RmHHRaE&.1 Money AND us Relations to Price:; s L.L.PRICE MciNTYRS ETHICAL LIBRARY, Please return t'.Is ^' rf tie. if found, to the Hon. Sec. of above Library, a: /^^IGEll ST., STUAB, 1.0R9W, W.( MfeHTCN HALL, ,L.>. H- "^I WIH, LUilUUi f , i f . W. A rev/ard over- ?-nd r.bc e Ciost ol earriag-e will be g-iven aec^ . ■". r .j tke valii" of mc 3ook, ijinwiin"fnrn-'kf*'^-iftBifh- -i .^aU t> '^ •- T1»^i,^.t ^f?«-Si --^' Ci^-«»«-t UNIVERSITY OF CALIFORNIA AT LOS ANGELES THIS BOOK WAS PRESENTED TO THE ETHICAL LIBRARY BY LAVINIA BIDLAKE 5n /IRcmorg of JANE ANNE MclNTYRE. MONEY AND ITS RELATIONS TO PRICES MONEY Mclnfiie [Itiical Liirarj FOUNDED BY THE in Of EIHiC^L S]CI[TI[S London. 1897. AND ITS RELATIONS TO PRICES BEING AN INQUIRY INTO THE CAUSES, MEASUREMENT, AND EFFECTS OF CHANGES IN GENERAL PRICES BY L. L. PRICE Fellow of Oriel College, Oxford LONDON SWAN SONNENSCHEIN & CO. Limited NEW YORK: CHARLES SCRIBNER'S SONS 1896 9 t % t » • t • i * • < Printed hy Cowan ^ Co., Limited, Perth. «r « < C c < cc csi Tf3 ■yvv PREFACE The material contained in this Book was collected for a course of lectures delivered by the author last summer as Newmarch Lecturer in Statistics at Uni- versity College, London, The manuscript has since been re-written, some of the reasoning re-cast, and the figures revised. The authorities, to whom reference has been made, are severally mentioned in the footnotes ; and it only remains here to express a special debt of gratitude to two writers, to whom every student of the subject must feel that he owes peculiar acknowledgment. The name of Dr. Soetbeer is a household word in modern monetary statistics ; and his fame is placed beyond dis- pute. The present author's obligations to him may be discovered in many passages. To Jevons' Investiga- tions in Currency and Finance he is equally indebted ; and a closer study of that book has confirmed his conviction that it may rank with the famous Report of the Bullion Committee among the classic produc- tions of monetary science. If the earlier Report, in which the hand of Ricardo can be clearly traced, supplied the answer to the vexed problem of its day, it is no less indisputable that the intelligent study of 431038 vi Preface. the questions suo^gested by later movements of prices is impossible apart from an acquaintance with the Investigations of Jevons. In dealing with matters, which have been, and are, the subject of embittered controversy, the author can hardly hope that his conclusions will command the approval or assent of all his readers. To claim free- dom from bias would be an assumption, which would disprove itself by its very utterance ; but he can honestly declare that he has avoided, rather than sought, debatable assertions, and that such opinions of this nature, as he ma}'^ have expressed, are the result of an attempt to study the facts, and of reflection on the various, and sometimes opposite, explanations put forward by different inquirers. L. L. P. Oriel College, Oxford, February, 1896. CONTENTS CHAI'. PAGE I. THE MEASUREMENT OF CHANGES IN PRICES I II. THE ECONOMIC EFFECTS OF CHANGES IN PRICES ----... -,7 III. THE RISE OF PRICES CONSEQUENT ON THE DISCOVERY OF AMERICA - - - - 70 IV. THE FALL OF PRICES DURING THE EARLIER PART OF THE NINETEENTH CENTURY - 104 V. THE RISE OF PRICES CONSEQUENT ON THE DISCOVERIES OF GOLD IN CALIFORNIA AND AUSTRALIA . j^g VI. THE FALL OF PRICES DURING THE LAST TWENTY YEARS 1 70 MONEY AND ITS RELATIONS TO PRICES CHAPTER I. THE MEASUREMENT OF CHANGES IN PRICES. Scientific circles have been recently agitated over the discovery of a new element in the atmos|)here ; and the votaries of those moral and political studies, among which Economics claims a place, must have watched with interest, not unmingled with envy, the process by which the existence of that new element has been established. For the story of this latest addition to our scientific knowledge reads somewhat in this strain. In the course of researches in his laboratory the attention of the distinguished phy- sicist,^ with whose name the discovery is associated, was attracted to the presence of some disturbing in- fluence, to which a place could not be assigned in the recognised scientific order. When suspicion had been thus aroused, a series of experiments was instituted, with the co-opeiation of another eminent scientist;^ and those experiments were conducted, on the liypo- 1 Lord Rayleigh. -' Professor Ramsay. A 2 Money and its Relations to Prices. thesis of the possibility of an element hitherto un- recognised, with a view to demonstrating its existence and ascertaining its character and properties. The aim of these several experiments may be generally described as an attempt to isolate the phenomenon ; and so successful did they prove that opposition was withdrawn and even distrust was apparently removed. The layman may presumably take the opinions expressed at a meeting of the Royal Society in Januaiy, 1895, as a verdict given by a jury of scientific experts in favour of the admission of Argon to a distinct place among the constituents of the atmosphere.^ The economist can hardly listen to such a story with feelings other than those of jealous admiration ; for he can scarcely hope to discover its analogue in his own department of study. He may, indeed, like the student of natural science, form hypotheses ; and he cannot expect to progress very far without their aid. But, when he wishes to bring them to the test of verifi- cation, he is practically debarred from the use of that powerful instrument for establishing scientific truth, which the physicist and chemist are able to employ with such admirable results. He can, indeed, observe phenomena, but he can rarely hope to experiment on them. Or, if some happy chance should permit an experiment, it will seldom allow of its being con- ducted in such a manner as to isolate the phenomena. The reason is simple and obvious. The subjects of his inquiry are not " inert" elements, but active men and women. They will not remain unmoved while ^ Cf. Edinburgh lievkw for October, 1895, for a succinct account of the discovery. (No, 374.) The MeasurcDicnt of Changes in Prices. 3 he observes them ; and they will most assuredly resent being subjected to a deliberate experiment. Even the biologist encounters obstacles when he wishes to ex- ])eriment on animal life ; and the statesman, who should introduce a measure, or initiate a polic}', not with a view to public utility, but with the single aim of establishing or disproving a scientific hypothesis b}'' means of a carefull}'^ conducted ex[ieriment, would soon be driven — and not unnaturally — from office, if not from public life. Even if his avowed object were the promotion of general utilit}', and j^et the experi- ment involved the possibility of a real injury to some one or other portion of the community, it is exceed- ingly doubtful whether he Mould be permitted to engage in it, or, once engaged, to carry it through. At any rate, it is certain that he would be debarred from conducting it under scientific conditions. The subjects of his inquiry v/ould not remain passive. He would be unable to vary the conditions as the exi- gencies of the experiment required. He would not possess, or be allowed to exercise freely, the power of isolating some particular cause and observing it pro- duce its efl^'ects undisturbed. His methods of inquiry must be subject to such defects as attach to the possi- bility of a plurality of causes. He is generally, if not always, reduced to a balancing of probabilities. It is impossible to read any considerable portion of the abundant literature on money and kindred topics without being sensible of tliese difficulties; and they will confront us throughout the course of the inquiry on which we are entering. If, however, we recognise their existence from the outset, we shall obtain a more useful conception of tlie kind of evidence we can 4 Money and its Relations to Prices. alone hope to secure, and of the character of the con- clusions we must be content to establish. Yet, if discouraging reflections like these are sug- gested by a contrast between the moral and political and the physical sciences, there is another character- istic of the present situation from which — paradoxical as the inference may appear — we may derive encour- agement. It is no exairgeration to say that, if, on some rare occasions, the economist is permitted to witness, though not to initiate or conduct, an experi- ment, those occasions generally afford the material for a study in what, borrowing a term from physical science, we may perhaps call morbid patholog}^ To take examples from the subject before us, some such instance is presented as that of an opulent country, like the United States of America, finding itself, in consequence of monetary legislation, about which an opinion need not be expressed, in the throes of financial difficulties where its opulence is of no immediate avail. Or — to pass from the Western to the Eastern world — an experiment, viewed with favour by neither of the two parties engaged in internecine controversy on monetary matters, was lately instituted by the Indian Government, when it susjiended the free coinage of silver ; and economic students have been able to w^atch the coarse and observe the results of that experiment. They can see whether theories are verified or pre- dictions unfulfilled. In both these instances — and parallels might be supplied from the same as from other departments of economic study — experiments are undoubtedly furnished for the instruction of the student, though even in these cases it is not easy, or indeed possible, to avoid the disturbing influences of The Mcasiireiiient of Changes in Prices. 5 a plurality of causes and an intermixture of effects. But the experiments are sucli that all, who concern themselves with the welfare of the community, would be glad, if they were able, to dispense with them, whatever their scientific value or interest. Experi- ments, it is true, of a more beneficent character are sometimes stippliiMl by man or by nature ; but there can be little doubt of the important, if melancholy, circumstance, that a morbid condition of the body politic is more calculated to attract notice, and to invite experiments, than a sound and healthy state. The beneficent experiments are not unlikely to escape attention — and, unless there be a disturbance of ordi- nary routine, men are averse to try experiments at all — while desperate or calamitous expedients force them- selves into obvious and unpleasant prominence. It is when the machinery does not work smoothly that the mechanic is compelled to see what is wrong. No elaborate argument is needed to support the contention that at the present time the monetary machinery is not working smoothly ; nor is it neces- sary to demonstrate formally the lively interest which has of late been aroused in questions of monetary theory and practice.^ The controversy between mono- metallist and bimetallist has been conducted with great vehemence, if not with great ability : and, difiicult as it may seem to reach and retain the truth amid the din of contending argument, it is not eas}^ to believe that such eager search for evidence, and such ^ Professor Foxwell (" Transactions of Political Economy Circle of National Liberal Club," vol. ii., p. 174) has called attention to the significant fact of the issue of 1768 publications on the monetary question between 1S71 and 1891 (according to Dr. Soetbcer's Biblio- graphy). 6 Money and its Relations to Prices. persistent and incredulous examination of it, can have failed to result in some enlargement and improve- ment of scientific knowledge. Attention must of necessity have been directed to points hitherto un- noticed, and the weak links of a chain of argument could hardly have escaped the detection of such a searching scrutiny. Where a motive of so powerful a nature is supplied for research, it rarely fails to elicit new information, and there is scarcely a single point in received monetary theor}^ which has not been called in question at some time or other during the controversy. Both on the purely statis- tical and on the more generally economic problems connected with money the debate has left its mark. It is with the former class of problems that we shall be mainly occupied in the present inquiry, though it is impossible to disengage them entirely from general monetary thcor3^ We may notice at the outset that Sir Robert Giffen, who is as competent as anyone to express an opinion, drew special attention, when examined before the Gold and Silver Commis- sion,^ to the " great improvement " which had been recently effected in monetary statistics. No doubt, as Professor Marshall urged before the same Commis- sion,- there are important points on which we have as yet no statistical information of a reliable or ade- quate character, and there are some on which it is improbable that we can ever hope to obtain it. But, deficient as some of the statistical evidence unfortun- ately is, and doubtful as are some of the theoretical issues involved, certain broad conclusions emerge, and, even when obscured bv the assertions and denials of 1 Cf. Report, (jci. 465, etc. - Ibid., q. 9629. The Measurement of Changes in Prices, 7 controversy, appear to bave met with virtual admis- sion, if not witli open acknowledgment. We propose to review the evidence on which those broad conclusions rest ; and the special subject, to which we are going to address ourselves, may be summarily described as that of the causes and effects of changes in general prices ; or, in other words, in the ]iurchasing-power of money. In the first place ^ we shall inquire into the means that we possess for ascertaining and measuring such changes. We shall then proceed to review - their chief economic effects ; and we shall conclude by a separate investigation into the prominent incidents of certain periods in English history when changes of a noteworthy nature occurred. The increase of the precious metals, which followed the discovery of America,-"^ and that which in this century was connected with the new mines of California and Australia,^ mark two periods when it is admitted that prices rose, and it is also allowed that the most obvious cause was the augmented production of the precious metals. With these periods we may contrast the somewhat obscure period of the begin- ning of this century,^ and the period,*" on the true explanation of which controversy is now raging, that, namely, which has elapsed since 1873. It will at least be conceded that the main characteristic of both these periods has been a fall in prices, although the particular cause of the fall may be stubbornly disputed. It will also perhaps be allowed — though this point may scarcely be granted so readily — that, if monetary changes have been the cause of the fall, those changes 1 In cliapter i. - In chapter ii. " Chapter iii. * Chapter V. ' Chapter iv. "^ Cliaptei vi. 8 Money and its RelatioJis to Prices. may be roughly distinguished from the influx of the precious metals, which marked the other two periods, as partly due to artificial influences. A reversion to specie payments, such as that accomplished in 1819, though it be a reversion to a more healthy condition, and, the longer it is postponed, the more painful it generally becomes, is yet so far artificial that, like the suspension of those payments, and the issue of incon- vertible paper, it is the deliberate action of men. The fall in prices since 1873, so far as it has been due to the demonetisation of silver and the adoption of a o-old standard, must also be attributed to the action of men ; while discoveries of the precious metals seem by contrast to be not improperly regarded as natural and unconscious. At any rate the distinction, if not unimpeachable, will be convenient. In the first place, then, we propose to consider the means in our possession for measuring changes in general prices or alterations in the purchasing-power of money. For an inquiry into these means confronts us on the threshold of any investigation into the causes and eflects of the changes. As we must diagnose the disease before we can venture to pre- scribe a remedy, so, to make our diagnosis adequate, we must be able to note the presence or absence of symptoms. In connection with this point of the means available for ascertaining and measuring changes in tlie purchasing-power of money, it may be confidently atfirmed that the remark, which we pre- viously hazarded, on the tendency of controversy to result in the improvement and enlargement of know- ledge, finds abundant confirmation. A comparison of the methods pursued in the earlier and the later Tlu Measiire7}i£nt of CJiaiiges in Prices. 9 periods, of which we shall treat, will show, not merely that we are now in possession of an instrument, the capabilities of which were hardly reco^ised by those who investigrated the circumstances of the earlier periods, but that we are sen>ible of the particular respects in which it is likely to be deficient, that we are able to devise and apply remedies for s^me of those defects, and that we have satisfied ourselves that, in spite of defects, the instruiuent is adequate for the purpose in hand. It would, no doubt, be untrue to say that a later generation can claim the credit of discoverino^ the instrument ; but it may at least be affirmed that earlier investigators did not attain to any adequate recognition of its cap- abilities or apply it scientifically to the problem befcre them. In economic text-books three functions are gene- rally assigned to money. It is described ^ as (I) a medium of exchange, (^2) a measure or common de- nominator of value, and (3) a standard of deferred payments. To these three functions a fourth is some- times added — that of a store of value — with which we need not concern ourselves. With regard to the first of these functions it is admitted that the essential characteristic of good money is that it should be generally acceptable, and any article, which satisfies this criterion, may serve as a medium of exchange. By acting in this character, and being constantly given and taken in exchange for other articles, money fulfils its second function, and l^ecomes a convenient measure or common denominator of value. But, in the progress of society, as bargains are entered into » Cf. Jevons' " Money " ; F. A. Walkers " Money." lo Money and its Relations to Prices. for longer and yet longer periods, the third function acquires additional prominence, and we need a standard of deferred payments. We do not merely require a common measure of articles and services to subserve the exigencies of the immediate moment, but we want a measure, which will enable us to compare those articles and services at different and distant times, and will remain valid durins; the interval. To dis- charge this function the paramount quality needed is that of steadiness ; and the precious metals have established their claim to be used as money, partly because they have satisfied the criterion of general acceptability^, and partly also because they have met, not indeed completely, but more sufficiently than any other article equally acceptable, the demand for sta- bilit}^ They have done so in consequence of their durable nature, as the annual production from the mines has, in ordinary times, been but a fraction of the mass in existence, and, therefore, their value has proved, comparatively speaking, independent of changes in supply. But it is not wholly independent. The conditions of their production are mutable ; and, consequently, great and continued changes in the volume of production cannot, unless counteracted by alterations in demand, fail to produce an effect on their value, and to prejudice that stability which con- stitutes the basis of their fitness for a standard of deferred payments. This liability to variation in value over intervals of time has led economic writers, both old and modern, to seek for a more stable measure ; and it is evident that such a measure will at once satisfy more fully the criterion of a just standard of deferred payments, The Measurement of Changes in Prices. \ i and, in the degree in which it fulfils this function, will furnish a gauge for testing the imperfections of the monetary standard, oi\ in other words, for esti- mating the changes in the purchasing-power of money or the alterations in general prices. Adam Smith thought that he had discovered such a measure in labour. " Labour alone," he observed/ " never varying in its own value, is alone the ultimate and real standard b}'- which the value of all commodi- ties can at all times and places be estimated and compared." What he meant precisely by " labour never varying in its own value" has been disputed, and is not easy to ascertain ; and we need concern ourselves with it the less, because, admirable and per- fect as he held this standard to be in theory, he con- sidered that, from lack of statistical data, it was not applicable to the practical measurement of changes in prices. " The current prices of labour at distant times and places can," he remarked, " scarce ever be known with any degree of exactness. Those of corn, though they have in few places been regularly recorded, are in general better known and have been more fre- quently taken notice of by historians and other writers. We must generally, therefore, content our- selves with them, not as being always exactly in the same proportion as the current prices of labour, but as being the nearest approximation which can com- monly be had to that proportion." Accordingly, in a notable chapter,^ to which we shall have again to refer, Adam Smith measures the alterations in the 1 " Wealtli of Nations," bk. i., cli. v. - Ibid., bk. i., cb. xi., pt. iii. 12 Money and its Re/afions to Prices. value of silver by the fluctuations in the price of corn. But, throughout the discussion, he is careful to remind his readers tliat labour is the true measure, and that corn is only accurate so far as it corresponds. " Equal quantities of corn will," he observes, " in every state of society, in every stage of improvement, more nearly represent, or be equivalent to, equal quantities of labour, than equal quantities of any other part of the rude produce of land. Corn, accordingly, it has already been observed, is, in all the different stages of wealth and improvement, a more accurate measure of value than any other commodity or set of com- modities." In these remarks there is not a little that is open to dispute, or, at least, inapplicable to the circumstances of the present day ; but it cannot be doubted that, over long periods of time, the compari- son, which Adam Smith instituted between corn and silver, did afford some indication — and perhaps the best which was then available — of the changes in the value of money. It is, however, no injustice to add that the improved method substituted in modern times is superior. It is curious that this method should have been employed in a crude form by a writer on whom Adam Smith himself relied as an authority for statistical data, although he expressly dissented from his con- clusions regarding the value of silver. " Bishop Fleet- wood and Mr. Dupre de St. Maur are," he observed, " the two authors who seem to have collected, with the greatest diligence and fidelity, the prices of things in ancient times. It is somewhat curious that, though their opinions are so very different, their facts, so far as they relate to the price of corn at least, should The M€asiirc7iient of Changes in Prices. 