to
the great store of gold now existing in the world.
The stock of the Bank of England (April, 1886) was
;^2 1,400,000, ;^4,ooo,ooo less than in 1885 ; but the stock
of the Bank of France was ;^5 1,800,000, showing an increase
of;^io,ooo,ooo since April, 1885. The Imperial Bank of
Germany had ;^34,ooo,ooo * (in gold and silver), and the
Treasury and banks of the United States held about
;^65, 000,000 (gold).
It is remarkable that while the stock of gold in the
Bank of France has doubled since 31st December, i88r
(;^25, 800,000 in i88i,novv — Apili, 1886 — ;^5 1,800,000), her
stock of silver has fallen ;^2, 000,000 — from ^46,000,000 to
^44,000,000.
The only material falling off in recent years has been in
America, and that is far more than compensated by the
great increase in Europe. Recent legislation, as well as the
course of trade, has tended to cause an export of gold from
the States to Europe.
The general result confirms the opinion of M. Cernuschi,
1871, excessive. Any one really engaged in the business of lending
money can have no doubt on this head. There has been no *' panic "
since 1866, and this fact alone should be very instructive.
* According to Soetbeer (as quoted in the Financial Nezvs)^ the
stock of money in circulation in Germany in January, 1886, was
;^i33,ooo,ooo, against ;{^87,ooo,ooo in 187 1. Of this, ;^87,ooo,ooo
was gold, against ;^4,5oo,ooo in 1871, and ;^44,ooo,ooo was silver,
against ;i^75,ooo,ooo in 187 1.
Therefore the increase of gold (;^82, 500,000) was ;^30, 000,000 more
than the decrease in silver. This does not seem to point to a great
" scarcity " of the more precious metal.
5
r^
i6
APPkKCIATlON or cot.!).
and j)ossibly it may he ./ue, as he suggests, ih.u, if we could
turn every silver coin into gold it would mnke no difference
in the total of available money, and ought not, therefore, to
affect the condition of prices.
In much of the recent controversy, many writers do not
seem to have dwelt sufficiently on the influence of the
extended use of instruments of credit on pric ,s. Formerly,
much turned on the issue of Jiank notes. It is not so now
in our sy.stem. The amount of their issue is here strictly
limited, and they do less and less of the work of the nation.
Their total is as nothing when compared to the total of money
needed for daily exchanges. Men confide in one another,
and, when they confide, do not need the aid of cash. It is
not, perhaps, true to say that England is fully " banked," but
she is sufficiently " banked " to enable her to carry on a vast
trade with very little money.
When credit is ramj)ant, a great inflation may arise, and
money may seem plentiful, and no doubt such a situation
tends to enhance prices ; but if prices are thus raised, their
fall is certain when crisis and panic supervene on a collapse
of credit. This is admitted, but it is argued that, as the
structure of credit de])ends on the maintenance of a
sufficient reserve of gold, any condition of things which
makes it more difficult to maintain that reserve will tend to
cause a fliU in trices. As a matter of fact, the rate of money
has never bcDi more steady in iMigland than it has been
since the sui)ply of gold has been diminishing — say from
1870 to the present time. Credit has fluctuated, but has
never been excessively developed since 1866, and the supi:)ly
of moncj in the discount market, as already stated, has
been for the most part ample at low rates of interest. P^very
day there is an increasing tendency to use less cash in
business, and the function of gold, however important, seems
to be more and more confined to transactions entirely retail
in their character, and to the maintenance of such reserves
as may be necessary for the stability of credit."*^
* Even in small transactions, men desire to dispense with metal, as
we see in the wide use of £1 notes in Scotland and Ireland, where
gold is seldom seen (except in the form of half-sovereigns), and in the
great expansion in the use of Postal Notes since 1880. Englishmen
APPRECIATION OF GOLD.
17
At least 99 per cent, of the real business of the country
is effected by instruments of credit, if we include in that
expression Bank notes of all sorts ; and, apart from Bank
notes, the vast mass of important exchanges takes effect
without the use of any "money" whatever. No one, in
deciding what price he will give for any article, ever thinks
of the question whether it may be easy or difficult to
procure the money required, except during a panic or so far
as his own credit may be affected by his own condition.
The means of exchange are always at hand for the solvent
man. Scarcity of gold is never referred to, for gold is not
used in transactions of any consequence. The cheque or
bill does the work as effectually as sovereigns could do it.
If a man's credit is weak, because credit is restricted, he
may refuse to enter on a transaction which he would
otherwise accept gladly; and, on the other hand, if credit be
easily obtained, he will do what he would otherwise refuse ;
and so prices are affected by credit, because the condition of
credit affects the condition of men's minds. But it may well
be doubted whether the state of the mines is much
considered by traders in ordinary times.
It is curious that prices should vary so little as be-
tween France and P^ngland, though customs as to the use
of instruments of credit and money vary so much. For
instance, in the Bank of France it is found that about 44 per
cent, of transactions are effected by means of notes and cash,
whereas, in London banks, only 3 per cent, are thus effected,
the cheque system being little used in France as compared
with England. It would seem to follow from this, that the
general movements of prices depend less on customs as to
the use of money than on other causes. And this tends to
confirm the observation before made, that men, in consider-
ing values, think rather of supplies and demands of goods,
than of facts as to money. The Frenchman keeps money
and depends on it. The Englishman uses credit instead of
money and depends on it, just as much as if it were money.
Taking our own country alone, we often turn over as
are forbidden the use of £1 notes for some inscnitable reason, but
they show plainly, by their disposition towards Postal Orders, how
convenient is representalive money, even in small affairs.
B
'I
j8
APPRECIATION OF GOLD.
much nominal money in the London Clearing House in a
single week as the whole amount of gold coin and bullion
supposed to exist in the kingdom, and to this must be
added the great sums moved in the country without coming
in any form to London. This fact ought to bring home to
the mind the slight importance of cash as a factor in the
transactions of a great commercial people.*
No one would assert that the amount of money in a
country at any given time has no influence on prices ; but,
gi anted the fact that for years no scarcity of money for pur-
poses of exchange has been felt, it may well be asked
whether, at such a time and in such a situation, price depends
much on facts as to supplies from the mines. If the time
should come when lessened supplies from the mines take the
form of lessened reserves, lessened credit, and lessened
facilities in the money market, as evidenced by hif^h rates
of discount, then indeed prices may come to be affected,
for demands for goods will probably lessen, even if supplies
continue. You may, however, have high rates of discount
with rising prices, as in 1864-66, or you may have low rates
and falling prices, as in recent years. In both cases there
were special causes affecting prices, apart from money
markets. All that one can say is, that the tendency of scarce
money and high rates of discount should be towards falling
prices, and the tendency of plentiful money and low rates
should be towards higher prices ; but it has often happened
that other tendencies have been stronger than those arising
from facts affecting money, and so the course of prices has
seemed to baffle calculation.
Mr. Giffen, in the Essay already mentioned, argues as to
the importance of bank reserves as a factor in prices. But
he seems to ignore the fact that while our Bank reserve in
England has been barely maintained, the gold reserve of
* Compare the observation of Mr. E. Atkinson as to the United
.States of America ("Distribution of Products," p. 211).
" Three hundred million dollars of gold coin suffices as the standard
by which to measure 300,000,000,000 dollars' worth of purchases and
sales every year.
" Hy the use of notes issued by, or cheques drawn upon, banks and
bankers, more than 100,000,000 tons of food are moved in each year
from the producer to the consumer, and thus the subsistence of
50,000,000 people is assured."
APPRECIATION OF GOI-D.
•9
the Banks of France and (iermany has largely increased —
a fact of much impor'Lnce when money markets are so
closely associated, and when transmission is so easy and
rapid. It is perfectly true that, -s we work with little cash in
hand, our market is more sensitive and more affected by
slight movements of bullion than are the great markets
ab; ^ad, where cash is so largely used and retained. Slight
changes in the reserve act quickly here, bjcause they soon
affect the expectations or fears of borrowers and lenders.
But it is difficult to believe that these changes have just the
same effect now as they would have in times when the
Banks of France and Berlin were scantily supplied with
gold.
Mr. Giffen argues that if the reserve is not kept up here
values must decline, and, if necessary, rates of discount must
be raised in order to secure the decline. Again, he says
that, as increase of population and wealth demands more
cash for the transaction of business, if fresh supplies of
cash do not come to us in ordinary course, rates of discount
must rise and values fall. But, recently, values have fallen
without any serious advance in the rate of discount, with, in
fact, a low average rate of discount. The old machinery
does not work, for on several occasions the Bank has failed
to raise the rate of discount, even when disposed to do so
It may be said that rates have not risen, because other
causes have produced a fall of values which has brought
about an " adjustment." If that be so, it seems to follow
that other causes have been more powerful in causing
changes of price than any changes affecting supplies of
money. But it would be more correct to say that the supply
of cash outside the central Bank has been so great, that per-
manent advance of rates of discount was impossible. The
peculiarity of the money market in recent years has been that,
with a very moderate reserve, we have often had very low
rates of discount — a condition of things which would not of
itself tend to lower values ; but values have fallen. It is
hard to see how it can be said that want of cash for any
purpose has led to the fall in such cases.*
}■'
ii
I
* Generally speaking, the rate of discount depends, not on abund-
ance of gold or silver, but on the organisation of credit, so that we see
B 2
ao
APPRECIATION OF GOLD.
If it be true ihut gold lias not become scarce, and that
we cannot safely argue that prices have fallen in con-
sequence of such scarcity, the question will be asked —
What then are the causes which have led to tlie serious
fall which has occurred in the price of many articles of
great importance ?
The followir^g table gives the changes from 1873 to 1886,
in the cases most frequently referred to : —
the lowest rates in those countries where there has been a comparatively
small amount of bullion or coin. Compare, for instance, England and
France. France has probably two or three times as much cash as we
have ; but if we compare the rates charged from 1844 to 1S77 by the
Banks of England and France, we find that the Hank of England was
at 3 per cent, for 2,682 days, and the Bank of France for only 1,518
days ; and the Bank of England was at 2 per cent, for 1,391 days, and
the Bank of France for only 270 days. (See Mr. Inglis Palgrave's
tables, published in 187S ; and see also M. Y. Guyot's very interesting
chapter in the third book of his " Trinciplcs of Social Economy.")
Mr. GifTen admits (t/>., p. 55) that a fall of price may arise from
"over-production," or lessened cost of production, which will "ease"
the money market, and prevent a rise, or produce a fall, of rates. Or a
rise of prices in articles may occur when gold is flowing in, but not
caused by the influx of gold, and the consequence will be greater
demands for cash, and possibly higher rates of discount. Through
"wages and profits " prices are affected, for "prices are only wages
in another form," and so by changes in wages and profits, differences
arising from scarcity and abundance of gold may be adjusted without
changes in the short loan market.
Mr. Giffen, in fact, admits the importance of "other changes of
prices" apart from '* changes in credit prices;" but then these other
changes in prices depend on " wages and profits," and these depend on
*' the quantity of gold in use," so that it comes to this — that all changes
of prices depend on the " quantity of gold in use."
This argument seems to beg the whole question, for it seems to be
asiumed that prices depend on wages and profits, and that wages and
profits must vary with the cash in the reserves of the country. The
contention here made is intended to show that other elements, besides
those enumerated by Mr. Giffen, have in fact affected, and do still aflect,
prices.
APPRECIATION OF GOLD.
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23
AFPRKCIATION OF GOLD.
'I'he first observation is that it seems impossible here to
find any law as to the fall. The fall appears to be spasmodic
and uncertain, which it should not be if it be caused by a
continuous and increasing scarcity of the means of effecting
exchanges.
We are, however, referred to Index numbers as proving
a fall which is general and persistent. These numbers are
very misleading, as articles small and great are treated as of
equal importance — indigo and wheat, for example. Recently
we have received a table where the numbers are, as far as
possible, corrected so as to embrace the consideration of
"relative importance," as well as mere price. These
figures are given in tables 26 and 27 of Appendix B to the
third report of the Commission on Depression. They are pre-
pared by Mr. Nash under the direction of Mr. Inglis Palgrave.
He takes the average prices from 1865-69 of the twenty-two
articles chosen to form the Economist Index number, as his
'* datum line." Treating each article as of equal importance,
we get a number in 1869 of 2,200 = 100, and in 1885 a fall
to 1,550, or 70, but the corrected figure is 1,669 or 76.
The corrected figure of 1877 was 2,205 or 100, being 7 per
cent, higher than that of 187 1, and the figure of 1881 was the
same as that of 187 1, and the very heavy fall only begins
after 1883, the figure for which was 88, whereas the figure
of 1884 was 80, and that of 1885 was 76.*
This gives a fall of 12 per cent, in two years, and it
is very hard to attribute such a change to any possible
alterations in gold supply in such a period, t These
peculiarities become more interesting when we look a little
further into details.