1 3 coincide so very exactly." Bishop Fleetwood, in 1707, in his anonj'mous " Chronicon Prcciosum," ^ had sought to ascertain the changes in the value of money by compai'ing the prices at different periods, not of one commodity alone, but of a larger number,^ includinof the wajjes of labour. His method was, no doubt, rough, and his statistical material de- ficient ; but the conception, which underlay his cal- culations, was identical in principle with that which has since been elaborated in the so-called " index number." Various other anticipations of this modern method have been discovered by the historical researches of Jevons and other writers. In the case of Lowe, writ- 1 The full later title of the book was " Chronicon Preciosum ; or, an Account of English Gold and Silver Money ; the Price of Corn and other Commodities, and of Stipends, Salaries, Wages, Jointures, Por- tions, Day-labour, etc., in England for Six Hundred Years last past, showing from tlie Decrease of the Value of Money, and from the In- crease of the Value of Corn and other Commodities, etc., that a Fellow, who has an Estate in Land of Inheritance, or a perpetual Pension of Five Pounds per Annum, may conscientiouslj' keep his Fellowship, and ought not to be compelled to leave the same, tho'- the Statutes of his College (founded between the years 1440 and 1460) did then vacate his Fellowship on such Condition." The name of the author was given in tlie later edition. 2 Summarily enumerated as "corn, meat, drink, or cloth." Tlie method is thus described : " You must neither take a very dear year to your prejudice, nor a very cheap one, in your own favour ; nor indeed any single year, to be your rate ; but you must take the price of every particular commodity, for as many years as you can (20, if you have them) and put them all together, and then find out the common price ; and afterwards take the same course with the price of things for these last 20 years, and see wiiat proportion they will bear to one another ; for the proportion is to be your rule and guide." (Cy. chap, vi.) The inquiry into "stipends," etc., is made independently. 14 Money and its Relations to Prices. mg in 1822,^ and Scrope,- some eleven years later, the piiinary object in view seems to have been that of securing justice in the matter of deferred payments and ensuring stability in money contracts ; and Scro])e gave to the pamphlet, in which he first advocated the method, the sub-title of " An Inquiry into the Nature of a Just Standard of Value." Sir George Evelyn, in a paper on '• Some Endeavours to ascertain a Standard of Weight and Measure," in the " Philosophical Transactions " for 1798, propounded at the end of his paper a similar plan, and supplied a " general table " showing the changes in prices " from the Conquest," and, as became the connection in which the proposal appeared, the scientific object of measuring the changes in the value of money was exclusively predominant. Indeed, he apologised for appearing to " descend below the dignity of philosophy in such economical re- searches " ; and, by the irony of fate, he has been criticised by historians for his " slovenly " treatment of the subject. The exact language used by Scrope may be quoted as a good definition of the nature and end of an index number. " It is proposed," he writes, " to correct the legal standard of value (or at least to afford to individuals the means of ascertainino- its errors) by the periodical publication of an authentic price current, containing a list of a large number of articles in general use, arranged in quantities corre- sponding to their relative consumption, so as to give the rise or fall, from time to time, of the mean of prices, which will indicate, with all the exactness 1 In his "Present State of Kngliuul in regard to Agriculture, Trade, and Finance," pp. 27G, etc., and Appendix to chapter ix. ^ " Principles of Political Econoni}^" p. 406. The Measurement of Changes in Prices. 1 5 desirable for commercial purposes, the variations in the value of money; and enable individuals, if they shall think fit, to rei^ulate their pecuniary engage- ments by reference to this tabular standard." ^ A similar method, with a similar object, was sug- gested in Porter's " Progress of the Nation " ; - but not until the occurrence of the Calif ornian and Aus- ti-alian discoveries had resulted in an output of gold so immense as to be calculated to produce noteworthy changes in prices was the method of an index number apiilied in a systematic manner by Jevons to establish the fact of " A Serious Fall in the Value of Gold." ^ In his hands this instrument for measuring changes in general prices enjoyed the considerable advantage to be derived from the graphic method of statistics. But, great as was the advance in his treatment over the crude anticipations of earlier writers, it was re- served for another period, when changes in prices should again become a burning question — although it was the fall, and not the rise, to which attention was now directed — for a comparison to be made between several forms of index numbers and a critical exami- nation to be instituted into their defects and capa- ' bilities. The exhaustive Reports* of a recent Com- mittee of the British Association on the " best methods of ascertaining and measuring variations in the value of the Monetary Standard," together with the elabo- rate memoranda of Professor Edgeworth appended to 1 Cf. "Principles of Political Economy," by G. Poulctt Scrope, M.P., F.R.S., etc., pp. 40G-407. -' Vol. ii., pp. 23o, 2.3G (edition of 1838), sec. iii., ch. xii. 3 Cf. *' Investigations in Currency and Finance," ii. , pp. 15, etc. •* Cf. Reports for 1887, 188S, 1889, and 1890. 1 6 Money and its Relations to Prices. those Reports, have enabled the student to advance a stage beyond that attained by Jevons in the theory, if not in the ])ractice, of the index number ; and the subject has also received instructive attention in other countries.^ Of these index numbers different varieties exist. Perhaps the simplest, though least scientific, is that of the Economist, and the method pursued by this news- paper may be briefly described. Twenty-two articles of a representative character have been selected for a comparison of the changes in their prices. A period has been chosen from which the comparison begins ; and, in the special instance of the Economist, the aver- age prices of the years 1845-50 have been taken as the starting-point. The prices of each article on the 1st of January and the 1st of July are noted, and a mean struck, and the prices at the starting-point are regarded in each case as equivalent to 100. In every subsequent year the percentage of the rise or fall of each article is added to, or taken away from, the original 100, and the separate figures are then added together to form a grand total, and; according as that total exceeds or falls short of the original grand total of 2200 reached in the quinquennial period from which the calculation starts, so is the change in the purchasing-power of money shown, whether by way of diminution or increase. Such is the character of the mere numerical calculation ; but it is a common practice to supplement and ilhistrate the tables of figures by a curve of prices, which ri.ses or falls in relation to a base line as the purchasing-power of ^ Cf. Professor Eilgcworth's article in Economic Journal for March, 1894, on " Recent Writings on Index Numbers." TJie Mcasureuient of Changes in Prices. 1 7 money declines or advances. The aid of the graphic method of statistics may thus be invoked to bring within the range of eas}' comprehension the meaning of the numerical record ; and no one, who has thus employed it, can have failed to appreciate its value. Such is the nature of an index number as illustrated by perhaps the least scientific example. We may now proceed to inquire into the main respects in which it may possibly prove a defective measurement of changes in prices. In the first place the original data may be inadequate or even erroneous ; and the earliest possi- bility of error lies in the ascertainment of the prices of the separate commodities. The first question to be asked concerns the trustworthiness of the records of prices on which the calculation is based. The difficult}", if not impossibility, of obtaining reliable data on the prices of labour led Adam Smith to content himself with the substitute of the prices of corn ; and for a simi- lar reason the compilers of index numbers have perforce to be satisfied with wholesale prices. This necessity is due to a lack of statistical data, but is not without compensation. It is true that retail transactions are more numerous, and in that sense more representative of the actions of the mass of the community. But, if comparisons are to be safely instituted, we must be able to reckon with some assurance on the probability that no great change is introduced in the articles forming the basis of the comparison. It is almost inevitable that, over considerable periods of time, the wholesale articles, of which the prices are recorded in an accessible and trustworthy form, Avill differ to some extent in quality, and so far the comparison will be vitiated, for the articles will in realitj^ not be iS Money and its Relations to Prices. identical. But, in the case of retail as compared with wholesale prices, such differences of quality are largely niulti[jlied. The same lack of statistical data renders it neces- sary that the commodities, on the prices of which the calculation is based, should consist of raw materials, or at least of partly rather than of wholly manufac- tured goods; and it is [)robable that the general course of progress tends to diminish the cost of manu- facture in comparison with the cost of obtaining the raw material. On the hypothesis of such a tendency we should expect that in times of rising prices an index number based to a preponderating or exclusive extent on raw materials, or on partly manufactured goods, would exaggerate the rise, and, in times of fall- ing prices, would fail to indicate the full extent of the fall. But here again the limitations imposed by the statistical data available present insurmountable obstacles. The ideal index number might embrace, not a single article only, as that used by Adam Smith, nor a few, like those comprehended in the rough an- ticipations of earlier writers, such as Bishop Fleetwood, nor even the larger number of the later authorities, but all articles whatever bought and sold in a country. But this is an ideal far beyond the possibilities of realisation. Here, as elsewhere, we must perforce content ourselves with an approximation. Within the limitations of the statistical data we must make our list of commodities as representative as may be possible ; and we must trust to the hypothesis, which careful investigation has shown to be reasonable, that, although our results are admittedly partial, they may be safely treated as typical. For it is a rational The Measurcuient of Changes in Prices. 1 9 hypothesis that, while friction may delay the process, retail prices are likely in the end to follow the direction of wholesale, and it is even more probable that the prices of manufactured goods sold wholesale should conform with greater rapidity to changes in those of the raw materials of which they are made. For the purely statistical purpose of ascertaining the changes in the purchasing-power of money, with- out framing any hypothesis on the cause of those changes, it is important that the material for the cal- culation should be as representative as is consistent with the paramount need of reliability ; and, if it be sought to show that the change is due to some general cause, such as the increase or decline of the output from the mines, or of the available stock of the precious metals, such abundance is even more impor- tant, for it is by comprehensiveness alone that we can hope to eliminate the influence of special causes affecting particular commodities. The more numerous the commodities, the more likely it is that some special cause affecting some one commodity in some particular manner will be counteracted by some other cause affecting another commodity in an opposite manner. But to attain this end the commodities should be independent of one another,^ and manufac- tured goods can scarcely' be said to be independent of the raw material of which they are made, or goods sold retail of those same goods exchanged in the wholesale market. Given, therefore, sufficient variety ^ Cf. Professor Edgeworth's Memorandum in British Association Report for 1887. It is a principle of statistical inquiry that sample statistics may be as effective as complete statistics, and the difficulty turns on the determination of the question whctlier in the particular investigation the samples are truly representative. 20 Money and its Relations to Prices. of commodities, it is not a defect from this point of view that the prices shouhi be wholesale, and, in the main, those of raw materials. The hypothesis that the change is due to some ex- pansion or contraction in the supplies of money has an important bearing on the next particular regard- ing the construction of an index number, to which our attention will be directed. This concerns the starting-point of the calculation. A consideration of the circumstances, to which allusion was made when the suitability of the precious metals as a standard of deferred payments was under discussion, leads to the conclusion that any change in the purchasing-power of money, which is due to an increased or diminished supply from the mines, is likely to be evident only over considerable intervals of time. The annual pro- diiction is so small in comparison with the stock in existence that its ordinary influence from year to year is unimportant and unnoticeable. But, if some con- siderable change continues to operate for a period of years, its effects will be manifest in an alteration in purchasing-power. On this ground Adam Smith was justified in measuring the fluctuating value of silver by the price of corn. He was aware that that price might vary greatly from one year to another in consequence of the character of the seasons ; but he held that, over a considerable interval of time, the real value of corn did not materially alter, as the improvement in the efficiency of Imman labour counterbalanced the in- creasing ])rico of cattle, the chief agricultural instru- ment. His explanation may be inadequate or even erroneous, but his conclusion was broadly true ; and The Measurement of Changes in Prices. 2 1 he expressly allowed in part of his calculations for the disturbinf^ effects of a series of bad seasons-. It is curious to note that investigations into the prices of a hundred years later led Tooke,^ taking short periods of year by 3'ear, to attribute everything, or almost everything, to the influence of the seasons. To him, perhaps, is largely owing the publicity of Gregory King's classical table exhibiting the enormous and disproportionate effect produced by a scarcity of corn on tlie ])rice of that article. But there can be little doubt that he failed to detect the influence of a broad cause because he concentrated attention on the special circumstances of successive single seasons or short periods of years, and on the conditions afft-cting mainly one article alone. The criticism passed liy Jevons^ on predecessors like Tooke, that they seemed to lack the power of extracting from their tables of prices the information, which was really contained, is not undeserved. One of the most important services, indeed, of that graphic method of statistics, of which Jevons himself made such felicitous use, has consisted in the detec- tion of the broader movements of prices and their separation from minor and more passing disturbances. From Jevons' " Letters " ^ we learn that he believed that he had a " capacity of seeing the sameness and difference of things " ; and his " Investigations in Currency and Finance " furnish abundant proof of the possession and use of this faculty. Yet it may be questioned whether, without the aid of the graphic 1 Cf. his " History of Prices." - Cf. " Investigations in Currency and Finance," p. 120. s Cf. " Letters and Journal of W. Stanley Jevons," p. 176. 22 Mo7tey and its Relations to Prices. method, with its curves of prices, it would be possible to discern clearly in anj'- mere tables the " sameness and difference of thincjs." No one, at least, who has studied with care such a curve of general prices, ex- tending over a sufficient period, can have failed to observe the differing character of the fluctuations. The periods of alternating prosperity and depression, which have been established by statistical research, aided by economic reasoning, as the normal charac- teristic of modern commerce and industry, and appear to occupy about decennial intervals, can be dis- tinguished by the eye at once from the minor tem- porary fluctuations, due to some accident of supply or demand, wliich yet leave their mark on the general curve, and from what Cournot called^ the "secular movement" up and down, indicating the fall and rise in the purchasing-power of money. Such a curve may be said to furnish that ocular demonstration which is, perhaps, more convincing than any argu- mentative process ; and for the scientific construction of these curves the student has waited till compara- tively recent times. In order, therefore, to arrive at the broad changes in the purchasing-power of money, which extend over considerable intervals of time, and to detect the influence of a common general cause affecting in a similar manner the prices of a number of separate commodities, it is necessary to eliminate, not merely the minor temporary fluctuations, which may be traced to some passing accident in the supply or the demand of particular commodities, but the recurring movements of alternating expansion and contraction 1 " Priucipes de la Tbi^orie des Richesses," p. 149. The AJeasurcment of Changes in Prices. 2 o of credit. For this reason it is held to be more a])pro- priate that the starting-point of the calculation in an index number sliould be the prices, not of a sin the use of money as a standard of deferred payments that changes in prices exercise these effects on debtors and creditors respec- tively. But in a civilised society there are also a number of fixed payments which are yet not of the nature of a debt ; and fluctuations in prices must of necessity affect the real position of the persons making or receiving these payments. Even where they un- dergo adjustment, the process may occupy a longer or shorter period, and during the interval one or the other party, as the case may be, will experience gain or loss. 54 Money and its Relations to Prices. In considering, therefore, the comparative effects on the general welfare of a rise or a fall of prices, caused by an expansion or contraction of the supplies of the precious metals, it is needful to frame some conception^ of the number and importance of those classes, whose receipts and payments are variable, and will adjust themselves with ease and rapidity to the altered value of money, and of the classes, whose incomes and ex- penditure are fixed, and will only submit to adjust- ment with delay and friction. So far as fixed re- ceipts are balanced by fixed payments, the loss or gain, as the case may be, will be balanced by a corre- sponding gain or loss. If the value of money rises, and prices fall, the receipts will be more valuable, but so also will be the payments. If, on the other hand, prices rise, the purchasing-power of the fixed receipts will be less, but that of the fixed payments will un- dergo an equivalent reduction. Again, where both the receipts and the payments are variable, and are easily adjusted, the result of an alteration in the value of money will merely be an increase or diminution in the number of the counters used, and the real position of the parties will be left unaffected, if we set aside the possible influence of the imagination. But in those cases where we find rigidity on the one side, and adjustability on the other, the result of changes in prices may be important for loss or for gain. Those persons, whose incomes are fixed, and expendi- ture variable, will profit by a fall, and lose by a rise of pi ices ; and those, whose expenditure is rigid, and income flexible, will reap advantage from a rise, and sustain loss by a fall in prices. In the end, no doubt, ' For such an estimate cf. Jevons' " Investigations," pp. 80, etc, Econoiuic Effects of Chanocs in Prices. 55 a readjustment to altered circumstances may be effected, but during the interval the gains and losses ■will assuredly be real, and may easily prove to be substantial ; while, before the new settlement is reached, a fresh change may have already begun to operate. In fact, as we have noticed, from the con- ditions of the case it seems practically impossible to attain complete stability. One great class aifected by the opposition of fixed payments to variable receipts, and of variable pay- ments to fixed receipts, consists of those debtors and creditors whom we previously considered. The debtor may be regarded as bound to make a fixed payment to his creditor out of a varying income and the creditor may be treated as enjoying a fixed receipt, from which he has to meet a varying expenditure. Hence it is that debtors gain and creditors lose by a rise of prices, and that a fall reverses the po.sition. Hence, too, it is that the employers, who trade on borrowed money, apart entirely from the powerful stimulus to the imagination afforded by a rise of prices, and from the benumbing and dispiriting in- fluence exercised by a fall, do sustain a real loss, and reap a substantial benefit, in the two cases respectively. Their profits represent a margin of varying receipts over expenditure, which is by comparison fixed for the time at least, and this margin is swept away by a fall and enlarged by a rise of prices. Hence, too, the agricultural landlord, whose rents, as Sir Robert Giften has recently pointed out in evidence before the Com- mission on Agriculture,^ are in a sense a " margin of a margin," and under the system of yearly tenancies, 1 Gf. Report, e to 052,740 kilograms, in the succeeding twenty to 879,000 kilo- grams, and in the following ten (the period between 1801 and 1810) to 894,150 kilograms. The proportion 84 Money and its Relations to Prices. of the production of gold to that of silver for these three periods was respectively 3"1 to 96"9, 2 to 98, and 1-9 to 981. Summing up, therefore, the results of the whole period from the discovery of America to the first decade of the nineteenth century, we find that at the outset the production of gold was 5,800 kilograms, and of silver 47,000, and that at the close the respec- tive production amounted to 17,778 kilograms of gold and 894,150 kilograms of silver, and that the propor- tions occupied by the two metals in the total volume had altered from 11 to 89 to 19 to 98-1. For the first fifty years, until the discovery of Potosi, the increase, although important, was, by comparison with what was to follow, inconsiderable ; nor was the alteration in the proportionate production of the two metals very great. But tlie output from Potosi produced an effect in both respects which can only be called revolutionary. The total production increased by a sudden and enormous advance ; and the silver shot ahead of the gold and maintained its superiority until the close of the seventeenth century. Then the sup- plies of gold fiom Brazil produced a change in the proportion, and until the middle of the eighteenth century an inclination in this direction continued to be manifest. But after 1760 silver again secured the advantage. The most notable change, however, oc- curred in the sixteenth century, and the great increase in the outj^ut of silver, which marked that period, can orAy be paralleled by the Californian and Australian discoveries of gold in the present century. We may now proceed to inquire into the effects upon prices of this enormous increase. That a notable Rise of Prices in the XVIth Century. 85 change was manifest is generally admitted ; but, as in the nineteenth century, men were slow to recognise the cause, and, as in the nineteenth century also, the effects were not so speedily or extensively evident as superficial reasoning might have led the uninstructed to expect. The mineral wealth issuing from the mines of Potosi, and the other parts of America, had to find its way into the channels of trade before it could exercise its appropriate influence, and during the pro- cess it set in motion neutralising forces. Money is unquestionably mobile — more mobile perhaps than any other commodity which forms the subject of economic treatment — but it moves along the high- ways of business, and the agents, on whose actions it operates, are not merely receptive and passive. Ac- cordingly, some time may elapse before the effects of alteration in the supplies are generally felt, even when the change itself is great, and, after no long interval, those effects may themselves be merged in the new forces called into activity. For this reason broad conclusions are alone possible in such an inquiry as that in which we are engaged ; and, to discern the operation of the cause, we must form a comprehensive view of the effects. The cause works in most cases so subtly, so gradually, and so insensibly, that men, accustomed from force of habit and imagination to regard that by which they measure the value of other commodities as itself immutable, find a difficulty in detecting and gauging the changes which from time to time undoubtedly occur. It is only when they look back over an interval that they can discern what has happened, and, before they can place themselves at a sufficient distance from the phcno)ncna, it is not un- 86 Money and its Relations to Prices. likely that the increased commercial activity, which may follow on an augmented supply of the precious metals, may conceal and neutralise the real influence exerted on prices.^ To these considerations must be added the circumstance that a previous increase in the supplies itself diminishes the relative effects of a subsequent increase. The percentage of the increase declines ; and few more treacherous pitfalls await the tyro in statistics than those which lie beneath argu- ments from percentages, for he should always take account of the amount on which the percentage is reckoned.^ It might seem as if many of these considerations would not apply to the period following the discovery of America. The modern world was then compara- tively young and unsophisticated. The organisation of trade was simple. The relation of the precious metals to prices was, b}'' contrast with later elabora- tions of credit and banking, direct. The addition to the supplies was at once enormous and rapid. The stock of the precious metals existing in the world was admittedly small. Apparently it had not materi- ally increased since the fall of the Roman Empire, and, among the man}' rival explanations of that fall, all of which probably contributed their quota, and none can, on a sober view, be treated as exclusive, the neglect into which the mines formerly worked had been allowed to fall, and the consequent decrease of money and decline of prices, have sometimes been assigned a prominent place.^ The extraordinarily abundant out- 1 Cf. Newmarch in Took e and Newmarch's " History of Prices," vol. vi., app. ii. ^ Cf. "History of Prices," vol. vi., pt. vii,, sec. 3, pp. 151, 152. ' By liistorians like Sir Archibald Alison. Rise of Prices in the XVIth Century. 87 put from Potosi consisted of silver, which occupied at that time the predominant position in the currencies of Europe ; for it was at once the standard and the chief medium of exchanore. Nor was the volume of trade, on which the new supplies would exert their influence, of lari^e extent when measured by later ficrurcs. The drain to the East undoubtedly became before lon^ a potent factor, but it was as yet at the very commencement of its future greatness ; and the consumption in the arts, which was, no doubt, rapidly stimulated by the ;:;rowing cheapness of the metals, at the time of the discovery of America was compara- tively inconsiderable. Yet " in England " Adam Smith considered ^ that the new supplies did not produce "any very sensible etTect upon the prices of things" " till after 1570" ; and he held the opinion that " between 1630 and 1640, or about 1636, the effect of the discovery of the mines of Amciica in reducinfj the value of silver appears to have been completed." The reasons, on which he founded this opinion, still deserve study; and his whole " digression concerning the variations in the value of silver "^ is marked by that saving commonsense, that natural acuteness, and that mar- vellous anticipation of points considered essential by later inquirers,^ which are, perhaps, his prevailing characteristics. Taking the variations in the price of corn as a standard by which to measure the changes » " Wealth of Nations," bk, i., cli. xi., pt. iii. » Ibid. ^ Hi3 conclusions on particular points have indeed been questioned by aubseiiuent writers ; but the broad outlines of his inquiry have bcin generally confirmed ; and, as an example of tlie method to be pui-sucd, his treatment may be said to be unchallenged. S8 Money and its Relations to Prices. in the value of silver, be concluded that durinoj the first of the three periods of which he treats — that before 1570 — the value of silver was rising and the price of corn was falling ; that during the second period — that extending from 1570 to 1630 or 1640 — there was no " dispute either about the fact, or about the cause," of the diminution in the value of silver in proportion to that of corn ; and that during the third period — that between the middle of the seventeenth century and the time at which he was writing — although the " best opinion," which he could " form upon" the subject, "scarce, perhaps," deserved "the name of belief," yet the value of silver seemed to have risen in proportion to that of corn. Such is his general conclusion ; and later inquirers may derive instruction from the reasons, which he adduces for selecting his standard of comparison, from the motives, which led him to reject certain prices as evidence and to accept others, and from his criticism of the theories put for- ward by the writers with whom he conflicts. That the value of corn might be taken as approxi- mating to the value of labour, which was in his opinion the real measure of value, because, whatever the stage of improvement, the increase in the produc- tive powers of labour would be counterbalanced by the increase in the price of cattle, " the principal instruments of agriculture," and, unlike other forms of rude produce, corn constituted in civilised countries the chief part of the labourer's subsistence, and its supply, being the product of human industry, could be more exactly adapted to the demand than that of those other forms of rude produce — these arguments may not resist hostile criticism, although they contain Rise of Prices in the XVIth Ccniitry. 89 elements of trut]i, and they may be dismissed as part of the peculiar apparatus of Adam Smith's reasoning. The preference, however, of the prices of corn to those of labour, because the latter " can scarce ever be known with any degree of exactness," and the selec- tion of prices mentioned accidentally, or in statutes of the realm, rather than those which historians have recorded on account of " their extraordinary dearness or cheapness,"^ are lessons in the method of statistics. Nor are the answers returned to the upholders of views opposed to his own on the interpretation of the first and the last of his three periods uninstruc- tive. In the first period he charges them with error due to misleading facts and mistaken theory. In ascer- taining their prices they had adopted for the begin- ning of the period lower prices than those which represented the real condition, and hence they thought that the value of silver was falling and that prices were rising. For instance they — and Bishop Fleet- wood among them — had taken the " conversion price," which was the price in Scotland at which a landlord, receiving his rent in kind, might stipulate that he should be at liberty to substitute a money-payment, and therefore, before the average price of gi-ain was fixed at the annual fiars according to the actual market ' It may be noticed that Bishop Fleetwood regarded the accounts of Colleges as the "most sure guides," because in contrast with " general histories," " wliicli do mostly give us the prices of things, which arc extraordinary, eitlior for cheapness or for dearness," they "delivered faithfully the ordinary and common price of moat com- modities and provisions," and lie thought that the "gentlemen of each university " might, if they would, mend or add to his own statements. (Cf, Preface to " C'hrouicon Prcciosum.") 90 Money and its Relattons to Prices. price/ was generally, in the interests of tlie tenants, below that price. Or, again, the statutes of assize, fixing the price of bread and ale, on which they relied in some cases, generally began with the lowest, and worked up to the higher, prices of wheat and barley, and lazy or careless copyists might content themselves with transcribing only the first three or four prices. Or, once more, owing to the turbulent nature of the times, and the difficulty of communica- tion, the price of corn might vary widely from one district to another, and very low prices might be re- corded, which might lead the inquirer to infer that the ordinary price then was as much below what it was later as the lowest price of the earlier was below the lowest price of the later period. In all these waj^s error might creep in to vitiate statistical com- parison. The erroneous theory, which Adam Smith rejected, held that, as with the growth of the country the quantity of silver in it increased, its value would fall. To this he replied that such an increase in any par- ticular country, apart from augmented production from the mines, merely implied, in later economic phraseology, a change in the " territorial distribution " of money. As the wealth of the country became greater, and the volume of its trade increased, more money would be needed for the work of exchange, and, under a system of " natural liberty," without 1 Adam Smith notices that "Fleetwood acknowledges, upon one occasion, that he had made this mistake." "As," he continues, " he wrote his book, however, for a particular purpose, he does not think proper to make this acknowledgment till after transcribing this conversion price fifteen times." Rise of Prices in the XVIth Century. 91 lowering its value by becoming relatively abundant, silver would "naturally seek the market" where it would obtain the " best price " — the largest quantity', that is, of commodities in exchange. The same theoiy was used as an exjjlanation of the conr-;e of events in Adam Smith's third period; and he met it with the same objection. He allowed, how- ever, that during the earlier portion of this period the price of corn was slightly dearei' ; but he accounted for this by circumstances affecting the corn and not the silver, and by the difference caused by debasement of the silver coin due to " clipping and wearing." To the difference, indeed, between nominal and real value, occasioned by deliberate changes in the coinage, he pays close attention throughout ; and it is a point which no such inquiry can neglect without serious risk of error. The other possibility suggested by him of the change being on the side of the corn and not of the silver has occupied no small space in recent controversy ; but Adam Smith's method of selecting the prices of a single commodity for comparison, de- fective as it might be on other grounds, sim])lified the problem here, for it was easy to detect any un- usual variation in the supply of such a single com- modity as corn. He himself was inclined to attribute great importance to the bounty granted in 1688, and his arguments have been severely, and not unduly, criticised.^ But of the influence of the civil war in causing scarcity, and of the series of successive un- favourable seasons, which occurred during the last twelve years of his third period, little doubt can be ' Eg. by Rioaido : " Principles," ch. xxii. 92 Money and its Relations to Prices. entertained ; and that he was right in making allow- ance for these circumstances no candid inquirer will dispute. Nor has later investigation done more than elaborate his account of the causes to which he considers it probable that an increase in the value of silver would be due. The extension of the market for silver in Europe, owing to the general advance in agriculture and manufacture, the growth of population and in- dustry in America itself, which thus presented a new and enlarging market, the drain to the East Indies, and the consumption in the arts, are all taken into account ; and by such considerations he reaches his conclusions that until 1570 the value of silver was rising, because the price of a quarter of corn had fallen from four ounces of silver in 1350, or about twenty shillings in the money of his day, to two ounces, or about ten shillings ; that in the second period the price of corn rose from two to six or eight ounces, or from ten to thirty or forty shillings, and that therefore the value of silver had fallen, and that in the third and final period the price of corn declined again, and the quarter of wheat, which had averaged thirty-nine shillings between 1621 and 1626 for the best price in the Windsor market, averaged during the first sixty-four years of the eighteenth century about thirty-two shillings. Compared, therefore, with the price of corn before the time when the new supplies consequent on the discovery of America had begun to exert an influence, the rise, after amounting to 200 or 300 per cent., finally settled about the former percentage. It is curious to note that Sir George Evelyn, in the paper Rise of Prices in tJie XVIth Cenhtry. 93 contributed to the Royal Society in 1798,^ in which he employed for comparison not one commodity only, like Adam Smith, but an index number based on the ])rice.s of a few chief articles of agricultural produce, such as butter, cheese, ale, beer, mutton, and wheat, together with horses, oxen, cows, sheep, hogs, geese, hens, and cocks, and on labourer's wages, reached a rise of 400 to 500 percent, between 1550 and 1795, and of 110 between 1550 and 1070, but he has been severely criticised by Hallam and other writers. A rise of prices in England amounting to 200 per cent, may with tolerable certainty be taken as within the truth, and the greater part at least of the increase occurred within a hundred years of the dis- covery of Potosi.^ At first the new supplies would find their way to Spain ; and the ardent pursuit of conquest combined with insatiable lust for the precious metals to divert the attention of the inhabitants of that country from trade and industry. Nor were those " sanguinary laws " prohibiting the exportation of gold and silver, of which Adam Smith speaks^ in his own day, without tiieir counterpart in earlier times, and the Spanish Government would be anxious to prevent any large share of the new treasure from passing into the hands of other countries. " In the 1 Cf. " Philosophical Transactions for 1798," pp. 175, etc. His prices were "derived from respectable authorities." Vicomte d'Avenel, in his recently published investigations, shows a rise of about 200 per cent, between 1500 and 1675 in France. 2 Cf. Cunningham : " Growth of English Industry and Commerce," vol. ii., pp. 13 and 14. Trof. Rogers ("History of Agriculture and Prices," vol. v., Preface) says that by the middle of the seventeenth century general prices reached the level which they retained to the beginning of the last quarter of the eighteenth. ^^Bk. iv.,ch. i. 94 Money and its Relations to Prices. chief towns of Spain," accordingly, as ClifFe Leslie pointed out,^ " prices seem to have risen even before the fifteenth century had closed." But, in spite of " sanguinary laws," the metals would be smuggled abroad, and, if Spain herself did not manufacture, and yet desired the product of the skill and industry of other countries, she would be compelled to procure it by the exchange of the new silver. Her coinage, too, appears to have been excel- lent,^ and the Spanish coins, with their full weight of bullion, would be eagerly sought by men accustomed to a worn currency, whether debased of deliberate purpose by governments or clipped by continual transfer from hand to hand, or by the action of bullion "sweaters." The fact that the Netherlands, by reason of the wide variety and diffusion of their trade, occupied a supremacy which passed at a later age to England, would attract to them in the first instance the new supplies of the precious metal, and it was through Antwerp that the drain to the East passed on its way. The preponderance of trade brought to the Netherlands perhai)s the bulk of the overflow from Spain ; and Clitfe Leslie observes^ that the " ascent " of prices was " much earlier " there than in England.* England, indeed, was suffering from the evils of a debased currency ; and this circumstance, coupled with the large expenditure of the Government on 1 " Essays in Political Economy," 2nd edition, no. xix. - Cf. W. A. Sluiw's " History of Currency," pp. 107 and 108. 'In the Essay quoted above. * The ascent of prices in France seems to have been contemporane- ous with that in England. (Cf. Newniarch in " History of Prices," vol. vi., app. ii., p. 410, and d'Avencl.) Rise of Prices in the XVIth Century. 95 foreif^n war, would serve to divert the current of the new metal. With the conckision of peace, iiowever, and the reformation of the coinage under Elizabeth, the new supplies made their entrance, and the natural consequence followed of a rise in prices. Even then, however, as Clitfe Leslie has instructively argued,^ the rise does not seem to have penetrated to country districts remote from the centres of business. The prices recorded by Adam Smith and others are in the main, if not exclusively, those ruling in commercial resorts, and in the wilds of the country two centuries afterwards^ prices were still remarkably low. It is necessary to bear in mind these circumstances when we attempt to gauge the effects of the rise of prices on the general welfare of the English com- munity. The new supplies were of great abundance, and, when once they came into contact with prices, the rise was calculated to bewilder by its comparative rapidity and extent. The effects were apparently circumscribed, and within the sphere of their opera- tion, the necessary readjustment was, it would seem, painfully accomplished. The rise was not so much a slow imperceptible movement, spreading by steady intervals over an extensive area, where its effects would be merged and obscured in the flowing tide of business activity ; but its presence seems, by con- trast with later times, rather to have been manifested by a series of jumps so spasmodic as to prevent 1 Ihid. - Cliffe Leslie quotes on this point a table compiled by Arthur Young of the comparative prices of provisions at different di.stances north of London, in ^vhich tlie price of a pound of n)eat appeared within fifty miles of the capital to be only fourpence or twopence. 96 Money and its Relations to Prices. instinctive accommodation, and so sudden as to alarm and confound. For these reasons it is at once difficult and hazardous to argue from records of what occurred in the sixteenth century to the probability of what might happen in the nineteenth as the result of changes in prices due to an increase in the monetary supplies. The former period, however, does so far resemble the latter that in discussing the effects of the new supplies we are beset by difficulties arising from the plurality of causes; and, among the different causes in operation, the inciease of money occupied an im- portant, but not an exclusive, place. On the one hand the period was undoubtedly a time of unexampled activity and enterprise. The long sleep of ages was yielding to awakening influences. The discovery of the New World stirred the imagrinations of men. The opening of the passage to India round the Cape quickened their speculative impulses. They were ready, and even anxious, for adventures in commerce and industry. Yet it is difficult to dissent from Hume's opinion^ that " it is certain that, since the discovery of the mines in America, industry has in- creased in all the nations of Europe, except in the possessors of those mines ; and this may be justly ascribed among other reasons to the increase in gold and silver," Nor is it easy to deny the force of Petty's comparison^ of money to the "fat of the body politic," or of Hume's image^ of it as the " oil which renders the motion of the wheels" of trade "more 'Essays, pt. ii. , no. iii. 2 In his Tract " Verl)nm Sapienti." 2 In the Essay quoted above. Rise of Prices in tlie XVItJi Century. 97 smooth and easy." If the " remarkable expansion " of Oriental trade, which was declared ^ by Cairnes, wlio was by no means disposed to over-rate the advantajres of rising prices, to be " the most striking commercial fact of the age that foUowed," was due in part to the discovery of the passage round the Cape, it was also facilitated by the new supplies of mone}"-, for the nations of the East were willing to give in exchange for the precious metals their produce and merchandise. The mineral wealth of America, in short, furnished the traders of Europe with a commodity which the East was ready to take in unlimited quantities. If the lethargy of ages was already giving way before the influence of a variety of causes, and the old order was breaking up of itself, it can hardly be doubted that the fresh supplies of the precious metals, partly by firing the ambitions of men with rumours of the wealth of the newly discovered world, partly by en- couraging and developing the trade to the East, partly by assisting and stimulating the legitimate growth of commerce, contributed no insignificant element to the movement of affairs. On the other hand the revolution — for it amounted to nothing less — which was occasioned in prices, was unquestionably attended by considerable suffering. The change seems to have operated in the areas over which it extended with a rapidity that did not permit of gradual and insensible adjustment. It dis- located the mutual relations of men ; and, if merchants and traders were benefited, labourers experienced an injury, at least for the time. On this point there does not seem to be any serious dispute ; but we must ^ " Essays in Political Economy," No. iv. O 98 Money and its Relation.^ to Prices. beware of attributing the evil, just as we must be careful to avoid assigning the good, exclusively to the influence of the new supplies of the precious metals. They are only one of several causes. We must re- member that the old economy seems to have been dissolving for some while before the new supplies began to exert an appreciable influence, and that per- haps they can only be said to have hastened inevitable change. We must remember in particular that the debasement of the currency had already produced injurious effects. In a well-known dialogue by W. S., entitled "A Discourse of the Common Weal of this Realme of Englande," emphatic expression was given to the complaints of the times, and, among these, to the serious rise of prices, with its disturbing influence on the relations of various members of society, repre- sented by the personages of the dialogue. The dialogue has been frequently quoted ^ as evidence of the injurious effects of the rise of prices; and it was at one time supposed to have been written in 1581, and to have referred to the suffering consequent on the influx of the new metal from Spanish Ameiica. But recent research has carried back the date of the original edition to 1549, and the rise of prices at that time could not have been due to the supposed cause, if Adam Smith was correct in his opinion — and sub- sequent investigations have tended to confirm his general accuracy — that the first evident traces of the influence of the new supplies could be detected no earlier than 1570. At any rate it is curiously significant that the special references to the " great 1 E.g,^ by Cairnes in the Essay quoted above. Rise of Prices ijt the XVIth Century. 