The change in the price of wheat is very curious. The
price of January, 1879, was 39s. 7d. a quarter; of January,
1884, 39s.; January, 1885, 32s. 6d. ; and of April, 1886,
30s. No change of importance occurred from 1879 to 1884,
and no one would suggest that the fall of 1884 was caused
by scarcity of gold.
* It may, perhaps, be doubted whether the prices from 1865-1869
form a very satisfactory datum line, as they are a good deal affected by
the price of cotton.
t Compare, as to fall of Indian prices in 1 884 and 1885, Barbour
on Bimetallism, p. 93.
APPRECIATION OF GOLD.
23
Take sugar again. It did not fall much between 1879
and 1884, but West India sugar fell from i6s, to 19s. per
cwt., to 9s. 6d. to i2f. before January, 1885, and it remains
much the same in 1886. Hut in 1884 we received yj
million cwts. of unrefined sugar from Cicrmany, as against
4^ million cwts. in 1882; and the production of beetroot
sugar increased from 1,393,000 tons in 1879 to 2,500,000
tons in 1885. In the same period, the production of cane
sugar increased slightly, but the total sugar j)roduction of
tiie world increased more than 30 per cent. These figures
account readily for the fall. The trade has, in fact, been
upset by bounties offered by over-anxious (iovernments, as
well as by an enormous natural increase of supply.*
* I take the following figures as to the import of sugar into the Clyde
from the Financial News of the 17th of April, 1886 : — In 1858 the first
200 tons of beetroot sugar were imported — the total import of sugar for
the year being 70,000 tons. Last year 241,000 tons came into the
Clyde, 158,000 being beet, and 83,000 cane.
In 1879 only 40,000 tons of beet sugar were delivered in the Clyde.
In 1869 the total beet sugar crop of Europe was estimated at 659,000
tons, and last year at 2,546,000 tons. The deliveries of West India
sugar fell from 37,000 tons in 1879 to 11,000 in 1885.
Prices of sugar, 1830
1840
1881
1886
f>
Consumption, 1884-1885.
Beet
Cane
/50 a ton.
^25 „
;^i6 „
2,500,000") .
2;?7o.oooj^°"^-
The following facts, extracted from x single impression of the Times
(19th April, 1886), illustrate strongly the extraordinary supplies of the
present time : — I. As to wheat in India, the estimated area under
wheat on ?''nd March, in the Punjab alone, was 6,700,000 acres, about
2^ times whole area under wheat in the United Kingdom. 2. As
to wool, Messrs. Windeler, in their circular, say: "Colonial wool is
cheaper now than at any time within the memory of the present
generation Production during the interval (since 1848)
has increased nearly tenfold in the case of Colonial wool, while, as
regards River Plate wool, this industry now represents a total probably
equal to the entire Australian clip, and has more than doubled during
the last twenty years There are special circumstances
affecting Colonial wool at the moment. First, the rivalry with River
Plate wool has reached an acute stage. Secondly, the fact that the
Si
24
APPRECIATION OF GOLD.
ii'^
Copper was about j^go a ton in 1873, ;^57 in 1879,
^^65 in 1883, and ;^4i in 1886, in face of a great demand,
but supplies have been, and are, so large (say 47,000 tons in
1850 and 210,000 in 1884) that the fall surprises no one.
So of iron and coal. Scotch pig iron fell from ;^6 7s.
per ton in 1873 to ^2 9s. in 1883, and ;£i i8s. in 1886 ;
but the production of iron was 9,392,000 tons in 1868, and
20,410,000 tons in 1883, so that a fall was inevitable sooner
or later.
Coal was ;^i los. per ton in 1873, i8s. in 1883, and
15s, 6d. in 1886, with enormous stocks. The production
is said to have (quadrupled from 1850 to 1883. The p'-'ces
of iron and coal from 187 1 to 1874 afford a remarkable
illustration of fluctuation arising from special demands. No
doubt the Franco-German war was one great cause of this
change, as it produced a great stagnation in two great
countries of the Continent, and so led to an extraordinary
demand for our manufactures and an unusual consumption
of coal and iron. There may have been other causes for
the rise, but, at any rate, gold had nothing to do with it, as
the serious faUing off in supply had then already com-
menced.
No survey of recent prices would be complete without
some allusion to those articles which have not fallen during
the period here considered. During a quarter of a century,
until within the past two years, meat has remained dear. The
consumption has greatly increased since the repeal of the
Corn Laws, but supplies have also increased from foreign
countries. We import ten times as much as we did thirty years
ago (447,000 tons against 44,000) ; but our population has
increased, and our people consume 105 lbs. per head per
annum, against 81 in 1855, and, as our chief supply is still
production of Merino wool is now for the first time in excess of the
powers of consumption." Since July wool has advanced rapidly.
Our markets have begun to feel an influence of supplies of wheat,
even from countries so distant as Australia and New Zealand. It may
be worth noting that in the present year New Zealand papers mention
most extraordinary results of the harvest just completed. One paper,
dated 19th February, mentions 60, 50, and 72 bushels of wheat to the
acre. Another, dated 24th February, mentions 90 and 70 bushels. In
a third paper, lOO, 86, and even 116 bushels of oats to the acre are
recorded near Tanaka and St. Andrews.
APPRECIATION OF GOLD.
25
produced at home, prices have advanced while other food
has fallen. The advance is most natural, if one considers
the ordinary factors of supply and demand; but if gold were
really appreciated from scarcity, it is hard to account for
such an advance, when other articles of food have fallen
spite of a greatly increased demand.
The prices are as follows in London :—
1841-50 .
1851-60 .
1861-70 .
1871-80 .,
1881-84 ..
Beef per ton.
■ £05
■ £l9
■ £H
Meat is not the only article the price of which has risen
since 1854, during which time so many have fallen.
Taking all the agricultural products of Ireland, Mr.
H. V. Stuart gives the following figures :—
United totals of minimum prices 1850 to 1855 .
■ •£H5 2
'> „ i860 „ 1865 .
.. 212 6 II
'» .» 1870 „ 1875 .
.. 264 13 9
1880 „ 1885 .
.. 224 13 5
,, maximum prices i860 ,, 1865 .
.. 305 611
1880 „ 1885 .
• 39S 13 «
(See '• Prices of Farm Products in Ireland," p. 19.)
'
[ The following Diagrams, which are taken from M. Guyot's " Principles of Social
Economy," pp. 95 and 98, afford an interesting illustration: —
300-
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--
4-^
/ /
15.8
_^
Xi^
Corn
2
S--^'
-*-**
1790 1800 I8IO 1820 1830 1840 1850 i860 1870. 1880
Price of Land and Agricultural Produce, 1 787-1880 (France).
20O
190
i8o
170
j6o
150
140
130
120
no
100
90
80
70
60
50
40
30
20
fO
o
TO
ao
Increase per Cent.
\
\
\
/
;
/
•
/
/ '-^°''l
\y
107%/
^ /
/
/ 93 7o
W /
/ /
^
/
/
/
/
/ s!#^ .^.6 y32>
21.77,
>^^^0>^''^'^ 15.27,
J^
■ ^^^ii^i^'i.v..,,,
^^
-- — ^i^>>^
880
I77I
lS-0
1878
Price of Land, of Agricultural Products, and rate of Agricultural Wages,
1771-1878 (England— Caird).
a8
APPRECIATION OF GOLD.
Taking 50 British imports as given by Mr. Mulhall
("History of Prices," p. 180) and taking the Index number
of the pric of these from 1854-60 as 100, we find in the fol-
lowing cas^s an advance in 1884 as compared with 1854 —
1854
1884
1854
1884
I'acon
78 .
.. 96
Eggs
80 .
.. 123
]5ecf
95 •
.. 127
Hides ..
71
97
Ikandy ...
89 .
.. 96
Oats
. 103
III
]iutter
81 .
.. 119
Oxen
75 •
.. 138
Cheese
90 .
102
Pepper
102
•• 145
Cocoa
60 .
.. 165
Potatoes ..
. 85 •
192
Coffee
94 •
•• 135
Raisins
. 86 .
91
Cotton
88 .
•• 93
Sheep
72 .
no
Currants ..
61
•• 75
In the same way, if we take 50 I^ritish exports, and
compare the prices of 1854 and 1884, we get the following
exceptions to the fall —
1854
1884
i8s4
1884
Beer
95
no
Salt ... 109
.. 118
Cloth
89 .
.. 152
Silks ... 100
.. 103
Firearms ..
72
.. 104
Spirits ... 133 .
.. 165
Fish
84 .
100
Yarn (cotton) 92
.. 100
Horses
88 .
100
,, (linen) 100
.. 108
Leather ...
95 •
.. 107
There is here a list of exceptions so long as to lead to
caution in speaking of any i)revalence of depression amount-
ing to a law. No doubt there are special causes for the rise
in each case. That is not disputed, but so are there special
causes accounting for a fall in other cases. Some articles
rise and some fall according to supph and demand, and
many new and most important influences which affect
supplies and demands have arisen in our own time, as will
be seen hereafter, f
* Cotton yarn has fallen much since 1884.
t Compare the remark of Professor Marshall (Ap[)endix C. to third
Report of Commission on Trade, p. 423). " It is beyond question that
changes in the supply of jjold are not accountable for more than a
very small part of the total fluctuations in the general purchasing
power of money."
No allusion is made in the text to the great rise in the value of
real estate (land and houses) which continued up to 1876 or 1877.
APPRECIATION OF GOLD.
tf
lielorc, however, dealing with these, it may be instructive
to refer to some cases of great fluctuation in price in former
periods, before the discovery of the great gold-fields of
California and Australia.
There was an enormous rise of prices from 1789 to 1809,
by some attributed to war and by others to a great abundance
of gold and silver in Europe (although there were no nc -"
supplies of much importance during that period) ; and the .e
was an equally remarkable fall in the next twenty years, from
1809 to 1829. This is usually attributed to increase of
poi)ulation and trade, without any increase of importance in
gold or silver. Again, by 1839 there was another sharp rise,
attributed by Mr. Jevons to "general expansion of trade and
credit;" but by 1849 there was a fall, even more extraordinary,
attributed to a " collapse " of trade and credit.
The potato-famine, the panic of 1S47, and the revolution
of 1848, were all included in this decade, and would seem
to account for much decrease of business and a lessened
demand for most articles of commerce.
The year 1849 marks about the lowest point of the low
prices before the gold discoveries, and the history of these
l^revious changes ought to make it very clear how great may
be these fluctuations, even when supplies of gold and silver
remain comparatively stationary.
The figures of this period are thus summed up by Mr.
Jevons in his " Investigations," published after his death : — •
Year.
17S9
1799
1809
1S19
AveraRc ratio
of prices
to
\ ear.
prices of I
849.
133
1829
202
1839
245
1849
175
Average ratio
of prices to
prices of 1849.
124
144
100
Recently that advance has been more than lost, but real estate
contniued to rise after circulating cajjital in the form of goods of
various kinds had begun to fall. And yet, if gold were really scarce,
such property as land should have felt it quickly. Bad seasons and
low prices of many products and dearer labour have caused so many
failures amongst farmers that rents have fallen and land in many
localities is now almost unsaleable ; but the history of this fall is not
like that of the fall in goods. The one has followed on the other,
whereas they shouhl have begun together had they been the results
of a common cause.
30
APPRECIATION OF GOLD.
This very interesting period is in ])art discussed by Mr.
Tooke in his ''Essay on High and Low Prices," pubHshed in
1824. He shows how the great war had tended to raise prices
by checking production at home and lessening importations
from other countries, through prohibitions and heavy
freights and charges. J^ut a most careful analysis of many
changes results in the conclusion that the ups and downs
depended, not on greater or smaller issues of notes or
exportations of gold during the suspension of cash payments
by our Bank, but on supplies and demands, consequent
partly on seasons and partly on mercantile speculations, of
which there was a plentiful supply when fluctuations of price
were so rapid and so serious.
For instance, there was a prodigious advance in 181 7,
simply in consecjuence of a very bad harvest in 18 t6, and
})rices remained high throughout 181 7 and 1818 ; and they
afterwards fell rapidly, but not, as he shows, by reason of
any deficiency in available money, but from natural causes
and a collaj3se of a great speculation. Not only was the
supply of corn great, but the imports of other productions
had been enormous after the peace.