99 plenty of treasure which is walking in these parts of the world," and the "infinite sums of gold and silver which are gathered from the Indies and other countries, and so yearly transferred into these coasts," are contained in the later edition of the dialogue, and do not appear in the earlier. This discovery, which is due^ to the zeal and industry of a student, whose premature death has been a cause of regret to economic historians, may serve as an instructive warning of the possible reversal of accepted opinions ; and in the case before us, if the dialosrue is taken as testimony to the prevalence of trouble and con- fusion, the cause, to which these must be ascribed, is, not the discovery of America and the rise of prices that followed on the inHux of the precious metals, but the deliberate debasement of the currency by the Tudor monarchs. It may be noted that Professor Thorold Rogers, in his " History of Agriculture and Prices," ^ expressly distinguishes between the comparative rapidity of the rise of prices caused by debasement of the currency and the relatively gradual advance, which might have been expected, in the absence of this ])rovocative in- fluence, to have attended the entrance of the new treasure into English trade.^ The debasement of the currency served to postpone that entrance ; and the 1 Cf. a notice of Miss Klizabetii Lamond Ijy Dr. Cunningham in Economic Journal for December, 1893, vol. iii., no. 12, p. 6G9. - Vol. iv., p. 736; vol. v., p. 780. He does not think that during the greater part, or perliaps the wliole, of the sixteenth century there was any cliange in general prices beyond that duo to debase- ment of the coinage. [Of. also "Six Centuries," pp. 343, etc.) ^ He would apparently put the rise (not due to debasement) at about 200 per cent. lOO Money and its Relations to Prices. reformation of the coinage under Elizabeth raised a hope, destined to be disappointed, that the evils occasioned by artificial increase of the currency would be removed when the proper corrective had been applied. But the debasement had already produced disorder, which rendered any immediate recovery im- possible, and the new supplies of the metals poured in with greater abundance because they had been excluded before, and the influence of the American output was concentrated instead of diffused. The suffering necessarily occasioned seemed the more alarm- ing and hard to endure because it disappointed hopes which had been confidently formed, and dispelled ex- pectations which seemed only reasonable. It can scarcely be doubted that the debasement of the currency accentuated the inevitable consequences of the influx. Bishop Latimer, again, who has been identified with one of the characters of the dialogue of W. S., spoke not unfrequently in his sermons of the rise of rents, and assailed^ in one common denunciation " graziers, inclosers, and rent-raisers." There can be no question that the rearing of sheep, and their substitution for tillage, with the consequent diminution in the demand for labour, and the inclosures of the open fields, with the injury which appears to have been wrought to the previous occupants, were stimulated by the high price of wool required for exportation to Flanders. But we must not forget that Latimer himself did not live to witness the Elizabethan recoinage, when the 1 Latimer, in referring to the i-ise of prices, was evidently dealing with that caused by the debasement. {Cf. Tooke and Newmarch'a " History of Prices," vol. vi., p. 371.) Rise of Prices in the XVIth Centtciy. lOt new supplies found an entrance into the circulation ; and that the development of the woollen industry and the practice of inclosure had attracted the attention of tlie Legislature before the conquest of Mexico and Peru. The Elizabethan Poor Law, once more, has been plausibly ascribed^ to the influence of the new supplies in dislocating industrial relations and causing distress to the labourer, whose remuneration did not rise correspondingly to the advance in prices. But the previous dissolution of the monasteries under Henry the Eighth seems at least to have borne some pait in producing this result, although the magnitude of its influence may have been exaggerated.- That dissolution itself was but the accompaniment of a general change, by which the labourer, unable, like his modern descendant, to assert his claims to increased remuneration, unless he was ready to put in motion the costly and cumbrous engine of revolt, was only too likely to suffer.^ The evil then, like the good of the times, seems to have been due to a number of causes, among which we may give to the new supplies of the precious metals an important, but not an exclusive, position. Their connection, on the one hand, with the growth of the trade to the East is as obvious as is the fact that they were largely responsible for the splendour of the ' By Jacob and Cairnes. ■■^ Cf. Ashley: "Economic History," bk. ii., ch. v. ^ The Statute of Apprentices of 1563 was apparently designed to secure an adjustment of wages to prices. (Cf. Cunningliam : "Growth of English Industry," ii., 39, 195.) It is doubtful how far the clause empowering the justices to fix wages was actually operative, and the rise of prices, it must be remembered, seems to liave been be- wildering. 102 Money and its Relations to Prices. Spanish monarch3^ Nor can there be serious doubt that the rise of prices occasioned by their influx injured for the time, at least, the English hibourer, whose earnings failed to increase accordingly. Nor is it improbable that the difficulties of Charles the First, and the eventful quarrel which followed, were partly due to the increased expenditure of the Court neces- sarily occasioned by the rise of prices ; for Elizabeth, unwilling to burden the nation unduly, had aimed at limiting the revenue demanded from her subjects, and, while the nominal expression of this might remain unchanged, its purchasing-power would, with the rise, undergo serious diminution.^ On the other hand, the impulse given to extended trade remained when the dislocation to wages had been reduced ; and there are certainly grounds for believing with Tooke and New- march that " we have the fullest warrant for conclud- ing that any partial inconvenience that might arise from the efiect of the American Supplies of the Sixteenth Century in raising prices, was compensated and repaid a hundredfold by the activity, the expan- sion and vigour which they impressed for more than one generation upon every enterprise, and ever}' act which dignities human life or increases human happi- ness." 2 One other effect, which they produced, must here be briefly noticed. They caused an alteration in the relative value of silver and gold. We have observed before the change in the respective volume of produc- tion. At the beginning of the period,^ when America 1 Cf. Cairnes in Essay quoted above. - " History of Prices," vol. vi., app. ii., p. 414. 3 Cf. Dr. Soetbeer's " Materialien," pt. i. Rise of Prices in the XVIth Century . 103 was discovered, the proportion of the f]jold to the silver ia the total output was as 11 to 89. B3' the close of the sixteenth century it was as 1 to 98. By the close of the succeeding- century it liad risen to 3 to 96, and by the beginning of the nineteenth century it was afjain as 1 to 98. Turnincj from these estimates of the volume to Dr. Soetbeer's calculations of the re- spective total values of the annual production, we find that at the time of the discovery of America the pro- portion of the gold to the silver was as 57 to 43, that by the close of the sixteenth century it had sunk to 17 to 82, that by the close of the seventeenth century it was again restored to 32 to 67, and that by the end of the whole period it had fallen once more to 23 to 76. In framing these estimates of the respective values, Dr. Soetbeer converts the volume of silver into its value by taking the estimated, and, for the period since 1687, the recorded ratio of silver to gold of the time. And yet, in spite of the great changes in total volume and value, which we have noted, the ratio only altered ^ from 1 to 10-45 at the commence- ment to 1 to 11-80 at the close of the sixteenth, to 1 to 15 at the close of the seventeenth, and 1 to 15-63 at the end of the whole period. The change in the relative volume of supply undoubtedly exercised an influence on the market ratio, but the amount of that influence seems to have been by comparison incon- siderable, and the steadiness of the ratio, wdien con- trasted with the extent of the change, is at least a significant fact. On its precise significance we do not propose at this stage of the inquiry to offer an opinion.- 1 Ibid., pt. ii. " Cf. below, chapters v, , vi. CHAPTER IV. THE FALL OF PRICES DURING THE EARLIER PART OF THE XIXETEENTH CENTURY. In attempting to gauge the effects upon prices of the American discoveries of the sixteenth century the in- quirer is confronted by a lack of statistical data ; but his investigations are rendered more easy by the com- parative simplicity and directness of the connection between the cause and the effect. As he approaches to recent times, he can avail himself of fuller and more reliable statistics, but he finds greater uncertainty on the mode of that connection. The facts of the production from the mines are, in spite of some doubt, more exactly ascertained ; that scientific instrument for the measurement of changes in general prices, which is known by the name of an index number, can be used ; and the records of prices themselves are more abundant and reliable.^ But, if the statistical material be more copious and trustworthy, the relation of the metals to prices is complicated and obscured. The din of controversy fills the air. The fluctuations 1 Newmai-ch (" History of Prices," vol. vi., app. ii.) distinguishes thus between different periods in the records of prices : — (1.) From 1401 to 1580, when there are only " Casual Quotations " by historians and other writers, such as Eden in England. (2.) From 1581 to 1770, when there are "several independent series of Annual Quotations," e.g., the Eton Tables used by Adam Smith. (3.) From 1771 to the "present time" (1857), when there are "Official Series of Annual Average Prices, obtained under Legislative Authority," e.(j., the official averages in England obtained under the Corn Acts. 104 The Fall of Prices after 1810. 105 of prices are attributed by one party to one cause and by a second to anotlier. Nor is the controversy gratuitous ; for the facts are difficult and intricate. The causes are hard to reach, and the effects are not easily traced. We have, no doubt, to take account on the one hand of changes in the supplies of the metals, and, on the other, to measure the alterations of general prices. But the links connecting cause and effect are not obvious or readily fitted together. The growth of industry and commerce, and the in- terruptions of that grov^^th, the consumption of the metals in the arts, and the drain to the East, are facts of importance, and admit of rough approximate measurement. But the war with France is a factor in the movement of prices during the period of which we are treating, which cannot be neglected ; and the suspension of specie payments is an element of the situation, on the precise character and consequences of which an interminable dispute has raged. Such is the atmosphere of doubt and uncertainty into which we are entering. From this obscurity, however, some conclusions emerge possessing some amount of certainty ; and with these we may begin. In the first place, the broad significance of the facts of the supplies of the metals is unmistakable. That the production of America declined in consequence of revolutionary dis- turbance is notorious ; and from the mines of this part of the world the new supplies of the sixteenth century had come, and the large proportion continued to be furnished at the close of the eighteenth. Jacob estimated ^ the annual production of Spanish and Portuguese America between 1700 and 1810 at 1 Chapter xxii. io6 Money and its Relations to Prices. seven millions, while he put the output from Europe and Africa at £853,233. The total output from Spanish America and Brazil in the succeeding twenty 3"ears amounted, according to his estimate,^ to £80,736,768, or a yearl}^ average of some four instead of some seven millions. The population of Potosi alone diminished from 130,000 at the beginning of the re- volution to 9,000 in 1826, and the number of stamping- mills at work decreased from 132 to 12. Nor, when once the mines had been disordered, could the}^ readily be restored to their former condition ; for machinery was damaged, and adits were choked. To set against this diminution of more than forty per cent, in the annual American supply, there was an increase in the output from the Russian mines of the Ural Mountains, although in parts of Europe, such as Hungarj^, a decline was evident. The value of the total annual supply of Europe and Asiatic Russia is put by Jacob at £1,250,000 ; and, adding these figures to the American supply, he reaches the grand total of some five millions as compared with an average for the previous hundred years of eight, thus establishing a decrease of some thirty-seven per cent. The consumption in the arts he estimates ^ to amount to more than five millions, and the drain to the East, which, he states, had dimin- ished, to two ; and, allowing for wear and tear, he arrives at the final result that at the end of 1829 the total stock of coin existing in the world was sixty-six millions less than it was at the end of 1809, and amounted to £313,388,560. In this estimate the out- put from Asia, which he placed^ at £1,400,000, was not included ; but, as he points out, there was gener- 1 Chapter xxv. - Chapter xxvi. 3 Chapter xxvii. The Fall of Pj'ices after 1810. 107 ally on balance an excess of import over export of bullion in the Indian and Chinese trade.^ Jacob's tigures end with 1829 ; and are stated in values and not in quantities. If we turn to Dr. Soetbeer,- we find that for the first four decades of the present century tlie value of the annual produc- tion of the gold and silver together (converting marks into pounds at twenty marks to the pound) was £10,482,650, £G,4G3,550, £0,059,100, and £8,108,900. With the following decade, in which the Californian discoveries first began to exert an influence, the total increased to £14,500,500, and with the next decade, in which the new wealth of Austialia added its forces to those of California, to £35,834,750. The decline between 1810 and 1830 is obvious, and amounts to a percentage of forty as compared with Jacob's thirty- seven. Pa.ssing to the separate figures for the gold and the silver respectively, we find that the volume of the gold falls from 17,778 kilograms in 1801-10 to 11,445 in the next decade, and then increases to 14,216 in 1821-30, and to 20,289 in 1831-40. With the next decade it rises to 54,759, and with the succeeding to 199,388. The volume of the silver falls from 894,150 kilograms in 1801-10 to 540,770 in 1811-20,and 460,500 in 1821-30, and then rises to 596,450 in 1831- 40. The fall between 1810 and 1830 in the volume of the silver amounts to little less than fifty, and between the first and the second decade of the century to little less than forty per cent. The increased 1 Jacob thought, however, that this diminution in tlie supplies had, owing to the operation of counteracting causes, exercised very little discernible influence on prices. {Cf. his concluding chapter.) - " Materialicn," pt. i. io8 Money and its Relations to Prices. production of gold for the years from 1821 to 1840 seems to be due to augmented supplies from Russia, where, according to Dr. Soetbeer's separate figures, the annual output grew from 165 kilograms in the first decade of the century to 315 in the second, to 3,375 in the third, and 7,050 in the fourth. But the decline in the total production of gold and silver from 1810 to 1830 is incontestable ; and it was not incon- siderable, for it amounted to some forty or fifty per cent. That such a change should produce some effect on prices was probable. Nor can it be doubted that, to whatever cause the change be due, the index numbers of Jevons and of Air. Sauerbeck establish a decline in general prices. Mr. Sauerbeck's number rests on a similar basis for the earlier and for the more recent years to which he has applied his calculation.^ He adopts as his starting- point the average of the years l(S67-77 (which, he remarks, is found in the aggregate to agree with the average of the twenty-five years from 1853 to 1877) ; and, beginning with the average of this decade, he carries his number back to 1818, while, as year by year, or even as month by month, elapses, he brings it down to date. His number, therefore, covers the longest continuous period of any of the best-known varieties. It is now based on the prices of 45 articles. From 1867 to 1872 the number of articles is 44, and from 1846 to 186G it is 43, while before 1846 it is only 31. But Mr. Sauerbeck states that the descrip- tions of these 31 articles " correspond as nearly as possible with those since 1846," and therefore the results shown by his number are comparable through- ^ Cf. paper in Statistical Journal for June, 1893, quoted above. The Fall of Prices after 1810. 109 out. It exhibits a steady fall from 1818 until the time when the «fol(] discoveries of California and Australia had begun to exert an influence. The highest point reached is in 1818, when the index number is 142 — a point, it may be noticed, far above any attained since — and the lowest point for the period, which we are now considering, is 74 in 1849. When the figures are graphically represented, tem- porary oscillations are shown in an upward and down- ward direction in the curve of prices, which mark the alternating periods of sjieculative activity and trade depression ; and a more prolonged and decided upward inclination is manifested in the thirties. But the general trend of the curve is as decidedly downwards as it inclined upwards after the gold discoveries of the middle of the century. If the results are averaged for successive decades, the index numbers are for 1818-27, 111 ; for 1828-37,93 ; for 18:j8-47, 93 again; and for 1848-57, 89; while in the next decade the num- ber rises to 99. The decline in the earlier years is very marked. From 142 in 1818 the number falls to 121 in 1819. to 112 in 1820, to 106 in 1821, and to 101 in 1822. In 1825 it rises to 117, but in the next year it falls to 100, and in 1827 to 97, in 1829 to 93, and in 1830 to 91. Turning to the inquiry made by Jevons,^ we dis- cover results which are generally similar; but his in- vestigations are pushed to an earlier date. They begin with 1782 and extend to 1865. His prices are those of about 40 chief commodities, selected for the period from 1782 to 1844 from tables in Tooke and Newmarch's " History," and after the later 1 Cy. " Investigations," Essay iii., " on the Variation of Prices and the Value of the Currency since 1782." I lo Money and its Relations to Prices. date based on his own calculations made from the Economist. The commodities, with some inevitable changes of quotation, are identical throughout, and are srenerallv similar to those contained in Mr. Sauer- beck's calculations. But for his general average Jevons adopts the geometric mean in place of the simpler method of the arithmetic mean pursued by- Mr. Sauerbeck, and he starts w^ith the prices of a single year — that of 1782^ — a course which be allows to be " purely arbitrary," and yet claims to be per- missible, if nothing more is sought than a broad view of the direction of the movement of prices over a long period. A single quotation is taken of each com- modity for each successive year, and is sometimes based on an average for the year, and sometimes on a mean between the highest and lowest price for March supplied in Tooke's tables, where, as a general rule, the quotations are given quarterly. Illustrating his results by a curve of prices, Jevons finds, like Mr. Sauerbeck, smaller fluctuations up and down, marking the flow and the ebb of credit, and beneath these temporary changes he detects a general inclination, first (after 1790) upw^ards to 1809, and then downwards to 1849, when the lowest point is reached. Between 1809 and 1849 prices fell, he ob- serves, in the ratio of 100 to 41, while Mr. Sauerbeck's ficrures show a fall from 142 in 1818 to 74 in 1849, or some 45 per cent. In accordance with the results in- dicated by Mr. Sauerbeck's curve, he notes an " eleva- tion of prices" from 1833 to 1843, which he considers can hardly be assigned to the speculative movement alone ; and, after 1852, again in accordance with Mr. 1 This is the first year of Tooke's tables. The Fall of Prices after 1810. iii Sauerbeck's fic^ures, prices rise, and the rise is per- manent. Such are the general results of his investi- gation ; and the broad conclusions on the course of prices during the earlier portion of the present century reached by his index number and by that of Mr. Sauerbeck are not dissimilar. They agree in establish- ing the fact of a fall of between 40 and 50 per cent. In order to eliminate minor influences it is neces- sary to take a comprehensive view over an interval of time ; for only thus can we hope to detect that " secular " movement of prices, which is due to changes in the supplies of the precious metals ; and it is be- cause index numbers, especially when represented by the graphic method, afford the means for this wide survey, that they are a valuable instrument of scien- tific inquiry. Before, then, we can form an adequate conception of the real effect on prices of the known diminution in the production of the precious metals during the earlier portion of the nineteenth century, we must note, and discount, the influence of speculative activity issuing in commercial crises. Periodic altera- tions of expanding and contracting credit may now be treated as unquestioned facts of the modern economic world, whatever may be the ultimate cause to which they should be traced ; and Jevons' studies of these passing fluctuations ^ have contributed in no small measure to this result. In the period under review, proceeding backwards from the acknowledged and notorious crisis of 1847, he passes '' successively to 1837, 1825, 181G, 1805, 1793, and 1783.^ The great height, therefore, of Mr. Sauerbeck's number in 1818, ^ Cf. "Investigations," Essays i. , v. -viii. - Cf. Essay viii. ^ Cf. also Essay vii. 112 Money and its Relations to Prices. its rise in 1825 to 117, and its rise again in 1847 to 95, are explicable, so far as they show a deviation from the general trend, as marking periods of unusual business activity followed by periods of comparative distress and stagnation. The elevation of the curve of prices from 1833 to 1843, however, is, in Jevons' opinion, too pronounced to be assigned to speculation alone, although, as he notes, a crisis of severity oc- curred in the United States in 1837, accompanied by two partial crises in England in 1836 and 1839.^ Later research has pointed to the connection of this marked movement with the increase of Russian gold, due to discoveries in Siberia in 1830.^ In 1805, again, the crisis, which actually occurred, was of minor inten- sity, and the great collapse was not evident until 1810.^ But, after allowing for these apparent fluctuations of the credit cycle, a broad movement remains under- neath. The steady upward inclination until 1809, and the pronounced trend downwards from 1809 to 1849, must be due to some deeper and more per- manent influence. And the same broad movement was evident, as Jevons subsequently showed,^ if 1849 were taken as the starting-point of the calculation instead of 1782. In view, therefore, of the evidence supplied by the index numbers, in conjunction with the notorious revolutionary disturbances in America, 1 The elevations of prices due to speculation are assigned by Jevous to the years 1796, 1801, 1809, 1814, 1818, 1825, 183G, 1837, 1847. 2 Following on those in the Ural Mountains in the previous decade. 3 The crisis of 1810 Jevons acknowledges to constitute an excep- tion to the decennial variation which he endeavours to establish. ■* Cf. Essay iv. , being a letter to the Economist on the " Deprecia- tion of Gold," written in 1869. The Fall of Prices after 1810. 113 and a known diminution of the supplies of the precious metals, amounting between 1810 and 1840 to some 40 per cent., it is impossible to resist the con- clusion that the cause was adequate to produce an effect on prices, that the effect was produced, and that there must have been a connection between the cause and the effect. The broad concomitance of the variations renders improbable a contrary con- clusion. But the exact amount of the effect, which was due to the cause, is less easy — is, indeed, impossible — to determine ; and the relation of the cause to the effect is far less obvious than it was in the period treated in the preceding chapter. At that time the influence of credit was comparatively insignificant, and the elaborate organisation, through which it operates in modern commerce, was practically unknown. The crisis of 1793, indeed, has been described as the "first modern crisis." ^ It is true that Jevons has gone far to establish the periodical recurrence of such fluctua- tions for the whole of the eighteenth century, and the South Sea bubble of 1720 is as notorious as that " Black Friday " of the Overend and Gurney smash, which was separated by an interval of nearly a cen- tury and a half. It is true also that the crisis of 1793 may have earned the designation of the " first modern crisis," because it is the first of which the course can be traced with any scientific exactness. But it is certainly noticeable that even its influence, as Jevons has remarked, can scarcely be detected in the general curve of prices, and it is incontestable that the exten- sive development of banking and credit, with all its ^ Of. "Investigations," Essay vii. H 1 1 4 Money and its Relations to Prices. confusing effects on the relation of the precious metals to prices, accompanied, and did not precede, that in- dustrial revolution, which marked the close of the last and the opening of the present century. But what, it may be asked, of that revolution itself ? Does it not supply a common cause acting on com- modities, which renders it unnecessary to look for any other explanation of the fall of prices ? It must be admitted without hesitation that the tendency of the times inclined to an improvement in the methods of production, which would naturally result in an increase in the number of commodities and a diminution in their prices. A broad general cause of this descrip- tion stands, it must be allowed, on a different footing from the assertion that, if each commodit}^ be con- sidered by itself, a sufficient explanation of changes in prices can be discovered without raising the question of any alteration in the supplies of the precious metals. For the very meaning of an average is that minor influences are eliminated and the action of some common cause detected. The validity of an index number rests in the last analysis on the possibility of this elimination ; and the advance established by the inquiries of such a writer as Jevons over those of Tooke consists ^ in the greater breadth of view at- tained. But the confidence, with which minor causes affecting particular commodities can be dismissed by enlarging the basis on which the average of prices rests, and passing influences common to all, such as ^ Cf. paper by Sir Robert Giffen, in Statistical Journal for De- cember, 1888 (vol. li., pt. iv. ), on " Recent Changes in Prices and Incomes Compared," 757. " To my mind he" (i e., Tooke) " is com- pletely superseded by Jevons." TJie Fall of Prices after 1 8 1 o. 115 the ebb and flow of credit, can be discounted by in- creasing the interval over which the observation extends, may be shaken by the possibility of tiie presence and action of some general cause common to all, or to a large majority, of the commodities, which is abiding and not transitory. Such a connnon cause may be found in the general progress of civilisation, if it is the case, as some observers have maintained, that man's eflbrts to win wealth from bounteous or reluctant nature are, with the lapse of time, rewarded with more success in the case of the mass of com- modities than in that of the precious metals. This tendency, however, if real, is so permanent that it may be taken to be always present ; and, while it would serve to account for a general downward in- clination of the curve of prices, it does not furnish any adequate explanation of tlie reversal of a move- ment in the opposite direction. If the general in- clination be interrupted by an upward tendency, then, when this tendency is reversed, we require some explanation of the change different from any to be found in the action of that which has been always present. The interruption itself must be due to a different cause, and the cessation of the interruption must be occasioned by the removal or counteraction of that cause. But it may be argued that this general tendency to progress may be accelerated, and thus outweigh the influence of the interrupting cause. Even then the interrupting factor itself must have grown relatively less potent, and so far it is shown to have been a contributory cause to the previous movement ; and, granting the possibility of a relative increase in the ii6 Money and its Relations to PiHces. general tendency as a cause adequate to produce a fall of prices, we have still to ask whether, as a matter of actual fact, such an increase was manifested in the particular period under consideration. The time, when England was laying the foundations of her manufacturing and trading supremacy, was unques- tionably a period of development of business and of growth in population. If the supplies of the precious metals had been maintained at their former level, the work of exchanging, which they would be called upon to discharge, would, in consequence of that manufac- turing development, and of the growth of population, and of the number of commodities produced, have undergone a relative increase. The precious metals would, therefore, have tended to rise in value by reason of their relative scarcity ; and the monetary ex- pression, or, in other words, the prices of commodities, would have tended to fall in consequence of their relative abundance. That such a cause was in opera- tion during the first portion of the present century, and that the fall in prices between 1810 and 1849 may be attributed to it in part, cannot be doubted. But it is undeniable that the same cause was acting upon prices in the previous period when they were rising. Recent inquiry has modified the conception sometimes formed of the " industrial revolution " and suo-gested by its very name. It has traced rudi- mentary beginnings of later developments to earlier times, and substituted the epithets "gradual" and "varied " for "sudden" and " uniform." ^ But, whether or not the designation of " revolution " be mislead- ^ Cf. Hobson's "Evolution of Modern Capitalism,' chapter iii., and Taylor's "Modern Factory System," chapters i. -iii. The Fall of Prices after 1 8 1 o. 117 ing, it is certain that those remarkable inventions, to which the title is largely due, were exerting an influence on tlie manufacturing development, and that the industrial organisation was undertjoiuif a trans- forming change, before no less than after the time when the inclination of the curve of prices altered ; and it would even seem that the conclusion of peace removed, in some measure at any rate, the stimulus to that development and change, which had been ajjplied in extraordinary potency in England by the absence of competition on the part of those foreign countries that formed the seat of war. The question, to use the language applied by Sir Robert Giffcn to a later period of changes in prices, must be viewed "dynamically."^ We find that both before and after the change in prices the manufactur- ing development and the industrial transformation were progressing- Before the change the movement of prices, like that manufacturing and industrial pro- gress, tended in an upward direction ; but after the change the two movements diverged, and, while the manufacturing development continued — it might be, after an interval of comparative slackness, at an accelerated rate — the movement of prices altered its direction and inclined downwards. The admitted tendency of the manufacturing development was un- questionably to lower prices ; but it cannot be em- ployed as an explanation at once of the rise of prices before and of the fall after, and the presence of some other cause is indicated. Some factor must be found, which was operating before the change, and was then ^ Gf. paper quoted above. - Tooke (" History," p. 5) woukl liave concurred in this opinion. 1 1 8 Money and its Relations to Prices. removed, or some fresh cause must be discovered, which then commenced to act. In eitlier case it is to this cause mainly that the logic of the facts would attribute the change. From an unwillingness to admit the competence of two causes, which were commonly assigned for the rise of prices, followed as it was by the fall, Tooke, in his elaborate investigations ^ of the period, attached the chief importance to the var^dng seasons. This exclusive emphasis may be traced to a certain narrow- ness of view,^ which may perhaps be said to have manifested itself especially in two ways. If short periods of years are taken, the changing seasons may seem, as Tooke contended, to account adequately for fluctuations, even of great extent, in the price of corn and of other forms of agricultural produce ; for such commodities belongf to a class the demand for which is inelastic and therefore unresponsive to changes in the supply. The rise or fall of price occasioned by some alteration in the supply may appear to be out of all proportion to the nature of the change. But if, unlike Tooke, we extend our survey over longer intervals, the influence of the seasons is generally merged in other causes ; and Adam Smith's oi)inion on the steadiness in the value of corn is, with some qualifications, apposite. Nor would changes in the seasons adequately account ^ for a general rise or fall 1 In his (1838) " History of Prices and of the State of the Circulation from 1793 to 1837 " {an enlargement of an earlier work). ^ Cf. Prof. Foxwell in evidence before Commission on Agriculture, qq. 23,580, etc. ^ Even if we allow for the indirect influence of good or bad harvests on general expenditure. The Fall of Prices after 1 8 1 o. 119 of prices ; and such, as Jevons has ur^ed.^ was the character oi" the alterations shown. The two causes, which Tooke dismissed as insuffi- cient, were the inconvertible paper currency and the war. To both he was inclined to attribute very little influence ; and he was certainly successful in showing that to both exaggerated importance had been given. What he attempted to prove seems often to have been this — that, even if it were established that a rise of prices had occurred of a character, which could be plausibly ascribed to the one or the other of these agencies, the change would have taken place in any event, and therefore they could not be considered the cause. To this method of argument he added another, on whicli later investigation has thrown some doubt. Probably owing to an inability to attain a broad view of the circumstances, he seems to have expected that the presence of the cause and the appearance of the effect would necessaril}^ be coincident, and to have held that, if he could show that the supposed effect was not in its outward manifestation simultaneous with the alleged cause, he had proved the impossibility, of their connection. This mode of reasoning appears repeatedly in the course of his inquiries ; and, al- though it is not absent from later investigations, the more scientific knowledge of the conditions of the problem, which has been subsequently gained, has exposed to serious question the reliance, which can be placed upon it. It is true that in dealing with the effects of the war, or of an increase in the issues of ^"Investigations," p. 131. Tooke is inclined to attribute the changes in the prices of other articles also to circumstances of their own production rather than to any change in the volume of money. I20 Money and its Relations to Prices. paper money, the expectation that the cause would be followed immediately by the effect was better founded than it would be with respect to the relation to prices of the supplies of the precious metals. But, even thus employed, the method was open to objection. Less doubt may be felt of Tooke's contention that^ the increased military expenditure, and the consequent stimulus to demand, meant in many, perhaps in most, cases a transfer from the pockets of one part of the nation to another, and (on the supposition that no alteration occurred in the quantity of the circulating medium) implied a change, not in general prices, but in the relations of the prices of one commodity to those of another. Whether an index number, like that of Jevons or of Mr. Sauerbeck, would be prejudicially affected by such a change, would depend on its com- prehensive character ; and, unless the commodities, of which it was composed, consisted to a preponderating extent of those, the prices of which were thus specially raised by the war, or of those, the prices of which were similarly lowered, the general change indicated might be treated as independent of this influence. Tooke himself was ready to allow ^ that the war might have obstructed the importation of foreign produce, and have combined with a succession of bad seasons to raise the price of corn ; and, on a broad survey of the facts, the war must be pronounced to have exercised an influence on the course of general prices, as measured by an index number. But we may agree with Tooke that, in the case of many of the effects ascribed to it, counteracting: influences were 1 Cf. pt ii., chap, iii., p. 92. - Chapter vii. The Fall of Prices after 1 8 1 o. 121 at work, which were competent to neutralise its action, and that in the case of others the effects were manifesto I in a more pronounced shape, and in fuller measure, dur- ing the succeeding peace than during the war itself. To arrive, then, at a correct decision on the precise influence of the war in raising, and of the subsequent peace, in lowering prices, required a balancing of opposite considerations. But, if in this case the precise result was doubtful, it was, perhaps, more difficult to gauge the exact effects of the other cause which Tooke examined. This was the question of the paper currency.^ That during the period of the Bank Restriction tlie inconvertible paper was de- preciated, and that prices reckoned in it rose, was a fact established by that Report of the Bullion Com- mittee, which has obtained such classic fame. That the depreciation amounted at the least to the difference between tlie market and the mint price of gold,^ and that there were times when the degree thus indicated was no less than twenty-five per cent., is undeniable. But Tooke endeavoured to show — and in this he seems to have been successful — that with brief exceptions during the first twelve years of the war the deprecia- tion was not more than four per cent., and that at the time of the resumption of cash payments it had again 1 Pts. iii., etc. 2 Excluding, as the Committee stated (p. 12), a small sum equival- ent to the loss of interest incurred in converting bullion into coin, and to the diminution by use in weight of the coin, and to legal impediments to smelting into bullion (none but light coin being allowed), and to exportation (that of our own gold coin or gold pro- duced from our own coin being prohibited). The first of these causes was inoperative after 1797, and the other two would only account for a very small depreciation, 122 Money and its Relations to Prices, reached that figure. So far as the influence of the Resumption Act of 1819 was concerned, it could not, he argued, be held responsible for a fall in prices of thirty or forty or fifty per cent. The fall below the specie limit of the exchanges formed, indeed, in his opinion, a proof of the depi'eciation of the paper, and was a test by which to gauge the influence upon prices to be attributed to the inconvertibility and over-issue of the note. But, so far as the efiects ascribed to it in promoting the increased use of sub- stitutes for metallic money, in stimulating the issues of the country banks, or in giving a fresh expansive force to credit, were concerned, those influences, he maintained,^ were equally operative, and were indeed more obviously manifest, after the resumption of cash payments, when prices were falling and not rising. In fact, but for the unusual pressure caused by large foreign payments, prejudicially affecting the exchanges, he does not think ^ that the issues would have proved generally excessive, or more than would have been needed with convertible paper or a purely metallic currency. It is true that in the subsequent controversy, in which he appears to later students as protagonist on the one side, and opposed to Lord Overstone on the other, the Legislature adopted^ the view of his opponent on the possible effects of a paper currency in aggravat- 1 Pt. iii., ch. ii., sec. 2. ^Ibid., sec. 4. 3 In tlie Bank Charter Act of 1844. It may be added that Tooke himself, in the first edition of his work, agreed with the views after- wards advocated by Lord Overstone, and contested by himself. In one of the prefaces to the later volumes he acknowledges the cor- rectness of the history of the change of his opinions given by another writer. The Fall of Prices after 1810. 123 ing the excesses of speculative excitement, and the probability that, without express provision for main- taining a coincidence between the issues and the changes in the metallic basis on whicli they rested, the paper, even if convertible in name, miL,dit still be issued in excess, and by that excessive issue would exert a mischievous influence on prices. It is true also that a question of some nicety arises on the possibility of the depreciation of the paper against gold failing to afford an exact index of its own depreciation against commodities as compared with that of gold.^ And once more it is true that here, as in the former case of the war, Tooke, though with more reason, seems to look for an instantaneous connection between the changes in the cause and the corresponding altera- tions in the effect. But, after allowing due weight to such considerations he appears to have been successful in disproving- the likelihood of any more direct action of the inconvertible paper upon the course of general prices, so far, at least, as the special point with which he was dealing — its inconvertibility — was concerned, than that shown by ■ the difference between the mint and the market price of gold ; and in the index numbers both of Jevons ^ and of Mr. Sauerbeck * express allowance is made for this amount of difference. Into the mazes, therefore, of the controversy on the precise efiects of the suspen- sion and resumption of cash payments, which, begin- 1 Cf. Walker : " Money, ■' ch. xvii. -Of., however, Sumner: " History of American Currency," pp. 253, etc., for qualifications of Tooke's views. sCy. " Investigations," p. 127. * Cf. paper in SlaliMical Journal for June, 1893, p. 240. 124 Money and its Relations to Prices. ning witli this period, was prolonged beyond the passing of the Bank Charter Act in 1844, we need not enter further.^ That the resumption of cash payments was at once necessary and painful, and that, like the sub- se(;[uent contraction of excessive issues of paper by the country banks, it may, both by its own opera- tion, and by its conjunction with other causes, have tended to engender a feeling of extreme depression, to have increased the normal ebb of the tide of credit, and to have accelerated the fall of prices, may be allowed. But it was perhaps from a failure to detect the other underlying causes that men were inclined to assign to the manipulation of the paper currency such exclusive importance. The expansion of the paper issues may also have exercised an indirect influence, in which some explana- tion may be found of the apparent discrepancy shown by experience between depreciation of inconvertible paper measured against gold and its depreciation when contrasted with commodities. The large issues of the Bank of England during the Restriction, and of the country bankers, must, as Jevons has urged,^ when taken in conjunction with the paper currencies of France and Austria, of Russia and of other countries, have thrown some quantity of the precious metals on the market, and the natural result would be a rise of prices. Tooke is ready ^ to allow the possibility of iThe question, on which the controversy mainly turned, was the efifect of a currency convertible in name, but appeal was constantly made by the disputants to the experience of the Restriction and the Resumption, and the facts of those times were interpreted in opposite ways. Tooke himself was open to the charge of a complete change of opinion. {Cf. above, p. 122, note 3.) 2 " Investigations," 131. '■'• " History," pt. iii., eh. ii., sec. 1. The Fall of Prices after 1810. 125 such an effect following on such a cause, but he thinks that at the time of the Bank Restriction opposing forces would more than counterbalance it. The hoard- ing b}' governments in their war-cliests, and by private individuals alarmed at the disturbance of the times, the obstruction of the familiar channels of commercial intercourse, and the hindrance to business, which would retard the free circulation of money and diminish its " efficiency," and the payments to armies in the tield, would thus operate, would combine to raise the de- mand for money and to lower ptices. What the pre- cise result on balance might be it is not easy to say. Tooke himself considered that the amount released from the English circulation, and recovered after the resumption of cash payments, would be small and inappreciable compared with the stock of the metals in existence. Jevons is disposed to concur with Jacob ^ in attributino: little influence to the effects of the paper currencies in liberating metal. But it must be remembered that these efiects would be increased by accordinsf \vith the natural movement of the metals themselves ; and the production of the metals was in-, creasing before the revolutionary disturbances in America, as it was afterwards diminishing, when prices were falling and cash payments were resumed. Some influence may also be attributed to improvements in metallurgy which seem to have been affected at the former time. A circumstance, on which Tooke relied '^ to prove the unimportance of this liberation of metal from the currency, was the increase in the drain to the East. ' Chapter xxx. - •' History," pt. iii., oh. ii., seo. 1., p. 140. 126 Money and its Relations to Prices. That, he urged, was an augmented demand which would tend to counteract any addition to the supplies. It is curious to note the different inference drawn by Jevons ^ from the same phenomenon ; for he expressly cited the increase in the drain as corroborative evi- dence of" a comparative redundancy in Europe. It is certainly true that in the history of prices the East has on more than one occasion proved the great ab- sorbent of the precious metals. It was so at the dis- covery of America, when the Netherlands, attracting by their trade the new supplies from Spain, passed oa a large portion in exchange for Oriental merchandise.- The same phenomenon was repeated at the later period of the discoveries of Californian and Australian gold in the middle of the present century.