The net imports of " Colonial and Foreign Productions "
were in —
1816
1817
1818
^11,306,000
17,704,000
23,019,000
m
A similar collapse had already taken place in i8to
and 181 1, but without teaching prudence to speculators,
encouraged by Napoleon's famous system, which added so
many elements of uncertainty to all transactions.
Mr. Tooke's remarks on this last period are very
important and instructive. He says ("High a.id Low
Prices," part L, page 182): — "It is sufficient to remark
that the more the instances of a rise in prices a''? examined
into, the more clearly will they be found to be explained
u])on scarcity from seasons and political obstructions, or
extra demand from peculiar and temporary causes. But it
is material to observe that while such great stress has been
laid on the circumstance of many articles having risen in
APPRECIATION OF GOLD. 3I
price between 1808 and 1814, no attention seems to have
been paid to the great and long-continued depression of
other articlesh— •— ..^^
" Colonial produce was in several instances lower than
it had ever been before. Moreover, various kinds of raw
materials, imi)()rted at most extravagant rates, were sold in
1 8 10, 181 1, 18 13, and 18 14 at prices that would not pay
more than the mere charges.
" Now, if from these reduced prices be deducted 20 per
cent., as about the difference between paper and gold, it
will leave so low a range, that, applying the same rate of
reduction to the highest prices at which any considerable
quantities were sold in 1808, 1809, 181 2, and 1813, the ^
average will afford a result of very moderate metallic j^rices,
by no means justifying the inference of any diminished value
of gold and silver, but rather the reverse."
In the Edinburgh Revieiv for January, 1886, and in the
article of M. de Laveleye in the Contemporary for iMay,
1886, much stress is laid on the condition of prices and of
commerce in the decade from 1820 to 1830, as throwing
light on present depression.
But it would seem difficult to draw rny sound conclusion
from a period so different in its characteristics from our
own. The period in question began with low prices, which
were caused by very abundant supplies, as explained by
Mr. Tooke, and, notwithstanding the supposed depressing
effect of such prices, they were followed by one of the most
extraordinary spasms of speculation ever known in this
country — a speculation which ended in the crisis of 1825,
and a multitude of serious failures, especially of banks.
This fact does not appear to be referred to in either of these
articles, and the omission seems to throw great doubt on
reasoning which seems intended to convince us that low
prices are simply destructive of all enterprise, and, therefore,
amount to a calamity. (See Appendix F.)
It is quite true that this view of the case would not Jvpply
to Italy and other countries which were not affected by our
disasters ; but it is equally clear that the mere existence of
low prices will not of itself discourage active exertions V
by traders, and it is notorious that great speculations
sometimes originate from the fact that prices are low. and
3«
APPRECIATION OF GOLD.
s!'
'i
tliat, therefore, stocks can I)c inocurcd at a comparatively
small outlay, and held at a comparatively small risk. The
existence of depression now may be admitted ; but it is con
tended that it is most unsafe to compare this period witli
1820, as if the depression of 1820 was permanent, and had
not been followed by a sudden revival here, and as if it were
possible to compare the state of commerce just after the
great war and before the discovery of the locomotive with
the condition of things with which we are now familiar.
If any comparison were to be made, it would be more
fair to suggest that if such a depression as that of 1820 were
soon surmounted under conditions so unfavourable as then
existed, we might naturally look for an even more rapid
recovery in the present condition of trade. But the fact is
lliat even that comparison would be unsafe ; for, if many
things now tend towards recovery, on the other hand exist-
ing conditions, as we shall see, tend to encourage competi-
tion, which was unknown in former days.
The following extract from Tooke's " History of Prices,"
vol. ii., page 139, seems strongly to confirm the argument
here used : — " Credit had been restored, and the general
circulation had been consequently enlarged, more especially
as compared with the autumn of 1825, when the prices of
wheat and of corn generally were from 20 to 30 per cent,
higher than in the last six months of 1827. If the facts here
adduced should not be deemed sufficient they might be
multiplied without end, in proof of the utter want of con-
nection in the relation of cause and effect between the state
of the corn markets and the state of the circulation, from
the commencement of 1823 to the close of 1827." And yet
this is the very period chosen by these high authorities to
encourage us to attribute the recent fall in prices to changes
in the supjilies of money throughout Europe. Their mistake
seems to arise from an imperfect consideration of the facts
which have been so carefully analysed by Mr. Tooke, from
whom one more extract may be fairly given. He says
(vol. ii. page 188) : —
" It is perfectly within general recollection that this great
enlargement of the Bank issues" (in February, 1826) "had
not the effect of arresting the fall of prices. . . But it
has not been so well recollected nor understood that a
APPRF.CIATION OF GOLD.
33
similar enlargement in i8[o, which wns rej)resented as an
inundation ot paper, causing an advance of prices, was issued
under circumstances singularly analogous, having been in
fact coincident with a great fall of j)rices and a great failure
of private credit."*
* It can hardly lie disputed that fluctuations of price were more
severe in former than in recent times, the intluence of modern discovery
tending towards far greater uniformity of supply in different parts of the
world. At any rate, fluctuations were formerly excessively rapid and
violent, as may be seen throughout Tooke's great work.
If supplies fell off, they could not easily be filled up before the days
of steam and telegraph, nor could a superabundance be easily removed.
So, in the early days of the century, a good harvest would cause a
terrible fall in corn, and a bad year would be followed by famine prices.
The history of liritish India is full of illustrations of an excessive
diversity of price under one Government, and there can be no doubt that
the railway, the steamer, and the telegraph have done more to prevent
local famines than any action of Governments.
The following is a good illustration of the general remark made
above (see Tooke's " History of Prices," vol. i., p. 235) : —
1800-1.
1 1 6s. to 130s.
50s. to 70s.
. IS. 6d. to 2s. 8d.
4d. to 5(1,
A few prices from 1782 to 1822 may be interesting : —
Coffee, per cwt.
E. India sugar
Cotton, per lb.
Tobacco, per oz.
1793-9.
185s. to 196s.
96s, to 115s.
3s. 6d. to 4s. 6d.
1 1^(1. to i6d.
Cotton (W. India) (lb.)
Copper (cwt. ) . . .
Iron (Ion)
Rice (cwt.)
Sugar (Jamaica) (cwt. ) .
Tea (Congou) (lb.)
1782.
..2s. to 3s. 6d.
84s.
25s.
(Duty 7s. 4d.)
50s.
1800.
2S. 3d.
1 40 s.
40s.
(Free)
35s-
1810.
2s.
1 60s.
£^
30s.
40s.
(Duty i2s.3d.) (Duty 20s.) (Duty 29.S.)
5s-
5s-
3s. 6d.
(96P.C.
Duty.)
90s.
I OS.
Wheat ... ... ... 50S. ... loos. .
Wool (Spanish) (lb.) ... 3s. ... 4s. •
(See Tooke's " High and Low Prices "—Appendix F.)
C
1822.
. I id.
loos.
. £6, rose
to £\2
in 1825.
20S.
. 30s.
(Duty 27s.)
. 3s.
(100 p.c.
Duty.)
. 4OS.
. 3s. 6d.
^4
APPRECIATION OF 001,0.
It is natural now to state some of the peculiar
events of our own times which have tended to reduce
prices.
(i) The first great cause seems to be the increase of
competition both in Europe and America, and even in tlie
Kast. Recent consular reports lay great stress on the
activity of German manufacturers and their skill in extend-
ing their busmess. They seem more industrious and better
inlormed than our own people, and to aim at adapting them-
selves to their customers, both in offering low prices and
goods suited to varied demands. France is often quoted as
a serious competitor, both in silk and woollen goods, and
even India is regarded with anxiety by many. It is need-
less to refer to America, whose people are distinguished for
their ingenuity and activity. The important point consists
in the fact that we have now had a long period of peace, so
that our competitors have been able to operate without
hindrance.
During her great war, America was unable to be a
serious rival, and there can be no doubt that the great
European war of 1870-71 destroyed for the time many com-
petitors, and thus lessened the force of a competition which
is now fully felt.
Thus peace has tended to lower prices by increasing
competition.
(2) But far more potent even than competition from
without has been that competition at home which has
arisen from inventions which have increased production
or lessened its cost, or have greatly reduced the cost of
distribution by low rates of carriage and saving in the use
of capital.
The great cause of causes has been the development of
steam power. No accurate estimate can be made on such
a matter, but it is said that the available power now in use
by man is six times what it was in 1850.
Wages have greatly increased, but the cost of doing a
given amount ot work has greatly decreased, so that five
men can now do work which would have demanded the
labour of eight men in 1850. If this be correct, the saving
of labour is 4^ per cent, in producing any given article.
The amount of saving will, of course, vary according to the
APPRECIATION OF GOLD.
35
subject matter ; but it must be great throughout, and must
involve a great lessening of cost, and therefore, other things
being equal, of price.
The history of the manufacture of iron and steel affords
a striking illustration. It is supposed that five times as
much iron is now consumed as was consumed in 1850, but
the price is lower than ever, thanks to an enormous ])ro(luc-
tion everywhere, (jcrmany, France, and America have in-
creased their production more rapidly even than England,
as in 1850 they produced but little. The general result is a
production so great as to leave little profit to the producer,
and no industry at this moment is more depressed than
that which is most vital to the progress of all other
industries.
According to the high authority of Sir Lowthian Bell,
the consum])tion of fuel in smelting pig iron is only
one half what it was formerly — i.e. a ton of iron can be
smelted by the use of two tons of coal instead of four
tons, the coke used being reduced to its equivalent in
raw coal.
There is another economy arising from the fact that
the new enlarged furnaces will turn out 500 tons of
pig iron per week, instead of 80 to loc tons turned out
by the old small furnaces ; and the labour employed at
each furnace is not more than one-third of what was
necessary when the small furnaces were used with the
cold air blast.
It is needless to do more than refer to the great import-
ance of the Bessemer process, and other inventions relating
to steel. At this moment the price of steel rails is about
jQ2> i2s., as against ^17 los. in 1864, and it is said that
English makers have offered to deliver steel rails in Canada
at ;£^ 4s. per ton, a lower price than can be offered even by
makers in America. The price is less than half the price of
iron rails a dozen years ago. At the same time it is noto-
rious that there is a decided economy in the use of steel
instead of iron in rail-making. No one knows exactly how
much longer a steel rail will last than an iron one, but it is
clear that the difference is great, so that the make of iron
rails has almost ceased.
The like change is to be noticed in other industries.
36
APPRECIATION OF GOLD.
Steel is now much used for shipping,* for boilers, and in
many other directions, so that a great economy in the use of
iron is secured, and at the same time the improved material
is supplied at ])rires which, a few years ago, would have been
thought absurdly low even for ordinary jjig iron.
Perhaps, however, nothing has so strongly tended to
cause a fall in iron as tlie discovery of new and clieaply-
worked supplies of iron ore, both here nnd abroad. Many
old supplies have fallen off, but the general increase has
been very great : —
i860.
1870.
1884.
North-Eastcrn
Di trict
(Tons
of ore)
1,483,000
4,297,000
6,103,000
Scotland
tt
2,150,000
3,500,000
1,885,000
Wales
ft
715,000
619,000
95,000
Startordshire
n
1,523,000
1,360,000
1,873,000
Cumberland
»1
989,000
2,092,000
2,595,000
Lincolnshire
« »
112,000
1,009,000
2,628,000
Derbyshire
»>
875,000
384,000
10,000
Shropshire
»»
165,000
337.000
i()^,onn
West Riding
»»
255,000
307,000
167,000
Sundries
>»
252,000
464,000
570,000
Imported
»» ■
«»
23,000
208,000
3.153.000
The importation of foreign ore consists chiefly of
hematite ; but there has been an enormous extension of the
iron industry in other countries, which must tend to keep
down prices.
The following figures show how important is this con-
sideration : —
1870. 1875. i38o. 1884.
Nett iron received
from U. K. by Tons. Tons. Tons. Tons,
foreign nations.
Make of foreign
nations.
3,472,000 3,088,000 4,428,000 4,308,000
5,602,000 7,268,000 10,328,000 12,469,000
Total consump-
tion by foreign
nations.
9,074,000 10,356,000 14,756,000 16,777,000
* Gross tonnage of ships built of steel : —
1880. 1884.
38.164 15^339
(Sir L. Bell, "The Iron Trade of the United Kingdom," p. 23.)
1877.
1,118
APPRECIATION OF GOLD.
37
So there has been a falUng off in our export smre 1 880,
but a marked increase in the total consumption outside the
United Kingdom.
Sir L. IJell estimates (p. 58) the progress of the trude
here and abroad as under : —
Per cent, of
total make — ,
Great Hritain
1870.
516
1875.
467
1880.
42*9
1884.