^ Again — this time through the channel offered by the compen- satory action of the French bimetallic standard — the new gold flowed to the Paris mint, and displaced the silver, which was carried to the East. Durint; the process the prices of Eastern produce were relatively lower than those of the countries from which the new supplies were passing ; and, therefore, when Jevons found a similar set of conditions manifested at the period which we are now considering, he drew a similar conclusion, and argued back to the probability of a redundancy in Europe, followed by comparative scarcity. The one implied a rise of prices due to abundance of the monetary medium, the other in- volved contraction of the monetary supplies with its inevitable consequence of a fall in prices. The facts 1 " Investigations," pp. 133, etc. - Cf. chapter iii. * Gf. cliapter v. The Fall of Prices after 1810. 127 admitted obviously of such an interpretation ; but their meaning must be broadly and not narrowly con- strued. The prices of Oriental produce were low re- latively to tiiose of Western goods when prices in Enrecise interpretation to be givt-n to the policy and opinions of monetarj' reformers, the main facts of the monetary histoiy of the last two hundred years are established with tolerable, completeness. In Adam Smith's time, as at the dis- covery of America, the silver pound was the monetary unit, and prices were reckoned in silver. " In Eng- land," he writes,^ " and," " I believe," " in all other modern nations of Europe, all accounts are kept, and the value of all goods and of all estates is generall}"" computed in silver." But, wdiile the pound was tlie unit, the current silver coin was of lower denomina- tion ; and, while at first the pound contained a pound » " Economic Studies," p. 215. 2" Wealth of Nations," bk. i., ch. v. t^o Money and its Relations to Prices. of metal, and was coined into twenty shillings, and two hundred and forty pence, and therefore the penny also contained a pennyweight, in Adam Smith's time the pound was coined into sixty-two shillings. In addition to silver coins, from the time of Edward the Third,^ gold also circulated. It was rated at a certain ratio to the silver ; and in England, as in continental countries, by altering the terms of purchase of either metal at the mint, or the weight or fineness of the bullion put into the coin, governments seem to have attempted to encourage the influx of the metals from countries where they were rated lower, and to prevent their efflux to countries where they were rated higher.^ For, in spite of prohibition, bullion exchangers found it profitable to send the metals to a better market, and, where the ratio became more favourable to one or other metal than that prevailing elsewhere, these motives would operate, while their comparative scarcity before the discovery of America increased the desire, and intensified the struggle, to secure and retain possession of them. The natural course of trade and the lack of native coin brought foreign monies into difi'erent countries ; and the selection of the better coin for export, and de- liberate "clipping" by bullion sweaters, together with legitimate and reOTlar wear and tear, tended to cause confusion in a currency, and to render men uncertain of the worth of the money they were handling. Into such a condition, largely due to deliberate de- basement, the English currency had fallen in the reign of Elizabeth, when the first great recoinage was iCy. Shaw's "History of Currency," p. 12. -Ibid., passim. The Fall of Prices after 1810. 131 effected. By the time of William the Third a similar condition prevailed, and again a reformation of the currenc)'' was undertaken. ^ In the interval the prin- ciple of free and gratuitous coinage had taken the place of a varying seigniorage ; and this important change, which opened a free mint to both metals, was effected in 1666. Between the recoinage of Elizabeth and that of William the silver had remained unaltered, and the gold had been raised four times. The gold coin current was the guinea, which, though legal tender at a value of twenty shillings, was apparently accepted in government offices at twenty-one shillings, and then for some time at twenty-one shillings and sixpence. The silver, by dint of clipping and wearing, and exportation of the heavier coins, deteriorated further, and, in a short space of time, the guinea rose from twenty-two to thirty shillings. In a graphic passage ^ Macaulay has described the evils thus occasioned, when money had lost even that amount of certainty of value, which was necessary to make it a convenient medium of ex- change. The light coin, accordingly, was called in, and new coin issued in its place of the Elizabethan standard ; for it was determined to maintain at its old intrinsic value the silver,^ which was the unit of account. The gold guinea was, therefore, rated to the silver, first at ' Cf. Dana Horton : " Silver Pound," cliapters v., vi. - " History of England," ch. iv. 3 Mr. Horton contends that insistence on this condition was com- patible with wliat, as a matter of actual fact, existed — the ofticial rating of gold, and free coinage and unlimited legal tender of both metals— and that it cannot be used as a valid argument for mono- inetallism, 132 Money and its Relations to Prices, twenty-eight sbillin!:^s, then at twenty-six, and then at twentj^-tive, until it was brought down at hist to twenty-two. The free coinage of gold was suspended for a few months, and the importation of guineas pro- hibited, while the early stages of the recoinage were carried through. The manner, in wliich the recoinage affected the position of the guinea, seems to have been of this nature. As legal tender in the fullest sense it was considered to be worth twenty shillings, and, by the provisions connected with the recoinage, it was not to be current for more than twenty-two. In government offices it appears to liave passed at this rate, until in 1699 orders were issued to reduce its rating to twenty-one shillings and sixpence. In 1717, in accordance with a report from Sir Isaac Newton, as Master of the Mint, it was reduced to twenty-one shillings, and was to pass current at that rate. But, both before and after the recoinage, the gold had been rated too high in England as compared with the rate abroad, and the natural result had followed that, under the system of iv^o, and gratuitous coinage, it had been poured into the mint, and the silver, un- derrated by comparison, had been melted and ex- ported. The only way to arrest this influx of gold and efflux of silver was to readjust the ratio to that prevailing abroad ; and both Locke and Newton seem to have recognised the advisability of achieving this object by altering the rating of the gold, without disturbins: the value of the silver from that Eliza- bethan standard, which was regarded as fixed and un- impeachable by the monetary reformers of the reign of William the Third. But the action suggested by them was taken too late; and, owing to the new The Fall of Prices after 1810. 133 supplies o£ the yellow metal from Brazil, the value of gold compared with silver fell still further, and the overrated metal continued to displace the underrated silver, until at the time of the next recoinage, in 1774, the gold had become the pieponderant metal in use, and to its deteriorated condition attention was now chiefly directed. This last recoinage was effected at the suggestion of Lord Liverpool.^ In consequence, apparently, of the quantity of light silver in circulation, and especially of silver coin of defective weight imported from abroad, silver was to be legal tender by tale only for less sums than twenty-five pounds, but it might still be legal tender by weight for any amount. This law ex- pired in 1788, but was revived in 1798, and clauses were added, first suspending, and then prohibiting, the coinage of silver. At the resumption of cash pay- ments the gold standard was formally introduced, the legal tender of silver was restricted to two pounds, and a heavy seigniorage was charged upon its coinage. These changes were in keeping with the tenor of Lord Liverpool's Treatise, and were carried out by his son as Prime Minister. But they seem in some i-e- spects to have gone beyond his real intentions. He suggested that the cost of coinage only (or, as it is technically termed, brassage) should be taken out of the silver, but the natural desire to defray the neces- sary expense of the resumption of cash payments by a larger seigniorage prevailed. Nor did he necessarily contemplate the impossibility of the mint being free to the coinage of token silver; but the Act of 1816 made this freedom dependent on a proclamation, ' Cf. "Silver Pound," chapter vii, 134 Money and its Relations to Prices. which was never issued, and it is doubtful whether the right of makhig it was, or was not, withdrawn by an act of 1870. Such then is, in briefest outline, the monetary history of England during the last two centuries. In the account, which we liave given, we have freely borrowed from Mr. Dana Horton's " Silver Pound," and it is impossible to read that book without being sensible of the mass of recondite learning on which it is founded, and of the probability of the conclusions, whicli the author has drawn from tlie study of original documents, even when they conflict with traditional opinion. In the subsequent chapters of the present inquiry we shall examine some of the more important consequences of the changes we have sketchel. Those consequences did not disclose them- selves until after an interval of time ; and we have now only to investigate their immediate bearing on the period before us. We must be content with brief consideration. It must be remembered that at the time, when the free coinage of silver was suspended, the relation between the output of the metals was changino^ acjain, and Sfold was once more falling behind. It is therefore possible, or indeed probable, that the directions of the influx and efflux would have been reversed, and that the currency might have become preponderantly silver. The lack of silver coin, which undoubtedly was fraught with serious inconvenience during the progress of the war with France, might have been removed, or have been met by the introduction of a token coinage,^ without 1 This possibility seems to remove (c/. Mr. Barr Robertson in paper in Staliaticcd Journal for September, 1895) miicli of the ground from The Fall of Prices after 1810. 135 disturbance of the standard. When the suspension of specie payments was ended, the resumption might have been effected on a broader metallic basis, and the fall of prices, which continued to the fifties, not indeed prevented, but appreciably lessened. The inevitable ups and downs of credit would have been present, whether the currency were bimetallic, or monometallic on a silver basis ; but the recovery from the periodic depression might have been less difficult and speedier to achieve, if the basis had been broader. A general fall there must apparently have been in any case; and, so far as the inconvertible bank-note had been issued to excess, sulfering must have attended its con- traction, just as it followed on the withdrawal at a later time of the excessive issues of the country banks. The question remains whether a broader metallic basis for the standard might have rendered the fall less severe and the sufFerincr less acute.^ In the period under consideration it is impossible to disengage from the operation of other causes the in- fluence of the fall of prices upon the general welfare. On the one hand there is no doubt that the period immediately previous, when prices were rising by leaps and by bounds, was one of extraordinary manu- facturing and commercial progress, and that the close of the war, and the resumption of cash payments, were followed by serious and continued depression in trade and agriculture. On the other hand it is the inferences drawn from the undoubted inconvenience of the older bimetallic currencies to the inadvisability of international bimetal- lism. 1 Cf. Mr. Everett in evidence before Commission on Agriculture, yi^. 18,79o, etc. 136 Money and its Relations to Prices. equally indisputable that the condition of the wage- earner during the period of our early manufacturing development was the reverse of prosperous. But the other forces, which were in operation, were so tremendous that it is impossible — if, indeed, it is really possible in any case — to eliminate their influence and attribute the residuum to the action of money on prices. In the eighteenth, as in the sixteenth century, the break-up of the old order, and the substitution of the new, were remarkable and bewildering. Alike in their effects on the prosperity of the manufacturer and trader, and on the misery of the wage-earner and apprentice, on the permanent advance of the nation, and on temporary dislocation of social arrangements, the new inventions and the growth of the factory may be described as revolutionar}^ The great war, again, stands out amongf such conflicts for the mag^ni- tude of its cost and the importance of its results. Nor is it possible to say that the misery of the workman ended with the rise of prices,^ or that the manufactur- ing development was arrested by the fall. We cannot indeed expect to isolate the influence of changes in prices, and we must rather regard them as adding to, or taking away from, other influences. In the period, with which we are now dealing, those other influences are so remarkable that they seem to throw all else into the background. We are perforce driven back on probabilities ; and from these we should infer that, while the sudden rise — for it was undoubtedly ^ The reverse was certainly the case. Cf. Cunningham : " Growth of English Industry and Commerce," bk. viii., chaps, xxi., xxii. ; and also Spencer Walpole's " History of England " and Harriet Martiueau's " History of the Peace.' The Fall of Prices after 1810. 137 rapid from 1792 to 1809 — was, like that in the six- teenth century, calculated on the one hand to dislocate industrial relations,and on the other to stimulate manu- facturincT enterprise, the steady fall, which followed, may have allowed time for the dislocation to be re- duced, but must also have exerted some retarding in- fluence on commercial progress. The consequences of the stimulus remained in an extended trade, while the evil effects on the condition of the labourer passed away, as his political standing improved, and his economic power increased. Both in the sixteenth century and in the period with which we are now dealing, the change from the old order to the new, which was due to causes different from any connected with the supplies of the precious metals, amounted to a revolution ; and it is in quieter times that we are more easily able to trace in facts the confirmation or rebuttal of our theories. It is especially to the modern organisation of industry, inaugurated by the industrial revolution, where the function of the employer is conspicuous, and the system of credit elaborate, that those conclusions apply, at which we- arrived, when in the second chapter we considered the possible effects of changes in prices on the economic condition of the general community. The period, that we are now approaching, partakes more fully of this character. CHAPTER V. THE RISE OF PRICES CONSEQUENT ON THE DISCOVERIES OF GOLD IN CALIFORNIA AND AUSTRALIA. In the sixteenth century the supplies of the precious metals received an extraordinary addition from the mineral wealth of Mexico and Peru. For the space of three centuries the new silver found its way into the world in quantities, which, with some decline during the seventeenth from the high point reached at the beginning of that century, steadily increased during the eighteenth, and towards the close at an accelerated rate, until in the first decade of the nineteenth the volume of production attained an annual average of 894,150 kilograms according to Dr. Soetbeer's figures. During the earlier part of the eighteenth century the supplies of silver were supplemented in increasing force by Brazilian gold; but, with the disturbances in America at the close of the opening decade of the nineteenth century, the supplies of both metals under- went a sudden and serious decline, A steady fall in prices ensued, w^hich, with the interval of a partial re- covery in the fourth decade, due apparently to new gold from Siberia,^ continued until the fresh dis- coveries of that metal in California in 1848, and in 1 Which reinforced those Russian supplies from the Ural Mountains, which had begun to assume an important place in the previous decade. 138 The Rise of Prices after 1850. 139 Australia in 1851, furnished a parallel, by the magni- tude and rapidity of their additions to the existing stock, to the memorable discoveries of three centuries earlier. Competent observers^ ventured to predict that similar results would follow both with regard to prices and to the welfare of the community; and their predictions were proved untrue, not so much because they exaggerated the additions to the mineral wealth, as because they under-estimated the counteracting in- fluences. The world, in fact, into which the new gold came, was different from that existing at the discovery of Ameiica. The fresh su implies made their entrance with greater rapidity into the highways of commercial intercourse, and even penetrated witli far less delay into many of the by-ways ; and the stimulus naturally applied to the increase of production and population was more speedily manifest. Cairnes ^ has put forward as a partial explanation of the sufferings of the English labourer at the time of the influx of the new supplies from Spanish America the consideration that the prices of the goods, on which he spent his wages," rose in neutral markets before any corresponding- advance in the prices of the goods that he produced ; and, although it is true that the rise of prices was not uniform or universal in the nineteenth, it was likely to be less spasmodic than in the sixteenth century. There might, as Cliffe Leslie contended,^ be districts, into which the Californian and Australian gold did iSuch as M. Chevalier in his " De la Baisse Probable de I'Or," which was translated into English by Cobden. ■-"Essays in Political Economy," p. 150. ^ Ibid., xix,, XX. 140 Mo7tcy and its Relations to Prices. not penetrate. There were certainly countries and places, whicli came more tardily into contact with it, and were later in the upward movement of prices. There might be towns and trades, where the new supplies were introduced into a previous lower level of prices, and, when once they found an entrance, caused a more rapid and extensive advance than in those populous industrial centres where the previous level was higher. For reasons such as these the rise of prices consequent on the gold discoveries of the nineteenth century would so far resemble that of the sixteenth that it would proceed by a series of jerks. But the jerks were less extreme and less spasmodic. Trade was more evenly diffused. The channels of commercial intercourse were wider and deeper. Tiie means of communication were easier and more effective ; and, while local inequalities might prevail, they were less pi-onounced and less obstructive. In short, the fall in the value of gold, to quote from Jevons' answer^ to Chevalier and Cobden, who had anticipated a series of " innumerable shocks and sufferings," was " gradual and gentle." " Far from taking place with sudden and painful starts, flinging the rich headlong to a lower station, and shakingf the groundwork of society, nothing," he remarked, " is more insidious, slow, and imperceptible." " It is in- sidious," he continued — in language which is full of instruction, and should be continually borne in mind in all inquiries into the nature and effects of changes in general prices — "because we are accustomed to use the standard as invariable, and to 1 1< Investigations, " p, 78. The Rise of Prices after 1850. 141 measure the changes of other things by it, and a rise in the price of any article, when observed, is naturally attributed to a hundred other causes than the true one. It is slow, because the total accumulations of gold in use are but little increased by the additions of any one or of several years. It is imperceptible be- cause the slow rise of prices due to gold depreciation is disturbed by much more sudden and considerable but temporary fluctuations which are due to com- mercial causes and are by no means a novelty," It was, then, into a woild to which these remarks of Jevons were applicable, and not into the compara- tively simple and primitive industrial and commercial economy of Elizabethan times, that the new gold from California and Australia made its entrance. That the discoveries were enormous is shown by sta- tistics of their volume. The average annual produc- tion of gold in the second decade of the nineteenth century is stated by Dr. Soetbeer ^ to have amounted to 11,445 kilograms. By the fifth decade it had in- creased, largely in consequence of the output from Siberia, to 54,759 kilograms, and in this decade tiie Califoruian discoveries of 1848 had begun to take their place in the suppl3^ These discoveries were followed in 1851 by those in Australia ; and the annual production increased in the next five years to 199,388 kilograms. From that point it rose to a maximum of 201,750 kilograms in the five years extending from 1856 to 1860 ; and then a decline began. Nor was the magnitude of the increase more re- markable than its suddenness. Between the fourth and the fifth decade of the century the annual pro- ' " Materialien," pt, i. 142 Money and its Relations to Prices. duction of gold exhibited an increase of 170 per cent., and in the next decade the increase amounted to about 290 per cent. In the following five years, when the highest point was attained, the increase on the pro- duction of a quarter of a century before was as much as 900 per cent. Such a large and rapid increase exceeded anything that had occurred in the sixteenth century, so far as Dr. Soetbeer's figures for that period show ; nor are the statistics less remarkable when we turn from the volume to the value of the annual production. In the fourth decade of the centurv the value of the annual production is estimated by Dr. Soetbeer at £2,830,300, in the fifth at £7,638,850, in the next five years at £27,815,400, and in the next five, when the highest point was reached, at £28,144.950. Thus the increase in a quarter of a century would appear to be about 1,300 per cent., and the value first more than doubled and then more than tiebled itself. Althouofh the production of silver advanced steadily, the percent- age of the successive increase was comparatively small, and during part of the time, contrasted with the gold, might be deemed insignificant ; and yet the total pro- duction of the two metals increased from £8,108,900 first to £14,506,500, then to £35,834,750, and, finally, to £36,380,400. In other words, it was more than quad- rupled. The ratio of the total volume of the gold to that of the silver altered from 33 to 96*7 to 182 to 81-8, and the ratio of the value from 34-9 to G51 to 77-4 to 22-6. Withiu the first decade that the United States be- came a considerable source of supply, the volume of production of the yellow metal increased in that The Rise of Prices after 1850. 143 country from 850 kiloo^rams to 17,600/ and largely exceeded that furnished by any other country but Russia, where the annual yield amounted to 22,515 kilof^rams, and had increased to this figure from 7,050 kilograms in the previous decade. Of the total pro- duction for the whole world the United States, even in that decade, supplied somewhat less than a third. In the following five years the output increased to 88,800 kilograms, or, in other words, by a percentage of more than 400, and, together with the Australasian supply, which amounted to 69,573 kilograms, furnished 158,373 kilograms out of a total production of 199,388, or more than three quarters. Within a single year, according to the American statistics, the production of gold in that country increased from 889,085 dollars to 10,000,000, and in the subsequent year — that of 1849 — there was a further increase to 40,000,000. In 1853 a maximum was reached of 65,000,000, or more than sixty-five times the production of the sixth year previous. In Australia the output of gold increased ^ from 357,019 ounces or 10,179 kilograms in 1851 to 3,105,286 ounces or 88,532 kilograms in 1852, and rose to a maximum of 3,292,150 ounces or 93,859 kilo- gi'ams in 1853. The increase here amounted to be- tween 800 and 900 per cent. We may now ))roceed to inquire into the effect upon prices of this remarkable increase. In his pamphlet on " A Serious Fall in the Value of Gold," ^ published 1 Cf. Tables in S!(alislical Journal for June, 1894. ■- According to Table prepared for the Report of the British Master of the Mint by the Master of the Melbourne Mint (given by Dr. Soet- beer in liis "Materialien"). * Jevons' " Investigations," ii. 144 Money and its Relations to PHces. in 18G3, fifteen years after the discoveries in Cali- fornia, and twelve after those in Australia, Jevons calculated the average fall in the purchasinoj-power of gold, measured by the change in the prices of 39 " chief" articles, between 1845-50 and 1800-02 at 14, and, mea- sured by 64^ " minor " articles, at 6"34 per cent. The total average fall he put at 9^ per cent., or the average rise of prices at lOi per cent. But the period, which he took as the tei'minus of this calculation, was, as he stated, one of " low water " in the commercial tide, and he anticipated that witiiin half a dozenyears later prices might rise to 40 or 50 per cent, above the average of the years from which he started. He pointed out that in 1857 the " prices at high tide were 29 per cent, above the average." This prediction was not, however, fulfilled. In a subsequent letter to the Economist,^ taking this time as his starting-point the year 1849 — a year which, he observed, was specially adapted for such a purpose, because it was at once the first year of the gold dis- coveries and also the year in which prices reached the lowest point that, when he was writing, they had attained during the century — and, basing his calcula- tions on the prices of about 50 articles, he found that the index number thus constructed showed a rise from 100 in 1849 to 101 in 1850, 103 in 18-31, 101 again in 1852, and then made a sudden advance to 116 in 1853 and 130 in 1854, until in 1857 it had reached its maximum of 132. It then fell in 1858 to 118, and in 18G0 was 124, in 1861, 123, and in 1862 1 The original number taken was 79, but, by grouping, it wa8 reduced to 64 "independent" articles. - "Investigations," No. iv. The Rise of Prices after 1850. 145 again 124, rising again in 18G6 to 128, and falling to 119 in 1869, the year in which he was writing. Com- paring the numbers for the three years of commercial collapse — 1849, 1858, and 18G7 — when prices, so far as credit and its fluctuations were concerned, were presumably at their lowest point, he established a permanent rise of 18 per cent., which he con- sidered to be due to the more deeply-seated cause of an alteration in the supplies of gold. With the results thus attained by Jevons, whose inquiries into the subject may be treated as classical^ we may contrast the conclusions shown by the index numbers of Mr. Sauerbeck ^ and of Dr. Soetbeer.^ As we have noticed,^ Mr. Sauerbeck employs a simple arithmetic mean, and starts with the average of the years 1867-77. His index number for 1849 is 74, and is the lowest for the whole century until that date. From 1849 the number increases until, in 1857 — a period, no doubt, of speculative excitement — it reaches the figure 105. In 18C4 also it was 105. The differ- ence between the two years 1849 and 1857 is thus 31, while Jevons, taking 1849 as his terminus a quo, reached the number 132 in 1857. For the years 1860-2 Jevons estimated a rise of some 10 per cent, on the average of the years 1845-50 ; and, taking the single year 1849 as the starting-point of the calculation, the numbers for the three later years were 124, 123 and 124 again. Mr. Sauerbeck gives 74 for the earlier and 99, 98, and 101 for the later years, thus showing in- creases of 25, 24, and 27, against Jevons' 24, 23, and 24. • Cf. paper in Statistical Journal for Jime, 1893. 2 " Materialicn," pt. vii. '^ In the last cliapter. K 146 Money and its Relations to P?'ices. For the years 1858 and 18G7, taking 1849 as the terminus a quo, Jevons' numbers are 118 in either case, and Mr. Sauerbeck's numbers are 91 and 100, being an increase of 17 for the former year, and of 26 for the latter, on the number for 1849. The general consilience of the results, when allowance is made for the difference in the numbers from which the calcula- tions respectively commence, and the increases shown by Mr. Sauerbeck, are, like those of Jevons, reduced to percentages, is far more remarkable than the differ- ence exhibited in the last case — that of the year 1867 : and this is perhaps due to a cause indicated ^ by Jevons himself as responsible for the divergence between his own results and those of the Economist. In the index number of that newspaper 4 of the 22 articles, which formed the basis of the number, consisted of cotton, and the rise in the price of that commodity during the American Civil War, and the so-called " cotton famine," was nothing less than enor- mous. In Jevons' own number, starting with 1849, 3 of 50 commodities consisted of cotton, and a geometric mean, specially intended to correct undue influence, was substituted for the simple arithmetic mean of the Economist. In Mr. Sauerbeck's number it it true that only two places in 44 are assigned to cotton, but a simple arithmetic mean is taken, and, as he himself states,^ " the extreme prices of cotton during the American Civil War " have " raised the general average considerably." Turning to Dr. Soetbeer's number, which is based 1 ••Investigations," p. 15i. The effect continued, of course, for some while after the war was ended. 2 Cy. paper in Slatklical Journal quoted above, p. 240. The Rise of Prices after 1850. 147 on 114 commodities, (of which 100 are Hamburg and 14 En;:jli.sli j)rices), and starts from the average of the years 1847-50, and adopts a principle, which in effect gives some amount of weighting to tiie general average,^ we (ind that numbcf is not given for 1849, but that in 1857 the rise is 30 per cent, on the average of 1847-50; in 1860-2 it is 20, 18, and 22 ; in 1858 it is 13; and in 1867 it is 24, as contrasted with advances of 32, 24, 23, 24, 18, and 18 shown by Jevons for the corre- sponding j^ears. Mr. Sauerbeck's differences are 31, 25, 24, 27, 17, and 26 ; but in this case allowance must be made for the different number (74), from which the increase is reckoned. From a comparison of the three sets of numbers certain conclusions emerge. They agree in tending generally in one direction. That of Dr. Soetbeer resembles that of Mr. Sauerbeck in exhibiting a more marked advance in 1867 than that shown by Jevons, and this, as we have seen, is per- haps due to the influence exercised on the general average by the extraordinary rise in cotton. On the other hand Jevons is in accord with Mr. Sauerbeck in- arriving at an advance, which, viewed throughout the seiies of years embraced, is greater than that indicated by Dr. Soetbeer. In appreciating the significance of this special difference, it should be remembered, as Mr. Sauerbeck urged before the Gold and Silver Commission,^ that Dr. Soetbeer's number includes many ' By dividing the articles into groups, andgiviug an index number for eacli, and then working up to tlie final index number by treating the groups as equally important, although dill'cring in the number of articles comprised. (,Cf. Sir R. Giffen in evidence before Gold and Silver C'onunission, <]. 7-')3. ) -Q. 1,015, where he also argued tliat import prices {such as those on which Dr. Soetbeer's number is largely based) " follow movements 148 Money and its Relations to Prices. commodities, which may be described as "small," and, by comparison with those embraced in other numbers, such as Mr. Sauerbeck's own, considered unimportant. Mr. Sauerbeck himself, dealing with a later period, found that, by taking Dr. Soetbeer's figures for the same commodities only as his own, the difference between the two numbers was reduced ; and at the time, with which we are now concerned, Jevons similarly dis- covered ^ that the inclusion of minor articles produced a noticeable diminution in the general average. On a "priori grounds it would seem probable, both as respects a rise and as regards a fall, that the minor articles would be less responsive to the influence of changes in general prices, that they would not come so rapidly into contact with the supplies of the metals, and that the vis inertice opposing an alteration would in their case be greater and more obstinate.^ But tlie broad consilience of the results is more notice- able than the differences of detail ; and of the fact of a marked and general rise of prices following on the gold discoveries of California and Australia little doubt can be seriously entertained. The amount, however, of the rise, is noteworthy when contrasted with the evidence attainable of the occurrences of the sixteenth century. In its effects more slowly than market prices," and that it is better to measure from high prices downwards than from low prices upwards. [Cf. also his paper in Eronomic Journal for June, 1895, and Mr. Pierson'a reply in September, 1895.) ^ Cf. " Investigations," No. ii. 2 Cf. evidence of Rir R. Giffen before Gold and Silver Commission, q. 819, where he points out that the cost of manipulation and of distribution affect retail prices. [Cf. also below, chapter vi. , on possible influence of wages on retail prices. ) The Rise of Prices after 1850. 149 on the welfare of the community, and on the relation of various cUisses to one another, an advance of 18 per cent., such as Jevons thought he had established in 1869, was not unimportant ; but it sinks into insig- nificance when compared with the movement recorded at the earlier time. At that period Adam Smith, taking the price of corn alone, discovered a rise of some 200 per cent, in the seventy years between 1570 and 1G40 ; and iiis conclusions have been substantially contirmed by those obtained by other means.^ We may fittingly inquire into the explanation of this ditterence, which, whether we look at the effects on prices, or on the general welfare, places in distinct categories changes in the supplies of the metals in the modern world and similar alterations in Elizabethan times."^ Such a difference dictates no small amount of caution in ai'guing from the experience of the earlier to the later age, and points to the likelilujod that under the present industrial and commercial economy changes in the supplies of the metals will be more subtle and gradual in their operation, and more cal- culated to produce the effects — based partly on a real difference in the relation of debtor and creditor, and ^ Cf. Newmarch's examination of the results reached by various inquirers, such as Arthur Young, in vol. vi., app. ii., of Touke and Newmarch's " History of Prices," pp. 388, etc. The rise in France he puts at a similar figure, and dates its commencement from about 1570. Arthur Young's inquiry related chiefly to agri- cultural wages, but also to prices. - Newmarch points out ("History of Prices") that even in tlie Elizabethan period a rise of 200 per cent, in prices was less than might, a priori, have been expected from the increase in the pro- duction of the metals, and that by 1(340 the rise was apparently over, and the new silver onlj' sufficed to meet the growth in demand caused by extended trade, etc. 150 Money and lis Relations to Prices. partly on a sentimental influence exercised on the imagination — which were set forth in the second chapter of the present inquiry, when the question was examined of the balance of advantage and draw- back between a rise and a fall. The sudden disloca- tion of the sixteenth century, aggravated, as it seems to have been, by the previous debasement of the coin- age, is foreign to the conditions of the nineteenth, and the accompanying evils, and the specially injurious influence on the position of the wage-earner, are the less likely to be repeated. At any rate, in the period, which we are now considering, no such sudden dislocation occurred, and no such rapid and excessive rise in prices was evident. It was anticipated, but it did not happen ; and into some of the reasons we may now inquire. The first, most obvious, and most important, is found in the relative magnitude of the existing stocks of the metals. At the discovery of America these stocks were reduced to a veiy low sum ; and Jacob puts the amount in coin at £33,000,000. This is a guess founded on more or less reliable data ; and anv corre- sponding estimate for the present day cannot pretend to more than conjecture. But it is not unlikely that the existing stock of coin in Europe at the tiuie of the Californian and Australian discoveries may have been many times as great as it was three centuries earlier. The initial effect, therefore, of any increase in the annual additions was largely reduced ; and the influence of tlie successive increments, which in any case would tend to diminish in consequence of the preceding, would decline at a more rapid rate in the nineteenth than in the sixteenth century. This The Rise of Prices after 1850. 151 diminution in the influence exerted by an increase in the annual outj)ut is distinguished ^ by Jevons as due to a " swelling" of the currency in contrast with what he terms an " extension " ; and he believed that most of the writers on the probable effects of the new gold supplies had under-estimated the first of these forces and over-rated the second. Yet that the currency would be " extended " by the growth of commerce and manufacture, stimulated, perhaps, by the new supplies of gold, but in any event naturally increasing with the progress of invention and the development of organisation, was inevitable. That this " extension " would exert a retarding in- fluence on the advance of prices could not be ques- tioned ; nor could it be denied that such a cause was likely to operate with greater speed and intensity in the nineteenth than in the sixteenth centurv. Such an •' extension " micjht take different forms, and among the more important would be a new expansive force given to credit. The relation between the supplies of the metals and credit is a difficult problem ; and the development of credit, with its substitutes for cash, is one of those incidents of the organisation of the modern world, which tends to obscure the connection between the metals and prices. How, it is sometimes asked,- do they come into contact ? Prices in wholesale markets, to which index numbers relate, are generally determined without the passage of actual cash, and ^ " Investigations," p. 69. ■Cj. Lord Farrer in "Gold, Credit and Prices." (C/. also Lord Herschell in examination of witnesses before Gold and Silver Com- mission, qq. 9,640, etc.) 152 Money and its Relations to Prices. the transaction is effected by a credit-instrument — a cheque, it may be, or a bill of exchange. The multi- plication of these instruments, it is contended, has resulted in a great economy of cash ; and, as with the flow and ebb of credit they increase and decline, so prices rise and fall. The connection between the metals and prices is at the best indirect and remote, and is continually becoming more complex and obscure. This argument is certainly right in denying the directness of the relation ; but it seems no less true that a real connection exists between the metals and prices. Tbe connecting link is discovered in the bank reserves.^ In the last analysis, as Bagehot ^ and other inquirers have shown, the fabric of credit is found to be built on the cash-reserve in the Bank of England. Credit may indeed expand and contract. Its move- ments may be more extensive at one time than at another ; but it rests on the reserves, and the con- nection is brought into prominence at times of com- mercial crises, when men turn with panic from credit to cash. Every banker in succession, from the Bank of England, the custodian of the ultimate cash- reserve, maintains, if he wishes to avoid insolvency, a proportion between his liabilities and his reserve. And thus the connection between the reserves, into which, in the modern banking world, the new supplies would naturally find their way at the outset, and credit, which, expanding and contracting of itself owing to alternations of speculative or stagnating 1 (/. Giffen : " Essays in Finance," second series, ii. : " Gold Sujjply : the Rate of Discount and Prices." - In " Lombard St.," passim. The Rise of Prices after 1850. i^'' o trade, is yet limited ^ in the extent of its movements by tlie basis of cash on which it is built, implies a real connection between the precious metals and prices. If the reserves increase, and piomise to increase still further, a rise of prices, above the temporary advance due to a period of active speculation, will be pro- duced ; and, if the reserves diminish, and apprehension is felt of their further diminution, the fall, which would naturally follow contracting credit, will be accentuated. For this reason, to detect the deeper cause, which consists of changes in the supplies of the metals, we must eliminate the more superficial in- fluence of credit-fluctuations. It may be that, with the increase of banking, a larger fabric of credit is habitually constructed on a narrower foundation of cash, and this " extension " of the currency may exert some counteracting influence to a diminution in the supplies of the metals. It is a circumstance to be noted when we are comparing over an interval of years the effects on prices of the precious metals ; but it admits of some statistical verification, and, in the absence of evidence of important change, we may' contrast the level of prices reached in one credit cycle with that attained in another, and conclude that, if the level be raised or lowered, the change is due, not to credit, but to some more fundamental alteration between the circumstances of the production of com- modities and tiie supplies of the precious metals. Estimated by this test, there could be little doubt that at the period we are now examining the addition to the supplies of the precious metals had exerted an im- portant influence on the course of general prices. ' Cf. Jcvons' " Investigations," p, 32. 154 Money a7td its RelatioJis to Prices. A further question, however, may be raised whether this development of credit, which admittedly renders the connection between the metals and prices less direct, increases or diminishes the influence of the one on the other. It mi^ht seem, on the one hand, as if the efiects would be lessened as they are spread through a wider area ; and yet, on the other, that their import- ance would be increased because so large a mass of business transactions is ultimately dependent on them.^ Either view expresses apparently a portion of the truth. It would certainly seem that, considered simply with reference to immediate consequences, a relatively small change in the supplies of the precious metals, acting; throuojh the medium of so elastic and expansive an agency as credit, would produce a greater and wider effect on prices than would result if no such medium existed. But, on the other hand, it would also appear to be probable that the counter- acting forces would be set in action more rapidly. The " extension " of trade would more speedily make its appearance, and what Jevons distinguished as the " swelling " of the currency consequent on depreciation would be sooner efiected. The rise would be quick- ened, and, for the time, magnified ; but the reaction, which it would tend to produce, would also be readier and more extensive. Regarding the matter thus, Cairnes reached the prediction,^ verified by events, that the rise occasioned by the new gold from Cali- fornia and Australia would be more speedily com- pleted in England, with its developed credit, than in 1 Cf Professor Foxwell in Economic Review for July, 1893 : "Bi- metallism : Its Meaning and Aims," p. 316. ■- " Essays iu Political P^couoniy," ii. The Rise of Prices after 1850. 155 the less responsive and more absorbent currencies of the East, that tlie natural reaction would take place more rapidly with manufactured ^oods, which with ease and without delay could be produced in increas- ing quantities to meet an extended demand, and that the process would be tardier with raw materials, and that, amongst these, those of vegetable growth would answer more (}uickly to an increased demand than those of animal origin, which could only be produced after a longer interval. Two further considerations must be borne in mind in estimating the total influence of credit. One is that it is a medium peculiarl}' sensitive, and probably serves to intensify the effects on the imagination of an increase or diminution in the supplies of the precious metals, and therefore accentuates also the consequent rise or fall of prices. The other con- sideration is more complex. If the general level of prices be raised, the smaller transactions of society, which are still conducted by cash, will require a larger quantity, and the demands on the banks for petty cash will become more urgent. This will oc^ casion a drain on the reserves, into which the new supplies have come ; and the volume of the currency will be increased, and the counteracting forces set in motion. It can hardly be doubted that the elevation of the general level of prices is effected with greater rapidity through the agency of credit ; and therefore both the rise occasioned by the influx, and the re- action from the rise, seem likely to be accelerated by its presence. In the relations thus established in the modern world between the precious metals and prices through 156 Money and its Relations to Prices. the medium of credit and the reserves the explana- tion may be found of a paradox sometimes raised in such discussions.^ When the new supplies find their way into the reserves, the bankers lower the rate of discount ; for, with the enlargement of the basis of cash, they are in a position to extend the super- structure of credit. They are more able, and, unless they wish to keep the money idle, they are more ready, to increase their liabilities ; and, therefore, they are willing to lend on more favourable terms — to dis- count meichants' bills at cheaper rates. The value of " money " is lower in the sense of loanable capital in the money market. But this willingness to lend encourages traders to borrow and extend their business ; and the increase of business leads in its turn to a rise of prices — to a fall in the value of " money," that is, in the sense of the measure of value. The rise of prices brings with it tlie advance of wages, and the demand for a larger quantity of petty cash ; and now the bankers, in order to arrest the drain, are compelled to raise the rate of discount, unless a fresh or continued influx of the metals should furnish the means of meeting the growing demands. This elevation of the rate of dis- count will tend in its turn to check the extension of business and to arrest speculation. It will thus oc- casion a fall of prices and diminish the demand for petty cash for the pa3'ment of wages and for the purchase of retail goods. The tide will be reversed, and cash will flow back to the reserves instead of 1 Cf. Mr. W. Fowler in evidence before the Gold and Silver Com- mission, qq. 7,705, etc.; and also Lord Farrer before the Commission on Agriculture, qq. 38,624, etc. Tlie Rise of Prices after 1850. 