-S-5
All other
countries
48-4
53-3
571
615
The increase since
1870 is as
foil
ows : —
Clreat Britain
100
1067
1299
»3i
All other
countries
100
I3S'6
197
237-9
It must not be forgotten that i.ne home competition has
been greatly increased by the existence of Hmited UabiHty,
and the consequent use of great sums of capital in the trade,
which, but for the altered state of the law, would certainly
not have been so applied. The money once so invested
cannot be withdrawn, and companies work on, without
profit, or at a loss, to the great injury of their shareholders
and of the trade.
The production of coal has quadrupled since 1850, and
the price, since the sudden advance of 1870-72, ..as fallen
to a lower level than ever.
Invention has not in this case materially assisted pro-
duction,* but the introduction of capital, in consequence,
partly of the high prices of 1872-73, and partly of limited
liability, has tended to maintain the output even at a loss ;
The following figures show the tons wrought per hewer per shift
Year.
1871
1872
1879
Tons wrought
Per Man.
••• 4-57
... 4-46
... 4*21
Year.
1882
1885
Tons wrought
Per Man.
... 4-II
••• 395
The cause of the reduction is the working of thinner seams, which
involve more labour per ton raised.
I!
i,,
'^1
V
APPRECIATION OF GOLD.
and thus, though the consumption has increased enormously,
it has been far more than overtaken by production.
The cotton industry affords a good illustration of like
changes. The price of raw cotton is about the same as in
1850, but the cost of cotton cloth has fallen at least 10 per
cent, by reason of improved processes and decreased cost of
production. The crop has increased prodigiously, especially
in the United States, where it has doubled since i860 ; but
the demand has increased as rapidly, so that, but for many
labour-saving inventions, the price of cotton clothing must
have increased. The result is well shown in the figures
given by Mr. Atkinson (" Distribution of Products," p. 119)
as to factories in New England (see Appendix D) : —
Yards per operative per year :
1830
1850
1870
4.321
12,164
19,293
1880
1884
28,000
28,032
Cost of labour per yard :
Dollars.
1830 1,900
1850 1,556
1870
1884
Dollars.
1,425
1,070
Comparison of 1830 with 1884
Operatives per 1,000 spindles, 1830
„ 1884
Pounds per operative per day, 1830
,, t> ,» 1884
Wages per operative per year, 1830
„ 1884
Profit per yard at 10 per cent. ) 1830
on capital ) 1884
49 "I Decrease,
i7"2/64per cent.
... 9 "94 1 Increase,
... 3i'26 1 2i4percent.
... !:?i64 ) Increase,
... ^290 I 77 per cent.
2 "40 cents. I Decrease,
•41 cents. \ 83 per cent.
Another case is that of paper, in which, spite of pro-
digious demands, there has been a steady fall of price by
reason of the discovery of new materials and machinery,
and the competition of makers on the Continent.
Paper is now produced from woody fibre, straw, and
grasses, as well as from rags, so that the cost of books has
APPRECIATION OP GOLD.
39
fallen almost beyond belief, to say nothing of newspapers
and periodicals. When a well-printed standard book can be
sold for threepence, the reduction of \mtt may seem almost
to have reached its limit. The following table gives an idea
of the changes in the cost of paper : — *
Year.
Fine Pap<
;r.
Second Quality.
1849
1854 to '61
1S62
. 9^fl.
8^d.
to
to
lod.
9d.
per lb.
8d.
... 7^1.
6d.
(Duty lid. per lb. t.ikeii
off in 1861.)
1885
. 5d.
4d. t0 4^d.
(C
ommon,
3cl.)
Another curious illustration has recently come into
notice in consequence of the riots in Belgium. Great
distress exists among the glass-blowers of Charleroi — a state
of things which is due, according to a recent correspondent
of the Times^ to the fact that " The improvements in the
methods of manufacture have entirely upset the equilibrium
between the supply and the demand." It appears from his
statement that one Siemens " tank furnace," as used by M.
Baudoux, does the work of eight " coal furnaces," and
requires but four men to feed it instead of twenty-eight.
Another is equal to six coal furnaces. A coal furnace
* It is stated on the best authority that a paper mill making;^l5,(X)0
a year fifteen years ago, will hardly pay its expenses at this moment ;
and that a mill worth ;<^5o,ooo to sell at that lime, would barely fetch
;^S,ooo now.
No one would venture to attribute such a change to any alteration in
the supply of gold. But competition has affected makers of paper as
well as protlucers of corn-
Compare the following, from an American paper, Bmdsinet^s, of
22nd May last: — " Holyoke, 19th May: The manufacturers of this
* pa|)er city' have found no relief for two evils of which they complained
bitterly at the time of the Saratoga Convention last summer. One is
the continued prevalence of extremely low prices With regard
to prices, it is to be saul that a year ago experienced manufacturers called
the ruling quotation^ the lowest ever known. Nevertheless, there has
been a steady dechne since that time."
Some of our paper makers complain much of foreign competition.
But their brethren in Protectionist America seem to be in much the
same condition as to prices. The same paper says that prices have
fallen lo per cent, m a year.
40
APPRECIATION OF GOLD.
it
ill
])roduces 1 1 5,000 feet of glass per month, and a tank furnace
1,000,000 feet per month. The coal furnace only works
eighteen days in a month, and the other sort " can be used
without interruption," and can be worked with fuel of a
*' very inferior quality." We have here an instance of a
truly wonderful economy, and it is hardly surprising that
such results siiould have alarmed both small producers and
their workmen. The effect on prices has also been extra-
ordinary.
There is no fall in the highest kind of glass, where much
skilled labour is necessary for the manufacture, but common
window glass has fallen at least 50 per cent, in consequence,
as it would seem, of these discoveries.
(3) Perhaps no consideration is so important, in discuss-
ing recent prices, as the reduction in the cost of distribution,
both by land and water, since 1850.
We have in Europe eight times as many miles of railway
as we had in 1850, and in the world quite eleven times as
many. It is not easy to say how far the cost of carriage is
reduced by the existence of railways, but it has been esti-
mated as amounting to a saving of five-sixths. The exten-
sion of the area of production is more important even than
the mere saving of cost of carriage : that is to say, by the
reduction of the cost of carriage great sources of supply are
opened up which in other days could not have exported any
surplus. For instance, not many years since, Indian corn
was burnt for fuel in the far Western States of America, and
it is certain that the wheat of the "great North-West" and
of India could not have reached our English markets but
for low rates of carriage by land and sea. Of course the
extension of the home trade in every country by railway
carriage has been enormous. Opportunity of travelling
makes men desire to travel, and facility of transport must
cause a great development of business.
But, as regards price, it is probable that competition
amongst foreign producers has an even greater influence than
the mere reduction of the cost of carriage within our own limits.
Articles which we do not produce at home, like sugar, have
fallen as heavily as our own staple productions, the railroad
and the steamer operating all the world over to create com-
petition and reduce charges. As Professor Cairnes said : —
APPRECIATION OF GOLD.
41
" Foreign trade not merely supplies us with commodi-
ties more cheaply than we could produce them from our
own resources, but supplies us with many commodities
which, without it, we could not obtain at all." (See
Appendix N.)
No better illustration of this point can be given than the
change in the cost of carriage from Chicago to New York.
What cost 42*6 cents to carry from Chicago to New York in
1868 was carried in 1884 for 13 cents, or just a third of the
old charge.
One is not, therefore, surprised to find that three
American railroads which carried 10,000,000 tons in 1868,
carried 46,000,000 tons in 1883. Charging so little, they
must carry more, or work without a profit (Nimmo, "Railway
Federation," (S:c., January, 1885). The following figures as to
the Pennsylvania Railway Company add another good illustra-
tion. The tonnage moved one mile in 1865 was 420,060,260
tons, but in 1885 it was 3,318,466,263 tons. The increase
of 1885 even over 1884 was 235,966,277 tons. The average
charge per ton per mile was about f ths of a cent, or say
y\ths of a penny, and only ^th of the charge made in 1865.
An additional charge of yVjth of a cent per ton per mile
would have added about ^600,000 to the revenue of the
company. The competition must be pretty keen which
compels a company to forego such an addition.
Speaking of the whole United States, Mr. E. Atkinson
says ("Distribution of Products," p. 274) that in 1865 they
had one mile of railway to 1,000 people, and in 1885 they
had one mile to 450 people. It appears from the same high
authority that in 1870 there were moved on all the railways
in New York State 20,000,000 tons; but in 1883, 74,000,000
tons. Had the rate of carriage of 1870 been charged in
1883, the total paid would have been about ^^3 1,600,000,
whereas the actual charge was ;^ 16, 7 00, 000, showing a saving
of ;^ 14,900,000.
Taking the railways of Ohio in a similar way, there were
moved in 1869 about 14,000,000 tons, and in 1863
63,700,000 tons, and the saving to the public from the
reduction of rates was about ;^ 18, 000,000 — even greater
than in the case of New York.
In the case of the New York Central Railway, it has
42
APPRECIATION OF GOLD.
\i'
been recently worked for a profit of less than J of a cent
(say ith of a penny) per ton per mile, and the average
freight in Ohio has come down to one cent (say -^d.) per
ton per mile.
Again (t^iW., p. 85): "The saving in the cost of moving
merchandise over existing railroads, comparing one year
with the next preceding, that is, over the railroads exist-
ing in each year, has far more than equalled the cost of
building all the new railroads constructed in the subsequent
year for 15 years — from 1865 to 1880. In other words,
tlie reduction in the charge on existing railroads each year,
computed on the quantity of merchandise moved in that
year, has amounted to a sum equal to the sum expended .
in the extension of railroads in the next year, for each and
every year since 1865."
Mr. Atkinson (t'did., p. 235) makes one general remark
of great interest. He says, " Had the actual quantity of
merchandise moved by the railroad in 1880 been subjected
to the average rate per ton per mile which was charged
from 1866 to 1869, the difference would have amounted
to, at least, ;^i 00,000,000, and perhaps ^160,000,000
more than the actual charge of 1880, and yet, up to this
period (July, 1884), the prices of leading farm products had
not been substantially affected by this enormous change."*
Prices of grain, &c. have fallen much in America since
Mr. Atkinson wrote, nearly two years ago, and far more
than he seemed then to expect; but no one can wonder at
such etfects from the facts he mentions, and from the
competition of India, which has recently become so im-
portant, and the importance of which as a competitor
depends largely on the fall of sea freights and the develop-
ment of railways in India.
So, all over the world, the effecis of lessened cost of
distribution become more and more conspicuous.!
* In a recent letter to Bradst red's, of 15th May last, Mr. Atkinson
gives another comparison. He compares 1S65 and 1885, and shows
that, taking a given weight of goods to be moved from Chicago to New
York by the New York Central Railway, 58 per ct-nt. of the value was
absorbed in transportation and depreciation of currency in 1865. But
in i88s, only 20 per cent, was absorbed, the chirge per ton per mile
having fallen from 3*45 cents to f;M,lhs ofacer.i.
I Mr. Atkinson {ibid,, p. 183) makes an ob.ervation which tends
APPRECIATION OF GOLD.
43
' The triumph of invention has been arrived at in the
wheat trade of America, for we are assured by Mr. Atkin-
son {ibid.^ 76) that " seven men suffice to give 1,000 persons
all the bread they customarily consume in a year.
" If to these we add three for the work of providing
fuel and other materials to the railroad and to the baker,
our final result is that ten men working one year serve bread
to ond thousand (1,000)."
It may, perhaps, be fairly questioned whether the fall
in the cost of carriage by sea may not have had even more
influence on prices than the fall \n land-carriage. Certainly
in nothing has the influence of invention been more rapid
and more important.
Partly in consequence of cheapness of materials, and
partly in consequence of the limitation of liability, the build-
ing of steamers has made an almost absurd progress in
recent years. In 1883 alone more than ;^3, 500,000 was
paid up by shareholders in " limited " shipping companies ;
and this fact prepares one for the extraordinary figures given
by Mr. S. Williamson, M.P., in the Fortnightly Revieiv for
January, 1885. (Cf. Appendix G.)
He says that the combined capacity of our sailing and
steam ships was in 1875, 9j975)Ooo tons, and in 1883,
14,646,000 tons— an increase altogether "wild and unjustifi-
able," adds this excellent authority. And, of course, the
carrying capacity of each steamer has beeri enormously
increased in recent years by inventions which reduce the
quantity of coal to each ton of cargo, and thus leave more
strongly to confirm the general argument of this paper. " May it not
be that the complete revoUuion in the methods of commerce, which
has been brought about during the last twenty years by the railway, the
steamship, and the telegraph, as well as by the application of science
and machinery to agricuUure, has now come to what might be called a
culminating point, after which the benefits heretofore enjoyed mainly
by the producers and distributors of the staple products necessary to life
are now in process of wide distribution amongst all consumers? In
oilier words, may it not be that, under the beneliccnt law of diminishing
profits and increasing wages, a lower plane of prices on a gold basis has
been reached, which is of a permanent character? " Taking all grain
together, Mr. Atkinson reckons that the product per head of the popu-
lation of the States has increased from 32^ bushels in 1865, to 52^
bushels in 1885, the population having increased during the same
period about 25,000,000.
iii
44
APPRECIATION OF GOLD.
\^m
room for cargo. A few years ago it required eighteen tons
of coal per day to move a steamer of 1,200 tons burden.
Now ten tons per day will move a steamer of 2,600 tons.
The current expenses of the larger ship are not increased at
all in proportion to her size, and thus arises economy, not
merely in the amount conveyed by a given amount of fuel,
but also in other ex])enses.
It follows that shipowners can afford- with a reasonable
profit, to carry goods at rates of freight which would have
been ruinous in years gone by, and they are forced to
reduce freights even lower than they can afford by most
unusual competition.*
The rapid increase in the use of steamers is well shown
by the following figures as to one part of the world : —
Registered net tonnage sailed from the United Kingdom to India,
China, and other Eastern ports, and the AustraUan Colonies.
During the
year 1874
1875
1876
1877
1878
1879
1880
1881
1882
1883
1884
1885
ailing Ships.
Steamers.
Net Tons.
Net Tons.
1,626,792
654.498
1,640,858 ..
710,560
1,640,704
723,039
1,772,298
862,919
1,484,368
751,59s
1,462,073
808,208
1,646,559
1,125,991
1,577,774
1,606,841
1,493,955
1,587,400
1,333,046
2,072,427
1,325,151
2,145.635
1,448,961
2,274,767
* The history of inventions relating to steam traffic may be summed
up as follows : —
1855. — Introduction of screw instead of paddle, and general use of
steamers.
1866. — Introduction of condenser and "compound engine," and
consumption of coal reduced from about 7 lb. per indicated horse-
power to 3 lb. per horse- powei'.
1870. — Horizontal action superseded by "inverted direct action."
This, together with "the triple expansion," will probably reduce con-
sumption to I "50 lb. per horse-power.
Boilers and furnaces have been greatly improved, and finally the
"forced blast," effected by a fan fixed below the furnace, will, it is
expected, enable stean;ers to bum cheaper coal and will keep up a
regular heat.
Further economy is expected in high quarters from the use of
petroleum as a source of heat for steam-ships.
APPRECIATION OF GOLD.
45
The result is seen in the following table of recent
freights (see further Appendix O) : —
COMPARISON OF FRKIGHTS IN OCTOP.ER (INDIA).
Calcuttn to
U. K.
Article.
f'/Vf Cape Jute
,, Canal ,,
,, Cape Wheat
,, Canal ,,
Cape Linseed
Canal ,,
(Jape Rapeseed
Canal
i88t.
s. d.
65 O
85 O
62 6
71
67
3
6
70 o
35 o
s.
45
11
30
35
d.
o
6
o
o
45 o
in 6
47 6
40 o
i88^.
s. 'd.
37 6
35 o
25 o
3
6
26
37
35 o
27 6
37 6
1884.
.t. ,/.
30 o
31 3
20 o
17 6
30 o
30 o
30 o
32 6
1885.
s. d.
22 o
32 o
23 o
27 o
33 o
34 o
35 o
35 o
Year.
1S75
1880
18S3
18S5
OUTWARD
Alexanflri.i.
s. d.
16 O
15 o
12 6
10 D
FREIGHTS
Bombay.
s. d.
29
24
18
19
FROM
O
O
O
O
WALES.
Genoa.
s.
13
14
I I
10
d.
O
o
o
o
New York.
s. d.
35 o
10 o
11 o
9 o
Bombay
Brazils.
J. d.
s. d.
1875 •
41
• 43
1880 .
32 .
40
1883 .
.. 28 .
. 48
1885 .
.. 23
• 37
HOMEWARD FREIGHTS.
Quebec
(Timber).
s. d.
.. 80 O .,
.. 65 o .,
.. 50 o .,
Odessa.
J. d.
30 O
23 O
23 o
20 o
N.York
(Iron).
s. d.
7 o
5 6
5 o
4 o
Freights for wheat from San Francisco to England fell
50 per cent, between October, 1883 and October, 1884.
Another indirect economy arises from the reduction of
the time occupied in voyages ; so that in the Eastern trade,
for instance, the stock of goods now on the water in course
of transit is only about one-half of what used to be thus
locked up. In other trades the economy of time will not be so
great, but it will still be very large. It is an econ-^my which
is felt both as to imports and exports. It an.o .nts to an
enormous saving of capital, which is thus quickly realised,
whereas formerly it would have remained for a long time
absolutely unproductive, and, in fact, requiring much outlay
for carriage and custody during transit. It would be
46
APPRECIATION OF GOLD.
11
extremely difficult to make any calculation of the amount of
interest of money thus saved every year, but on such a
national turn - over as ours the amount must be very
important ; and though the advantage thus obtained would
accrue equally to shippers of all nations on a given amount
of goods, Kngland must of course get the greatest share of
the saving, as she so far exceeds any other nation in the
amounts de:ilt with.
Perhai)s few modern inventions have had more peculiar
or important effects than the telegraph. In its ruder forms
it did not seem likely to produce such remarkable results ;
but, as now developed, it is admitted that the course of
commerce has been greatly modified by its influence.
Generally speaking, it may be asserted that it is no longer
needful to retain large stocks of goods at any of the great
centres. The price of articles in London is known every
day all over the world, and transactions can be arranged
with as much certainty and facility between London and
Bombay or Hong-Kong as between London and Liverpool.
The merchant can order purchases or make his sales by
wire just as readily as by letter, and he need not wait
months for a reply. Everything is fixed in a few hours, and
payment can be arranged by the same medium. Where
formerly bills were drawn and transmitted in settlement of
accounts, and much time was lost in the transmission of cash,
the remittance can now be made by telegram, and the rate
of exchange is settled in the same way.
Thus a great saving in the use of capital is effected.
The goods purchased must, of course, be shipped, but they
are only now a fraction of the old time on the way, and,
on arrival, payment can be effected, if desired, in a few
hours instead of weeks. The period occupied by the voyage
being thus curtailed, and the supplies ordered as if by word
of mouth, and paid for as if buyer and seller lived next door
to one another, it is obvious that the use of capital in the
movement of goods from one country to another is reduced
to the smallest possible amount*
* It is, however, to be observed that very large payments are still
made by thafts both on foreign countries and <in lingland, and in some
trades transmission of money by wire is less common than it was a few
years ago, and the system of drawing at short dates has become more
APPRECIATION OF GOLD.
47
Formerly such a trade needed the co-operation of rich
men on both sides of the world, and of a series of middle-
men. Now small men can do the work for small profits
on each transaction, and the mnItii)lication of transactions
will give a good result, though the commission be greatly
reduced. Moreover, the need for middlemen and their
charges has almost ceased to exist. As a matter of senti-
ment, such changes may not be agreeable, but in matters of
business sentiment must yield to common sense ; and it is
obvious that such great economies are certain to hold their
ground, and that those who decline to accept facts must
submit to be crushed by them.
It is not easy to estimate the full effect of such changes
as to the capital employed in trade, but some years ago it
was stated by one eminent firm in the P^ast that their
business could be contlucted with one-fifth of the ca|)ital
formerly required. If this statement be not exaggerated,
it is evident that vast sums of money formerly invested in
foreign trade must have been brought home, or turned into
other modes of investment abroad. In other words, there
has been a great saving of cajiital embarked in trade, the
result being that a greater business can be done with far
less absorption of money, i.e. of capital in the form in
which it is available fo/ use in trading adventures. The
exchanges of the world are effected more economically, not
merely by saving in the cost of carriage by sea or land, but
also by saving in the interest of the money necessary for the
conduct of such transactions.*
prevalent. However this may be, it does not materially affect the
argument used in the text. The influence of the telegraph on trade
becomes every year more and more important.
* In considering the causes which have encouraged an extraordinary
production and importation of many articles, we ought not to omit all
reference to our new law as to limitation of the lial)iiity of partners.
A great amount of money has been diverted from ortlinary and safes
investments to trading enterprise l)y this change of the law. It operates
on production both directly and indirectly. The development of iron
and coal companies affords an illustration of the direct results of the
law, and the extension of shipping companies of its indirect influence.
By the former, great masses of iron and coal have been brought into
the market, which must otherwise have waited long before their
extraction from the earth ; and by the latter, the cost of the carriage
of every conceivable material which we can import has been reduced to
48
APPRECIATION OF GOLD.
The causes thus set forth seem quite sufficient to
account for a fall in prices even greater and more general
than that which we have seen. Hut it has been objected
that the activity and ingenuity of man were in full
swing before 1873, and that production had then rapidly
increased, with an increase in many prices. This is true,
but it is forgotten in this argument that, though peace was
restored, its effects had not then been fully developed, and
competition was, therefore, still much hindered ; and it is
also forgotten that the great reduction of railway rates in
America, and in shipping charges all the world over, to say
nothing of the complete development of telegraphic inter-
course, has arisen since 1873. Much had then been done,
and we were then on the eve of far greater changes, the full
influence of which we now feel. As remarked above, the
extraordinary fall in several important cases did not occur
till 1884, and, curiously enough, the same peculiarity is
observed in Indian prices, although they have been more
stable than ours.* Changes in price may linger, but they
are sure to come sooner or later, when the efficient causes
are at work.
But there are many who are impatient. They admit
that goods have overtaken money, and they demand an
increase of money in order to maintain money values.
Their desire for bimetallic money is really based on the con-
viction that such a change would restore prices to a higher
level than that to which^we have been recently accustomed.
If, however, we look back to 1850, we tind that the
an almost incredible extent. Materials once put on the market cannot
wait long for sale. If one price will not sell them, a lower price must
be taken ; and ships, rather than remain idle, must work at rates which
would, a few years ago, have been thought ruinous. It \/ould not be
fitting here to discuss the question whether limitation of liability works
well or ill ; but it is important to remember that it increases competition
prodigiously, and is, therefore, one important cause of the recent fall in
prices in our own country. Another cause of great importance is the
extension of emigration, which must have greatly increased production,
especially in America and Australasia. Some figures on this head will
be found in the Appendix (H).
* See Mr. Barbour, "Theory of Bimetallism," p. 93. After stating
that the demonetisation of silver had checked the fall of prices in India,
he savs : — " Even in silver prices the fall has been very great in 1884
and 1885."
APPRECIATION OF GOLD.
49
world's stock of gold and silver has just about tloublcd, and
the total coin in use is said to have increased from 460 millions
to 1,250 millions ; but prices have returned to the level of
1845-51, and even to a lower level, spite of this enor-
mous increase of coined money and the great development
of credit. This being so, it seems dangerous to reckon on
any powerful influence on prices as likely to result from an
extended use of silver as legal tender money, (iold money
has increased twice as much as silver money since 1850,
according to some, and three times according to others.
But prices have gone back, even where gold is the unit of
value ; and even where silver is the unit, as in India, i)ri(es
in silver have not advanced, though the suj^plies of silver
have been great.
It is sometimes suggested that the [)roposed change
is needed, not so much to restore prices as to prevent a
further fall. If, however, it be true that jjrices are atfected
far more by other facts than by the amount of metallic
money in use for the time being, it is evident that ^\
cannot depend on an increase of that money even for a
check to a pending fall of price. A\'ho can believe, for
instance, that any change in our money would have pre-
vented a heavy fall in the value of grain since 1868, or the
fall in metals in the same period ? Without asserting that
the use of silver as well as gold as money would have no
effect under any circumstances, it is certain that, if the
argument here used be correct, we cannot depend on such
a change in order to check a further fall in prices, and,
therefore, that we should derive in this way no certain
compensation which could be set against any confusion or
other evil consequences which might result from a change
in our monetary system.
In answer to any argument from history, it is alleged
that we have suffered from want of co operation amongst
nations, and that recent confusions would have been avoided
if we had agreed with other countries as to the relative
value of gold and silver for purposes of money.
It is very easy to say that we could deline by law what
weight of silver should be equivalent to the weight of gold
in the standard pound, and that we could depend on this
weight of silver having the same purchasing power as the
D
so
APPRECIATION OF GOLD.
defined equivalent in gold, provided the silver were, by
agreement of all the great nations, coined for all comers on
the same basis as that adopted by us. No one, it is said,
would take less than the coin-value for his silver, because
he could at any moment get it coined on the agreed basis
at several great mints. Such an agreement would, of
course, work easily enough under ordinary circumstances
and during peace, but there seem to be serious diffi-
culties.
(i) Supposing the supply of silver should increase
rai)idly, and that of gold should fall off, the result would
clearly be that silver would remain here, and gold
would be exported, being more valuable as merchandise
than as coin. Thus we should probably end in mono-
metallism on a silver basis — a result not apparently
approved by any one.*
* It will be interesting to refer to two recent authorities, who agree
in thinking that even if gold and silver had been used as now proposed
during recent years, the result would have been, before this, that silver
would have been practically our sole money, and that prices would
have fallen just as much as they have already done, to say nothing
of possible dangers from the abandonment of the use of gold as money.
Mr. GifTen is a writer who attributes much of the fall of prices to
scarcity of gold, but he does not advise us to use silver as a
supplement. He says ("Journal of Bankers' Institute," vol. vii.
p. 464) : — " It is clear that if the production of silver had been increased,
the production of gold might have been diminished, and prices, even
if they had come to be reckoned in silver — as I believe would have
been the case— would, perhaps, have fallen about as much as they have
done." So also Professor Marshall (?7'/r/., p. 449), after referring to the
possible greater richness of the mines of silver — " We think that f>old
will practically go out. Gold is now mined, in spite of difficulties,
because it is so valuable; but if gold were fixed at 15J or even 18
times the value of silver, and if the gold mir^s were scanty, and the
silver mines were rich, gold would almost cease to be mined, and the
result would be practically a silver monometallic currency." Mr.
Gififen again said {/did., p. 459) : — " I 1)elievc the effect of the intro-
duction of what is called universal bimetallism at the present moment
would be that every great country practically would, in a ^ery few years,
have silver for its standard money. Gold everywhere would become
merchandise at a varying premium in relation to silver." This seems a
most natural conclusion, having regard to recent evidence as to the
production of silver. American authorities expect a further gre?t fall
m silver, because they hold that even the present value, in relation to
gold, is not in any way justified by the cost of mining. Mr. J. H-
Norman, who has paid much attention to this question of the relative
APPRECIATION OK OOLD.
5'
The same result would ensue supposing some largo
holders of silver — say in the East — should prefer to hold
gold as a more stable commodity, and should effect the
exchange even at a slight loss in order to avoid another
silver panic. Should this happen, and our law as to issue
of notes remain unchanged, with free coinage of joth
metals, a great part of our gold might be exchanged for
silver without any conceivable advantage to any one.
That mere exchange would not add to our total of
" money," as we should part with the same value in bullion
as we received, and it would not, therefore, affect prices
directly ; but it is hard to see what good could arise to the
country from i. financial alteration which might make it
very difficult to pay any debts except in silver, and might in
substance make us once more monometallic, only in the
wrong sense of the word.
(2) Supposing the supply of silver to fall off, such a
plan would have no effect in preventing a scarcity. Free
coinage does not meet the case of an insufficient supply.
In that case, silver would buy more than gold and would be
exported, while gold, as overvalued, would remain at home.
So we should return to a monometallic: n on a gold basis,
after more or less confusion. In our own days we have
seen remarkable changes, even before 1873 and the fall in
silver. Thus, we have had gold scarce in France, and we
have seen silver scarce there, just because France had free
coinage of both metals ; and at one time gold was dear and
scarce, and it paid to coin silver, which was cheap, and at
another time gold became cheap and it paid to coin gold.
All this time the franc was the unit of value. So now in
America you have a gold unit of value, and both metals
used, with much consequent confusion and hesitation — a
forced coinage preferred to a free coinage, and money
cost of producing gold and silver, makes tlie folluwing alarming state-
ment : — " Mr. Pixley evidenced in 1876 that silver was being pro-
duced in Mexico at l8d. per 480 grains, or at the relation of 53 parts
of silver to i part of gold. My investigations, made in this year and in
1885, into American hgures showed a much greater proportion of silver ;
but, accepting American statements, I make the average relation of
63 parts of silver to i part of gold for the year 1883." — Appendix to
Third Report of Commissiov "n Depression,
D 2
&9
APPRECIATION OF GOLD.
created for which there is no demand, in order to support
one of the smallest commercial interests in the country.*
(3) Even supposing both metals remained in use, it is
well pointed out by Mr. Giffen (" Essays," secoiid series,
p. 32) that the same difficulty would still exist which is
alleged to exist at present in reference to maintaining a due
supply of money for an increased population and for increased
trade in an increased production. He puts it as follows : —
" The permanent causes of the scarcity of money in
relation to commodities remain, and the momentary
abundance must be succeeded quickly by the same relative
scarcity as before. The case against bimetallists on this
score is very strong. Gold and silver being equalised,
assuming the bimetallic scheme to be successful, the future
course of prices will be regulated by the aggregate annual
production, not of the one metal but of the two. The pro-
Dortion of that annual production to the stocks of the two
in use is, however, much the same as the proportion of the
[)roduction of the one metal to the stock of that metal only.
The future course of prices will accordingly be much the
same as if one metal only were used in a particular country."
(4) Another di.lficulty seems to arise as to the propor-
tion which should be agreed upon. At present the actual
value of silver (July, 1886) is less than 20 to i, whereas the
old ratio, and one so much recommended, is 15^ to i. If
England, Germany, France, and America should determiae
to give at the ^ite of 15^ to i, there would be much danger
of a great influx of silver from the East, and an enormous
* The value of the silver interest is not equal to that of the " hen in-
dustry" in the States, but Congress favours the sil"er owners. ( Appendix
E.) The curious and instructive fact is that nothing probably at this
moment so tends to depress the silver market in Europe as the existence
of the American Bland Bill. People ask, what will America do with
the unused dollars should she repeal the Bill, and, if she should force
them on the market, what would the effect be ? Nothing could better
illustrate the danger of the interference of legislation with the natural
course of business and values. The very law which was passed to
maintain the price of silver is now depressing it. See Secretary
Manning in /oc. ciL, p. 6: "Forced silver circulation, forced silver
accumulation, these are the alternatives to which silver coinage has
brought us now. But the term when a choice will remain possible
between these bad alternatives, silver storage or a silver basis, is
narrowing."
APPRECIATION OF GOLD.
53
rise would at onre take place in many securities now
depressed, to the loss of some and gain of others, but for no
good reason. If, on the other hand, 20 to i were chosen,
the loss incurred by the Indian Government would be made
permanent, and the rupee fixed, at present, at is. 5d. or
IS, 6d. There is much to be said for and against either figure,
and it seems very difficult for any Government to make a
choice. There is no virtue in a value which has fluctuated
so much within a short space of time, and much loss must
arise to individuals whichever course is taken. It is, how-
ever, argued that such losses are only temporary, and would
be of little or no consequence, if the ultimate result should
be a stable equilibrium as between the two metals.
To ourselves, as traders, there exists really no motive for
keeping up the jjrice of silver more than of copper or iron.
In fact, commercially, silver is of infinitely less consequence
than iron to the English nation, except so far as our com-
merce is affected by exchanges with countries like India,
where silver is the legal tender. India, it will be seen, as a
producer, needs no care on our part, and we may safely
leave other countries to manage their own affairs, it being
to be observed that, as in the cases of Russia and the
Argentine Republic, we constantly do a great business with
countries where the exchanges are fluctuating.*
If, then, we can look for neither the permanent restora-
tion nor maintenance of prices from the use of silver as
money in addition to gold, it is not easy to see what we
should gain from the change.
One disadvantage, however, which might arise is easily
seen. If debtors could pay in gold or silver at their option,
it is plain that there must be an ambiguity as to the real
* See Mr. Goschen, in House of Commons, 12th of June, 1879: —
"We have passed through a period which has been viewed by all
merchants trading with India with regret and alarm. And I do not
wish to minimise these causes for regret, if, on the other hand, I call
attention to the fact that this country has continually done a prosperous
business with countries subjected to no less violent fluctuations in their
exchanges. Look at the trade with the United States when gold was
at an immense, but ever-varying, premium. Look at the Russian
exchanges, utterly without stability ; at the Austrian exchanges. Vet
England has not failed to do good business with such countries, never-
theless."
54
APPRECIATION OF GOLD.
value of a pound which does not now exist. Now, every-
one, all the world over, knows that " a pound " sterling
means so much weight of gold. A man who draws on
London knows just what he will receive when his draft is
paid. But he will not know that with certainty should a
new law declare both metals to be legal tender. How far
such an uncertainty would injure our position as the great
banking centre of the world it may not be easy to estimate.
It seems obvious that such a change in the nature of the
pound could mt do us any good from a mercantile point of
view, but it is equally clear that it might be very injurious.
Another serious consideration arises when we contem-
plate the possible effect in the East, and especially in India,
of any attempt to fix a price for silver in Europe by agree-
ment. It appears quite clear that large stores of gold are held
in India, • 'though gold is not legal tender, and no gold coins
are current as money. Gold coins are, however, not only
received but preferred in payments, and it is said that they
are so popular that as much as 20 to i has been allowed for
gold when received instead of silver (Clarmont I iniell,
" Discarded Silver," p. 13).
A well-known Sultan is said to have ;^2, 000,000 in gold
ingots in his Treasury, and it is known that very large sums
in gold coin and bullion are held in India. Why the Indian
people should prefer to hold in reserve a metal which cannot
be coined in India is a question not easy to answer ; but if
it be true that " there is nothing which from its nature is
purchasable with gold in India, from personal services or
railway tickets to bales of cotton, for which the seller would
not prefer to be paid in gold uncurrent coins . . . than in
silver money" (C. Daniell, Uk, p. 12) the mystery becomes
less inexplicable.
In our own country in the days of Newton silver
coins were legal tender, but gold was the favourite metal
in use and gradually superseded silver in all the larger
transactions of life. We cannot, therefore, be surprised that
gold should be preferred amongst tlie richer classes of our
great dependency. Biit if this be so, and if the tendency to
the use of gold in the East is an increasing tendency, it may
well be that if we chose to give silver an artificial value by
agreement with other great nations, only the result might be
APPRECIATION OF GOLD.
55
that Eastern holders of silver would remit it to Europe to be
coined and then exchanged for gold on the new scale of
values, an operation which would bring a large profit,
supposing silver to be depreciated as against gold in the
East.
How far such an operation would go it would not be
easy to say. A large export of gold might soon correct the
values, but the operation might cause great tension and
alarm here. Mr. Daniell asserts, writing in India, that " in
Asia gold is less variable in value than silver, is more sought
after, and always more acceptable in payment of a debt than
silver ; and as silver is much more easily procured than gold,
it is the owner of gold that will refuse to sell it at any other
than its natural price, and if that price is I'lg, he will not
part with his gold at i"i5i." No, but he may send his
silver to Europe at that rate in order to procure gold
for which he could procure 19 to i of silver in India.
Should this be so the nations who had made the agree-
ment might, in fear of the East, do that which the Latin
Union did in fear of Germany, and suddenly stoj) the
free coinage of silver, with what consequences to silver and
gold it is not easy fully to predict. AV'e ought certainly to
be cautious how we enter on any attempt to re-arrange the
values of the precious metals without taking into account
those vast stores in the East, which are no longer distant and
unattainable, but are almost as much at our doors as the
silver of France or Germany.
The present situation in India is very peculiar and very
interesting. Although we hear so much of depreciated
silver in Europe, it is the fact that silver prices have fallen
generally in India, though not so much as gold prices have
fallen here. The great increase of Government drafts on
India has, of course, lessened the export of silver to the
East, so that the full effect of the returns in silver for
exports, which might otherwise have been made, has not
been felt. The shipments of silver to India were in fact
much larger in the '50's and '6o's than in the '70's. (See
Appendix I.) There has not been any great surplus of silver
in India, and prices have, from many causes, tended down-
wards, and this fall in Indian prices has encouraged imports,
while the low exchange in Europe has, of course, stimulated
^6
APPRECIATION OF GOLD.
Indian exports, so that we see an increased trade in both
directions.
The figures are very remarkable : — •
Years.
1S70-75
1S75-80
1S80-85
Exports from
India.
285,000.000
312,000,000
411,000,000
Imports iiito
India.
l6l,C00,000
188,000,000
253,000,000
Net Exports.
124.000,000
124,000,000
158,000,000
T'hus the five years 1880-85 ^how, as compared with the
years 1870-75, an increase in exports from India of nearly
45 per cent, and of imports into India of more than 50 per
cent. It comes to this, that trade is extremely active in both
directions, and the natives of India, who are i)rodiicers and
sellers, profit by the low price of silver in Europe, which
assists them in securing a good market, and at the same
time as consumers and buyers in India they are getting
what they require at low silver ])rices.*
For instance, cotton goods are selling in India at more
than 30 ])er cent, less than the prices of 1870, and it appears
that all staple articles produced in India are lower than they
were in 1870. (See Appendices L. and M.)
Whether this state of things would continue, siqiposing
* Mr. Barbour, in his recent work on "Bimetallism" (p. 134) attempts
to show that the great increase in Indian exports is not due to tlie fall
in silver, because silver prices of the exports have not increased. But
this is a very incomplete view of the case. The profit to the trader
arises from the fact that he pets a price in England, in gold, which will
now jmrchasc a much larger amount of silver than in former times, and
this silver when remitted to India will purchase per rupee as much as
ever of other commodities, prices in silver having fallen pretty generally
in India. The extra rupees received in this way, therefore, afford a
jirospect of an extra profit which must encourage exports, as these, but for
this advantage, might be unjiroiitable.
Mr. Barbour is a stern bimetallist, but he is compelled to admit that
the fall in silver has not injured India, because he thinks the demone-
tisation of silver has prevented a fall of prices there. The (iovernment
has lost, but the people have gained. One may not agree with Mr. Bar-
bour's explanations, but one is glad to agree in his conclusions as to the
condition of India.
See p. 150, where he says that the fall in exchange cannot have
ruined Indian finance, as the Government had in 1882 a surplus of 450
lakhs and has imposed no taxes since that date, though the further
fall has thrown an additional burden of nearly 200 lakhs a year.
APPRFnATION OF GOLD.
57
some great change in the silver market were suddenly made
by the English Cxovernment, may well be doubted, and
certamly needs consideration.
A great advance in the exchange here would discourage
exports from India, and should prices rise here for goods
which we export, as is hoped by himetallists, ex])orts to India
must be discouraged. In what way this state of thing.; would
suit our manufa<>turej s and those whom they em})loy it is not
easy to see.
The general result of this long argument seems to be
that it is by no means clear that, even if we assume low
])rices to be injurious to us as a trading nation (a very strong
assumption), we could correct the modern tendency to low
prices by any change of our currency in the direction of
bimetallism or a double standard. Such a change must
make the value of the pound less certain than it now is,
;.nd might, therefore, be injurious to us as traders, and this
the more as recent events throw more doubt than ever on
the real value of silver. At the same time the experience
of 1848 to i860 ought to make us very cautious of depend-
ing on any existing facts as to supplies of gold, as these
may again suddenly rise as they did in former years.
Even an agreement cannot be depended on in the pre-
sent condition of affairs, es])ecially when we take into
account the difficulty of fixing on a ratio of value as between
gold and silver, and the great uncertainty which exists as to
the course of events in the East where so large stores of
silver are known to exist.
The events of recent years seem to point out the great
danger of sudden changes effected by ignorant Govern-
ments, and to indicate the necessity of the utmost caution
in dealing with a subject-mrtter which affects all classes of
the people, and especially those least able to protect them-
selves, and to whom, so far, these changes of value have
brought far more good than harm.
Wages have not fallen as yet at all in proportion to the
fall in the prices of necessaries ; nor should they do so, for
when necessaries were very dear, wages were very low ; and
it seems strange that we should desire to raise the prices of
the articles which are most used by the humblest of our people.
Probably it will be said that the object of himetallists is
58
APPRECIATION OF GOLD.
■5,
not so much an advance in prices as stability of price; but
it is pretty clear that, but for the hope of securing some
advance, so much zeal would not be expended in this cause.
Our trade is still enormous, and it is far from clear that
we can enlarge it or improve its stability by any changes
which would imply a want of confidence in our monetary
system, and would create an impression that we have failed
where, in fact, we have had great success, largely because
we have maintained a high credit, and have adhered to a
money which is as stable in its value as any money has ever
been in the history of the world.
Let those use silver whom it suits, and who prefer it.
It is certain to be used by great nations who have long
adhered to it. Our forefathers chose gold for general use,
even while silver was the legal tender, and the unit of value
was a given weight of silver. It seems strange that we
should be asked to adopt silver, as if gold had proved
a failure as a standard, and far more uncertain in value
than silver, at the very moment when silver in Europe
has fallen lyd. an ounce from the old par, or about 28
per cent., and when we are threatened by an extended
production on a scale never yet approached. No one pro-
poses to demonetise silver. No one suggests that recent
proceedings in that direction were wise, but many object to
an attempt to give an artificial value to a metal which would
not suit us as money, and which may yet have to bear
in the future even greater fluctuations than in the past.
If that attempt is to be made, it ought to be made by
those who produce silver, or who have great stores of silver
coin or bullion, the value of which they desire to maintain.
France, Germany, and America are powerful nations, and
each of them is much interested in silver. It seems strange
that if a wide-reaching agreement would suffice to maintain
the value of silver, they should fear to make a beginning in
this direction. This want of courage is discouraging to
those who have no direct interest in silver, and the fact that
those most interested show so much fear, arouses suspicions
and doubts which will not be readily removed.*
* It has "been suggested that India might join in any such agreement
without affecting our own system of currency, and her adhesion would be
APPRECIATION OF GOLD.
59
of the greatest importance. But this could not be effected unless gold
were freely coined and made legal tender on a certain ratio of value
with silver. In other words, we must give India a currency partly gold
and partly silver, and a new unit of value consisting of a certain weight
of either metal.
We might coin gold in India wi, ut making gold a legal tender
there. We might have Indian sovereigns and half-sovereigns, exactly
like our own in weight and appearance, with the exception of some
mark to indicate their origin. Such coins, even though not legal
tender, would probably come into use largely, and it is believed tliat
great amounis of gold bullion would be brought out to be coined, and,
once coined, much of this gold would get into circulation. India has
received about ;i^ 100,000,000 gold from Europe since 1856, and how
much more she may have no one kr ws. As mentioned before, it is
said that Indians like gold, and I 'an sovereigns would become a
favourite medium of exchange, even .nough not legal tender. They
would be freely taken, and would be preterred to silver coins, just as
gold was preferred in England a century ago.
Supposing gold to be coined and made legal tender in India, you
may make it the only legal tender, as we do here, or you may coml.'ine
it with silver. Some high authorities propose to take from silver its
power as money, except for token coins, so as to resort to a gold
circulation only m India. This would be a most dangerous innovation
— a revolution in fact, and one not justified by anything in the present
situation. It would enormously detract from the value of existing
stocks of silver, by destiuying one great market, and forcing great
masses of useless coins on the market, and it would at the same time
create a new demand for gold, which is, we arc told, already scarce and
dear. Probably such a change would cause such serious loss and
inconvenience to the masses of India as to arouse political disturbance
of the gravest character.
Perhaps such a proposal need hardly be seriously considered, but to
give currency to both metals, and to make both money on a ratio of
comparative value, fixed by law, is a very different plan. However
plausible it may seem, it appears to have difficulties. In the first place
we must fix a ratio — not an easy matter, as already explained. What-
ever is decided, the ratio chosen must be the ratio to be adopted in any
agreement with other countries, and could hardly, therefore, be arrived
at without consultation, if India is to unite with other silver-using
nations as to an agreed valuation between gold and silver.
Another serious question arises when we consider the probable
effect of the restoration of the value of the rupee on the trade of India.
As explained before, it would seem that raising the value of the rupee
would discourage Indian exports and imports, and thus, for the present
at any rate, injure both India and England.
Again, should the adopti<jn of gold coins as legal tender cause a
great and sudden inciease in the money circulating in India, the conse-
quence might be an advance of prices all along the line. Exports
would be discouraged, and probably an advance in the prices of articles
imported from Europe for the use of the people would check consump-
tion, and thus our trade would be lessened by the reduction of the
6o
APPRFCIATI N OF GOLD.
IHirchasing power of the people through diminution of exports, and also
)y the discouragement offered to the purchase ot English goods. To
such people as the Indian masses, cheapness is vital. An advance iu
the value of the produce they have to sell would assist them, hut it
docs not follow that they would pay prices higher than those to which
they are accustomed for goods imported for their use. Even an
advance in goods exported would not help them permanently, if the
result should be that an article such as wheat, for instance, lost its
European market, until an excess of supply should again reduce its
]irice.
Prices have been fairly steady in India during our recent dis-
turbances, and if fluctuations of price are as injurious as they are said to
be, it seems strange that we should desire to impose these evils on the
people of India. It would be a fine thing, no dou])t, to eliminate " loss
by exchange " from the Indian Budget, but it would seem hard if this
were done at the expense of those who are not represented and do not
possess influence. Officials can approach chancellors and secretaries,
but the ryot can only suffer without knowing the cause. Had the
reverse of the existing depression occurred, we should have heard no
complaint from Government. The loss of the people would have been
treated as "inevitable," and governing people would have accepted
the situation. Now they cry out very naturally, and do not seem
disposed to consider what may be the effect of the changes proposed on
the great producing classes to whom any alleviation of their poverty
seldom comes.
For those whose object is to bring out stores of unused gold and so
to increase the world's supply of the metal, it will suffice to freely coin
Indian gold without causing the confusion and trouble which seem to be
involved in giving another legal tender to the people of India.
6 1
APPENDIX A.
Statement of thk Annual Production ok Gold axu Silvlk
IN THE World each Year since the Discovery ok Gold
IN California.
From Reports of the Director of the U.S.A. Mint.
Year.
Gold.
Silver.
Total.
1849
$27,100,000
$39,000,000
- —————
$66,100,000
1850
44,450,000
39,000,000
83,450,000
1851
67,600,000
40,000,000
107,600,000
1852
132,750,000
40,600,000
173,350,000
1853
155,450,000
40,600,000
196,050,000
1854
127,450,000
40,600,000
168,050,000
1855
135,075,000
40,600,000
175,675,000
1856
147,600,000
40,650,000
188,250,000
1857
133,275,000
40,650,000
173,925,000
1858
124,650,000
40,650,000
165,300,000
1859
124,850,000
40,750,000
165,600.000
i860
119,250,000
40,800,000
160,050,000
1861
113,800,000
44,700,000
158,500,000
1862
107,750,000
45,200,000
152,950,000
1863
106,950,000
49,200,000
156,150,000
1864
113,000,000
51,700,000
164,700,000
1S65
120,200,000
51,950,000
172,150,000
1866
121,100,000
50,750,000
171,850,000
1867
104,025,000
54,225,000
158,250,000
1868
109,725,000
50,225,000
159, 950, 000
1869
106,225,000
47,500,000
153,725,000
1S70
106,850,000
51,575,000
158,425,000
1871
107,000,000
61,050,000
168,050,000
1872
99,600,000
65,250,000
164,850,000
1873
96,200,000
89,250,000
185,450,000
1874
90,750,000
71,500,000
162,250,000
1875
97,500,000
80,500,000
178,000,000
1876
103,700,000
87,600,000
191,300,000 •
1877
114,000,000
81,000,000
195,000,000
1878
119,000,000
94,800,000
213,800,000
1879
108,700,000
96,000,000
204,700,000
1880
106,400,000
96,700,000
203,100,000
188 1
103,000,000
102,000,000
205,000,000
1882
99,000,000
111,800,000
210,800,000
• 1883
94,000,000
1 17,000,000
21 1,000,000
1884
95,000,000
115,000,000
210,000,000
Total...
$3,882,975,000
$2,250,375,000
$6,133,350,000
M
62
APPENDIX.
APPENDIX 13.
Estimated Stock of Gold and Silver at the end
periods named, in money and hoarded : —
of
Gold.
Silver.
1850 ...
... ;^i67,ooo,ooo
;^48l,000,0fXD
i860 ...
395,000,000
441,000,000
1870 ...
535,000,000
409,000,000
1880 ...
638,000,000
420,000,000
1884 ...
654,000,000
437,000,000
^portion
I of Coinage according
to Periods (per cer
Oold.
Silver.
1851-55
87-9 ...
121
1856-60
79-5 •••
20-5
1861-65
8i-6 ..,
18-4
1866-70
687 ...
3«-.S
1871-75
73-2 ...
26-8
1876-80
69-1 ..
30-9
1881-84
717 •■•
28-3
1851-84 75-6
(Sotbeer, as quoted by Mr. Palgrave.)
24-4
Mr. Palgrave concludes that the coinage of gold has
exceeded the estimated production by nearly one-third, and
that of silver has exceeded the production by close to half
during the 34 years.
The total coinage of the period is estimated at a
value of —
Gold ... ;^i, 136, 102,700 I Silver ... ;^367,oi8,i5o
APPENDIX C.
Value of Total Imports and Exports of Merchandise
into and from United Kingdom in various years (not
corrected for changes in price) : —
Years.
Imports.
Exports.
i860 .
.. ^210,530,873 .
.. ;^i64,52i,35i
1870 .
.. 303'259.493 •
.. 244,080,577
1880 .
.. 411,229,565 .
., 286,414,466
18S3
.. 426,891,579 •
•• 305,437.070
1885
• • 373i834.3H
.. 270,934,93s
Total of Imports
and Exports.
^^375,052, 224 .
547,338,070 .
697,644,031 .
732,328,649 .
644,769,249 ,
Year.
i860
1870
1880
1883
1885
1^
'
APPENDIX. 63
The following are corrections made by the Secretary to
the Board of Trade (C. 4456, 1885) :—
Values of Enumerated Articles of Import in the under-
mentioned years as actually computed and as computed at
prices of 1883 = —
Declared Values Values coniputcd at
in Millions. Prices of 1883.
186 159
250^ 213
324 3l^h
336 336
Increase since 1S70 l)y first column, about 30 percent.
" ,, second ,, „ 50 „
Similar correction as to Enumerated Articles of Export:—
Declared Values Values computed at
in Millions. Prices of 1883.
97 87
143 1134
H3h 138
146^ 146^
Increase since 1870 by first column, m7.
» ,, second ,, 26 per cent.
i860
1S70
1S80
1883
p86o
1870
1880
1883
APPENDIX D.
Diagram.— Comparison of Cotton Manufacture in the
United States of America, 1830 and 1884. (E. Atkinson,
in /. r/A, p. 120) :—
— — — Increase.
-^ — — .276percent.
Spindles
1830. 1,600
1884. 6,100 __^__^_____^_____^
Operatives ")
per 1,000 > 1830. 49 _»_^_»_«__»«__^
Spindles. 3 1884. 17 "2 _-.^__
Pounds per "^
operative > 1830. 9-94 _,^____
perday...) 1884. 31-22 -________^____^___
Wages per")
operative [ 1830. ^33
per year.. 3 1 8S4. /^^S
Profit per ")
yd.atio% [ 1830. i^d.
onCapital) 1884. id- -
Mr. Atkinson estimates the increased product of twenty-
one crops from 1865 to 1885 (inclusive), over twenty-one
crops ' from 1841 to 1861, at 35,000,000, worth about
;^4oo,ooo,ooo.
Decrease.
64 per cent.
Increase.
-2i4percent.
Increase.
77 per cent.
Decrease.
83 per cent.
dtf
64
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APPENDIX.
65
APPENDIX F.
Specimen of fluctuations of prices from 1824 to 1826:-
Prices— July, 1824 to June, 1826.
Cotton (Georgia) per lb.
Indigo
Silk (China)
Sugar (B. P.)
Coffee
Iron
Lead
I)
>i
per cwt.
I*
per ton.
it
July to Nov. Dec. 1824 to Jan. to June
1824. June 1825.
^<i. lid.
IIJ. I4f.
1 6 J. to 25 J. 1 8 J. to 29J.
30J. 4 1 J.
S9-f. lis.
^23 £zo
1836.
I4f.
28j.
48X.
£^ I Of.
£22
APPENDIX G.
Total tonnage of vessels entered and cleared at ports
in the United Kingdom in various years ; —
Years.
i860
1870
1880
1884
British Tons.
13.914,923
25,072,180
41,348,984
46,671,701
Foreign Tons.
10,774,369
11,568,002
17,387,079
17,600,821
Totol.
24,689,292
36,640,182
58,736,063
64,272,522
i
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APPENDIX.
67
APPENDIX I.
Shipments of Gold and Silver to India from United
Kingdom : —
t/i
O
a
s
T3
a
cl
O
00
00
a
o
rt
C
<u
Eng
and.
Mediterranean.
Year.
Gold.
Silver.
Gold.
Silver.
1854
;^i,774,299
;,C3,i32,oo3
;^48,456
;fi,45i,oi4
185s
948,272
6,409,889
243.239
1,524,240
1856
404,749
12,118,985
74.039
1,987,916
1857
269,275
16,795,232
259,986
3,350,689
1858
168,305
4,781,923
165,231
911,043
1859
788.269
14,828,521
142,144
1,521,970
i860
1,669,746
8,038,276
765.138
2,764,054
1861
783.543
6,838,292
644,934
2,021,060
1862
1,715.963
10,138,506
1,676,689
4,461,273
1863
3.173.442
8,213,264
4,819.521
6,923,269
1864
2,041,854
6,175,270
4,^.3,891
10,681,428
1865
555.725
3.621,330
3,794,425
6,123,968
1866
478,217
2,374,939
2,393,062
4,704,549
1867
258,904
643,92;
1,240,129
1,408,297
1868
1,564,635
1,650,132
4,963,551
1,908,421
1S69
1,519,125
2,341,035
1,107,281
4.223,113
1870
1,277,210
1,918,508
816,509
297,292
1871
1,728,368
3,649,667
1,552,018
242,456
1872
1,399.352
6,278,933
1,992,225
253,680
1873
1,573,163
3,363,822
1,382,949
115,170
1874
1,0^,9.402
6,841,487
1,677.259
929,150
1S75
232,589
4,009,942
900,549
537,176
1876
1,474,908
9.522,751
h737,733
1,573,311
1877
2,057,394
15,971,206
1,074,252
890,002
1878
1,061,529
5,703,514
539.668
200,976
1879
2,276,807
6,534.081
2,703,409
1,135,675
1880
2,142,611
5,001,430
1,726,795
1,624,624
1881
1.502,437
4,117.293
1,030,308
418,780
18S2
2,020,374
5.971.007
1,491,938
2,519.510
1883
1,288,620
6,828,905
648,568
396,689
1884
3.252,340
7,9(^9,258
928,873
699,097
1885
1,471,487
7,732,038
;^209,5i5,368
667,322
;^48,i67,Oi)c
1,130,964
Total..
^3,312,914
;^68,932,S56
Total Gold in 32 years, ^"9 1,480,004. Average nearly ;i^3,ooo,coo.
Total Silver „ 278,448,224. „ 9,ooo,coo.
£ 2
m
APPENDIX.
APPENDIX K.
Drafts by Home Government on India, and amounts
received : —
Year
1861-62
1862-63
1863-64
1864-65
1865-66
1866-67
1867-68
1868-69
1869-70
1870-71
1871-72
1872-73
18747s
1875-76
1876-77
1877-78
1878-79
1879-80
1880-81
1881-82
1882-83
1883-84
1884-85
Bills and
Telegraph Transfers.
Rs.
1.20,03,592
6,66,37,287
9,01,41,740
6,82,45,100
7,04,71,747
5,84,14,133
4,28,18,177
3,83,40,000
7,20,00,000
9,00,85,000
10,70,00,000
14,70,25,000
14,26,57,000
",74,37»ooo
13.75,00,000
14,85,75.122
11,69,85,000
16,91,23,612
18,35,00,000
18,32,77,000
22,21,09,350
18,58,56,593
21,62,15,462
17,10,22,118
Amount received
in Sterling.
£
1. 193.729
6,641,576
8,979,521
6,789,473
6,998,899
5.613,746
4.137.285
3.705,741
6,980,122
8,443.509
10,310,339
13.939,095
13,285,678
10,841,615
12,389,613
12,695,799
10,134,455
13,948,565
15,261,810
15,239.677
18,412,429
15,120,521
17,599,805
13,758,909
Total drawn from January, 1861, to 31st March, 1885 :—
Rupees, 2,85,74,40,033. ... Received, ;^252,42i,9ii.
Average received about ;{^i 0,000, 000.
C
Pi
p.
(1.
APPENDIX.
69
Its
0)
o
O
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Ph
4-*
o
t:
u
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to
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Xi
1/1
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IS
w
Q
Index Number.
Rate of Exchange
on London.
(Col. 2 of Statement.
D.)
5-
VO O»00 VO "^ f^OO 0\ \r\\Q \0 li^ Tt- ^ fO
Ov O^ On On Ot O^OO 00 00 00 00 00 ao 00 00
Index Number
comprising total of
these three Index
Numbers.
N.B.— Produce
measured in Silver.
4-
t^t».ONVOTl-N 0>vO VO 00 ro Q N
OnOO on 0» OnOO OnmN'-iOOOOOOnOn
M M M M M
Produce of India
chiefly Exported :
Cotton, raw Castor
Oil, Linseed, Jute,
raw Hides.
Index Number com-
prising prices of these
3-
Q OOi^OnOO^'iQ O^nO Cn "^ "^ rf t^ I'N
000>-'i-'OnOO'-''-''-'OOnOO
m mmmmm mmmmmm mm
Produce partly con-
sumed in India and
partly Imported :
Rice, common Wheat.
Index Number com-
prising price of the^.
2.
NMTfrt-ONMtn ^00 OnnO 0\00 t^ «^
On t^ t^OO ONOO 00 0\ M M On t^ rsOO 0\
M MM
Produce consumed in
India : three food-
grains, Jowar, Bajra,
and Ragi.
I ndex N umber com-
prising price of these.
I.
T^rooO'-&0ro<'O^^ onoo <^ i^vo n
00 VO t>i t>. t>.vO 00 Ln rt t^vO NO NO t^
M M M M
K ON
<^ 1
CO
ir (U •-' N ro ^ u-ivO t^OO On •"■ N ro Tf-
^ 000000000000000000000000000000
^30
0* sJ <u
"u _
.2 3 H
>
rt
en
O
c
0)
a
o
0)
43
0)
u
o
u
0)
10
"o
U
<u .
bo
c
rt
X,
o
W
^3
«— «
o
u
(/}
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H
en
(4-1 JS
OH
o "^ —
•5 ^
ci g
_. O
a o
If
70
APPENDIX.
Further Statements as to prices in India taken from Mr.
Prinscp's Tables : —
1865-69
1870-74
1875-79
1880-84
Wheat.
Rice.
Cotton.
Jute.
100
... 100
100
100
82-54
... 84-24 .
. 8o-6i
... 119-57
87-16
... 115-97 .
. 72-62
... 127-31
83-32
... 90-07 .
. 74"9o
... 122-06
APPENDIX M.
1
Prices of cotton manu-
factures, excluding lace,
hosiery, thread, &c., for
Prices of cotton yarn and
twist : —
Indian shipments, 1870 —
1885 :—
Y- -„ Price per looo Ratio
"^ yards. 1870=100.
v^fxr Price per 1000 Ratio
^"'^- lbs. 1870=100.
1870 ... ;^l6 6 ... TOO
1870 ... ;,^78 17 ... 100
1875 ... 15 2 ... 93
1875 ... 61 6 ... 78
1880 ... 12 16 ... 79
1880 ... 55 2 ... 70
1885 ... II I ... 68 1885 ... 48 6 ... 61
1 '
1
t
APPENDIX N.
Table of general Increase of Production of various
Articles between 1872-4 and 1883-5 ^^ given by Mr.
Sauerbeck in Paper on Prices in September Number of
the Journal of the Statistical Society (1886): —
Nominal value in
Increase in
Production,
Nominal
value in
Y
millions at prices of
1867-77 (average).
millions at prices of
1867-77 (average).
Increase in
Production.
£
Per cent.
£
Per cent.
Wheat and flour 64*3
.. 22
Tea
... 12-2
.. 44
liarley 24-3
... 10
Iron
... 22-2
•• 39
Oats 30-2
... 23
Copper . . .
... 5-1
•• 97
Meat 78-2
... 14
Cotton ...
• •• 53'2
.. 32
Sugar 20
... 68
Wool ...
... 32-1
20
He estimates the " total aggregate increase in production
from 1873 to 1885" at 28 per cent, or 2^ per cent, per
annum.
u.
,wr^
L.-
/I
V
iJI
* *
f
7
'i
I I
APPENDIX.
71
APPENDIX O.
Average freights (Calcutta) by steam and sail :—
Year. Steam. Sail. 1 Year.
'^75 61 3 52 6 1884
65 o 48 9 1885
Steam.
s. d.
1880
23
32
9
6
Sail.
s.
26
33
d.
3
9
Average freights (Bombay) :—
Year.
1875
1880
Steam,
s. d.
41 3
35 o
Year.
1884
1885
Steam,
s. d.
23 I
23 9
Average freights from Baltic to London (steam). All
deals and battens :—
Year.
1875
1880
Steam,
s. d.
50
42 3
1884
25 6
Year.
1885
1886
Steam,
s. d.
29 6
25 3
Pj^INTED nv Cassell 8i Company, I^imuhd, La Belle Salvage, London, E.C,
Il^iiil