157 issuing out, and the bankers will reduce the rate of discount. Thus changes in the rate admit of differing inter- pretations. The rate is an index at once of ability to lend and desire to borrow. It may be low, because sluggish trade, and falling prices, have occasioned less demand on the part of discouraged traders for loan- able cajjital, and the tide moved by the need of cash for small payments has set towards instead of away from the reserves. Or it may be low, because bankers find that a continuous influx of the precious metals increases their ability to meet the growing demands for monetary accommodation, occasioned by brisk trade and rising prices. Or, once more, the rate may be high in consequence, either of the eagerness of this demand, or of the difficulty of replenishing the reserves. According to the circumstances of the moment, the variations of the rate may conceivably afford opposite indications of the state of trade and of general prices ; and the value of money, in the sense of loanable capital in the money market, may differ from the value of money in the sense of the measure of value. - To these considerations, in any attempt to appraise the real significance of the rate of discount, and of changes, which are made in it, it should be added that the elevation of the rate is the agency employed by the Bank for attracting gold from abroad, and that loans are made for long periods of time as well as for those short periods, with which the rate is connected. An alteration in the rate may imply nothing more than a shifting in the " territorial distribution " of money, occasioned by a passing change in the balance of trade, and may not mean a permanent increase or 158 Money and its Relations to Prices. diminution in the supplies from the mines, although it is true that it is by affecting the balance of trade that the new supplies make their way in succession into the different countries of the world. The per- manent basis of credit, again, is to be found, not in the money available at any particular time in the money market, but in the capital existing in the country, and in the additions made thereto, A low rate of discount may imply a temporary abundance of the money in the money market, but may not mean a real growth of capital, or an addition to the peimanent possibilities of the expansive force of credit. The rate is, in shoit, an index of the influx and efflux of bullion into and out of the country, into and out of the reserves. But a low rate may be a sign of stagnating trade as well as of ease in the money market, and may be found to co-exist with falling as well as with rising prices.^ Nor are large reserves a certain index of abundant supplies of the precious metals ; for they may be hoarded against emergencies. They may, in fact, be the result of deliberate action, and not the natural consequence of economic forces. They may be due, not to abundance, but to a fear of scarcity. In modern times, and in civilised nations, the habits of hoarding have steadily yielded before the advantages of banking in the case of private individuals ; and the accumulation of idle hoards by banks is not likely to be adopted as a continuous policy, if a favourable op- portunity be presented for active employment of the money, and no special purpose for the hoard be enter- 1 Cy. Prof. Marshall in evidence before Gold and Silver Com- mission, qq. 9,561, 9,678. The Rise of Prices after 1850. 159 tained. But it is commonly believed that the rise of prices in the sixteenth century must have been ar- rested by extensive hoarding ; and it is also thought, and attested by reliable authority, that during the troublous times of the Napoleonic Wars money was hoarded by individuals, and only brought into circu- lation at the conclusion of peace. Tooke, moreover, held ^ the view that any liberation of the metals from their use as money, effected by tiie issue of incon- vertible paper during the Bank Restriction, was more than counteracted by the lavish expenditure of governments, not only on their armies in the field, but on hoards in their war-chests. This variety of hoarding is still extant in the Western world, and its influence on the values of gold and of silver is a factor, which cannot be neglected. But the chief locality of hoarding by individuals is the East, and the absorbent character of Oriental cur- rencies is ascribed in part to the prevalence of this disposition. It was, and to a great extent is still, true that the Indian, led by an instinct implanted by long experience of the ravages of succeeding con- querors, has contracted a habit of carrying a great portion of his accumulated wealth on his person in the form of adornment ; and he contributes no in- considerable quota to the consumption of the metals in the arts. It is also true that large quantities are hoarded in the East in the shape of coin or bullion.'^ At any rate, since the discovery of America, the East has exhibited a capacity for receiving and retaining ' Cf. "History of Prices," pt. iii., ch. ii., sec. I. - Cf. Sir D. Barbour in evidence before Oold and Silver Com- mission, qq. 1,090, etc. i6o Money and its Relations to Prices. the overflow of Europe, which has seemed illimitable.^ Instead of passing the metal on to other countries, it has absorbed it in its currency ; and the rise of prices, which, with the expansive force derived from credit, may be soon produced, and speedily completed, in Western nations, in the East occupies a longer period, and is at once more sluggish and more per- manent. Thus the drain to the East has been an influential factor in determining the eftects of the supplies of the metals on prices since the Oriental trade became im- portant ; and, in comparing the rise, which formed the sequel of the conquest of Mexico and Peru, with that which followed on the Californian and Australian discoveries, we must remember that the Eastern trade was much larger in the nineteenth than in the six- teenth century. In the interval gold had indeed come from Asia into Europe, and about 1832 the tide, as we saw in the preceding chapter, had been actually reversed, and for a time there was a balance of export over import of treasure in the Indian trade. But tor the years 1810 to 1813 Dr. Soetbeer ^ puts the annual imports into the three Indian Presidencies at forty million marks, or two million pounds. After the abolition of the monopoly of the East India Com- pany he estimates them at more than twice that amount. From 1834 to 1850 he places the annual net import at two and a half millions ; but in 1851 to 1855 the excess of import doubled that of the previous 1 Sir D. Barbour (" Theory of Bimetallism," chapter xx.) suggests that such an illimitable capacity of absorption cannot be safely postu- lated in the future. - " Materialien," pi. iii., 3. The Rise of Prices after 1850. 161 quinquennium, and in that whicli succeeded it more than quadrupled the figures of the later period. With some variations, this liigh level was maintained during the following decade. This large increase in the balance of import over export was partly due to the natural growth of the Eastern trade, but it was specially intiuenced ^ by the payments required on account of the suppression of the Mutin}^, and of the deficiency in the American cotton crop during the Civil War, and its replacement by Indian cotton. The point, however, which calls for particular attention in connection with the gold supplies, is that by far the larger proportion of the treasure, which thus entered India, was not the fresh gold, which was pouring out of the new mines, but was, on the contrary, silver.^ It might therefore have seemed as if the drain to the East would exert no arresting influence on the fall in the value of gold. The connecting link was furnished by the French bi- metallic jnint. That mint received the gold, and re- leased the silver, which thus found its wa}^ to the East. The broad evidence of the figures is unmistakable. The net imports of gold into France apparently increased ^ from a negative quantity in 1847 to 38 million francs in 1848, to 85 millions in 1851, to 289 millions in lh53, to 416 millions in the following year, and to a maxi- mum of 539 millions in 1859. With the exception of one or two years * there seems to have been a balance 1 Cf. Barbour : " Theory of Bimetallism," ch. xx. 2 Gold was also imported in increased quantities in the j-eara following the discoveries in California and Australia. * Cf. Shaw : " History of Currency," p. 183. * Mr. Barr Robertson, in paper quoted below, gives the years 1860 and 1861. L 162 Money and its Relations to Prices. of import over export — varying, indeed, but generally very considerable — from 1848 to 1870. Before that time the balance had for several years inclined the other way b}' comparatively slight amounts. With re- gard to silver the i)Osition Nvas apparently reversed.^ From 1822 to 1851 the imports had exceeded the ex- ports, but from 1852 to 1864 the balance inclined de- cidedly in the other direction. The statistics of coinage tell the same tale ; ^ and from this " ostensive instance," as it may be called in Baconian language, the opera- tion of the bimetallic system is clearly demonstrated. If ever a theory was verified by fact it was in this case. Nor can it be doubted that this absorption of the gold, and release of the silver, exercised a controlling influence on their relative values. We have already noticed ^ that in the period subsequent to the discovery of America a remarkable change was evident both in the total volume and in the total value of the annual pro- duction of the two metals respectively, and yet the at- tendant change in their market ratio was comparatively inconsiderable. Although, with the increasing output of silver, the ratio steadily became more favourable to gold, an alteration from 1 to 10 to 1 to 15| was not commensurate witli what might have been fairly ex- pected to follow on a change in the proportion of the total volume of production from 11 to 89 to 1 to 98, or in the total value from 57 to 43 to 23 to 76. It is im- possible not to ascribe some steadying influence to the 1 Cf. Shaw, " History of Currency," p. 184. - Ibid., cf. also Soetbeer : " Materialien," pt. iii., and J. Barr Robertson's paper in Statistical Journal for September, 1895. ' (jhapter iii. The Rise of Prices after 1850. 163 large use of silver in the currencies of the world ; and it is at least noteworthy that the advance in the rel- ative value of gold to silvei- was not diffused evenly over the whole period, but occurred by what Dr. Soet- beer terms ^ a " quick and sudden " change between 1621 and 1650. From this he draws tlie natural in- ference that the change could not be attributed to the conditions of produc-tion, although he allows that tlie effects of the new discoveries of silver might have been postponed for a time. The continuous wars, and the growth of international trade, occasioning increased de- mands for gold, are believed by him to be the causes most largely responsible. It is not, however, the rise before 1660, which so much concerns us now, as the comparative steadiness^ since that date ; and such an experience certainly seems to point to the conclusion that to deny a steadying influence to a bimetallic system, is not merely to contest the theory of supply and demand, but to reject the testimony of obvious facts. In 1666 the principle of free and gratuitous coinage was adopted in England, and, with a temporary sus- pension of the coinage of gold at the time of the re- coinage under William the Third, and the more per- manent suspension of the coinage of silver in 1798, the English mint was open to both metals during the intervening hundred and thirty years. It is tiuc that some obstruction to mintage in general appears to have been offered in practice by the authorities of the Bank during the years immediately preceding the later and ^ " Materialien," ii. ■^ The " noteworthy stability, " as Dr. Soetbeei' calls it. 164 Money and its Relations to Prices. permanent restriction.^ But from 1803 to the suspen- sion, some twenty years ago, of the free coinage of silver at the mints of the Latin Union, the Paris mint was simi- larl}' open to the unlimited coinage of both metals, at a fixed ratio, and from 1865 the mints of Belgium, Italy, Greece and Switzerland were also open. During this period the production of the metals underwent very considerable change.- For the first decade of the nineteenth centur}^ the volume of gold was to silver as 1'9 to 981, in the fifch decade it became ^'^ to 9o"4, with the first half of the sixth the infiux of the new supplies from California and Australia altered it to 18*4 to 81 "6. In the three succeeding quinquennia it was 18-2 to 81-8, 144 to 85-6, 127 to 87-3, and in 1871-5 it became 81 to 91"9. The alterations in the respective proportions of the total values were equally remark- able. Starting with 23"7 to 76'3, the relation became successively 247 to 75-3, 32-7 to 67-3, 349 to Col, 52-7 to 47-3, 77-6 to 22-4, 77-4 to 226, 721 to 279, 69-4 to 30-6, and 58-5 to 41-5. And yet, as the Gold and Silver Commissioners stated in their final report,^ the ratio did not diverge more than three per cent, in either direction from the middle of the seventeenth century until 1873, while — to quote again their authoritative opinion — it had not " materially varied from 15^ to 1 "since the commencement of the present century. This comparative steadiness, coupled with the change produced after the suspension of the free 1 Cf. Prof. Foxwell in evidence before the Commission on Agricul- ture, q. 22,823. - Soetbeer : " Materialien," i. "Sec. 7. The Rise of Prices after 1850. 165 coinacre of silver at the mints of the Latin Union some twenty years ago, is a noteworthy fact. Taken in conjunction with the theory of tlie comj)ensatory action ^ of the bimetallic system, which, as students of Economics are awaie, is an application to the spiiere of money of a recognised extension of tlie theory of supply and demand, it surely constitutes that experi- mental verification of theory by fact, which is so diffi- cult to discover in the region of the moral as contrasted with the physical sciences. It is true that even here an argument based on the plurality of causes has been employed, and we are told on high authority ^ that, had not the circurii- stances favoured, the result would not have followed, and therefore the result is due, not to the action of the bimetallic system, but to the favourino: circum- stances. Such an argument may be admitted as a conceivable explanation of the stability of the ratio during the time when the bimetallic S3'stem was in operation ; but its adequacy is not increased by a con- sideration of the events, which have followed the sus- pension of the system. The position seems to present itself thus. The presence of the system, in spite of great changes in the respective volume of production of the two metals, was accompanied by remarkable sta- bility in their ratio.^ The removal of the system, al- though the changes in the respective volume of produc- ^ Cf. Jevons : " Money and the Mechanism of Exchange," ch. xii. - Cf. Giifen : " Case against Bimetallism," ii., vi. » Mr. J. Ban- Robertson, in the paper quoted above, argues that the market price would always differ slightly from the mint price, if the bullion dealers were to get a profit, and the movement of bullion was to continue, i66 Money and its Relations to Prices. tion have not been more considerable or revolutionary than those, which occurred durinf^ its existence, has been attended by great instability in the ratio. If this is not as convincing an application of the com- bined methods of agreement and difierence as we are likely to encounter in economic experience, it would, at least, be hard to discover a parallel. That the bimetallic system exercised a steadying influence on the relative value ot the precious metals, and helped to arrest the fall of gold after the discoveries in California and Australia, rests on as logical a founda- tion as can well be found for any like assertion. The conclusion remains valid, whatever ma}' be felt about the influence of other contriliutory causes in the past, whatever opinion may be held on the possibility of forininof or maiutainimj in the future an union of nations sufficiently strong to counteract, by the de- mand for coinage at their mints, such changes in supply as are likel}' or conceivable, and whatever dispute be raised on the precise meaning to be attached to the agio or premium found on the one, or other, or on both, of the metals at diff'erent times in bimetallic France.^ Some of these questions turn on points of fact, and some on considerations of theory ; but they do not upset the reasoning, which recognises in the bimetallic system an arresting influence to the fall in the value of gold, and the divergence in its relation to silver, which, in the absence of the system, might 1 Cf. Giffen : " Case against Bimetallism," pp. 58, etc ; Gibbs : "Colloquy on Currency," ^3I■d edition). Tables on pp. 24, 103-7; Prof. Foxwell in evidence before Commission on Agriculture, q. 24,179 ; Mr. J. Ikirr Robertson in paper in H t at i>riees. Sir Robert Giffen himself was then inclined to attribute little real importance to this fall ; but the degi-ee of importance, which different observers attach, must depend on the amount of influence, which they think that this feeling of malaise is likely to exert, and on the rate of material progress which, in the absence of such counteraction, might have been ex- pected in a progressive community. Nor are the facts of the decline of pauperism, the growth of population, and the increase of the deposits in the savings banks, and of house assessments, in conflict with what might have been expected. Accoid- ing to the last census, indeed,^ the rate of increase of population has declined ; but this fact, which is com- mon to other communities, may be due to a rise in the standard of comfort. This very rise, however, is but one illustration of the change apparently pro- ceeding in the distribution of wealth. In a progres- 1 A"ol. iv., General Report, ii., 1. " Not only " was the " increase absolutely less than in the previous decennium, 1871-Sl, but the rate of increase was lower than in any previous decennial period in tlio century." N 194 Money and its Relations to Prices. sive community, where a real change of this nature is being effected, we should expect to see a decline of pauperism, a growth in the deposits in savings banks, and an increase in the assessments of houses. In most of the countries, where industry is organised on modern lines, and the manufacturing and commercial development of the age has been fully initiated, statistical evidence supports the conception of a real change in distribution — of a tendeuc}', as M. Leroy Beaulieu has put it,^ to a diminished inequality of conditions. And this tendency, which may be said to be placed beyond the reach of serious dispute, would lead, in the absence of some counteracting cause, to an increase of wages. That wages had been stationary might, therefore, seem to tell in favour of a fall of prices, due to some monetary cause, rather than against it, and to be consistent with the view that the position of the wage-earner would have been better without the fall. Again, the statistical evidence, as Sir Robert Giffen states ^ it before the Commission on Agriculture, shows that between 1870 and 1880 there was a rise of wages, and that between 1880 and 1893 in a few cases there had been a fall, but that in the great majority wages had remained stationary. It is, as we have seen, in accord with the probable operation of the cause for the effects to be manifest in w^ages only after some delay. Passing from wages to profits, Sir Robert Giffen, iln his " Essai sur la Repartition des Richesses." 2Q. 18,105, and appendix, table vi. (vol. ii.) ; cf. for more de- tails paper in Statistical Journal for Dec., 1888; cf. also paper by Mr. A. L. I'owlcy in Statistical Journal for June, 1895, vol. viii., pt. ii. The Fall of Prices after 1873. 195 in evidence given before tlie same Commission on Agriculture, states^ that, down to about 1875-9, the assessment of profits for income tax, taking the nominal values per head, had increased ; that after 1875-9 it had remained stationary, and that about 1890-93 it aofain exhibited a slifjht increase. This evidence points to the conclusion of a relative decline in profits from 1875-9 to 1890, as before 1875-9 the assessment was growing faster than the population, whereas in the subsequent period it was only growing as fast. Hitherto the matter has been considered from what may be distinguished as the negative side. We have been asking whether there is reason for supposing that, if the cause had been absent, the effects might have been different. If w^e now turn to the positive side we find it difficult to dispute the general trend of the evidence. Within the last twenty years four Royal Commissions have been engaged on the ques- tion of depression. The Gold and Silver Commission was appointed eo nomine to investigate the divergence between the values of the metals. It was appointed because the previous Commission on Trade Depression had, in the course of its inquiries, suspected the operation of some deep-seated cause connected with the metals.2 Besides the Depression of Trade Com- mission, two Commissions have inquired into de- pression in Agriculture, one under the Chairmanship of the Duke of Richmond, and the other, which is now sittinfr, under that of Mr. Shaw Lefevre. The very fact of the appointment of these Commissions 1 Q. 18,101, and appendix, table iv. 2 Cf. Final Report, sec. 722, and Third Report. 196 Mo7tey and its Relations to Prices. may be taken as evidence of the reality of that malaise, which Sir Robert Giffen desciibed as the natural consequence of falling prices. The feeling of depression and uncertainty, and the opinion that there was no agreed and obvious cause, may be taken as testimony — quantum valeat — to the likelihood of some underlying cause, such as a change in the re- lation of gold to commodities. Nor is there any serious question of the fact that the decline of profits formed the burden of the complaint before the De- pression of Trade Commission ; and that the two Com- missions on Agriculture have repeated the same tale — and in the case of the latter in more urgent and emphatic language — of the fall of rents and the dis- appearance of farming profits. This is as we should expect. That falling prices should especially affect the margin of profits, and that they should exercise a yet more destructive influence on that "margin of a margin," which, as Sir Robert Giffen has expressively put it, represents the rent of the landlord, accords with a priori speculation. It is true that other causes may also have been operating both in trade and agriculture. The period following the Fianco-Gerraan war was one of extraordinary business activity, and, it may be added, of unhealth}' excitement, and some reaction was inevitable. But the peculiar feature of tlie last twenty years has been that the depression, unlike its predecessors, has seemed perpetual. Probably in part at least for this reason some observers have even urged that the effects of the notorious Baring crisis, by being extended over a longer period, have proved more injurious than might have been the case, had the orio^inal crash not been The Fall of Prices after 1873. 197 averted. It is because they looked for a recovery which did not come. In ao,a.y Revieir. 15. Essays and Addresses. Bernard Bos.vnquet, M.A. (Oxon.). " Ought to lie in the hands of every student of the Nineteenth Century spirit."- " No one can complain of not being able to understand what .Mr. Bosanquet means." — I'ull Mall Gazette. 16. Charity Organisation. C. S. Loch, Secretary to Charity Organisatiou Society. " A perfect little \\\Ann;\\."—Atheaau.ui. "Deserves a wide circulation."— ■9'•'l^■lilirta. 17. Thoreau's Anti-Slavery and Reform Papers. Edited by H. S. Salt. " An interesting collection of essays. "--Xi'emc^ WorM. 18. Self-Help a Hundred Years Ago. G- J- Holyoake. " Will be studied with much oeneflt by all who are interested in the amelioration of the condition of the poor."— .Vo<-/ioi(/ Pott. 19. The New York State Reformatory at Elmlra. Alexander Winter. With Preface by Havelock Ellis. " A valuable contribution to the literature of penology."— Black and White. 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Ramsden Bai.MFORTH. 62. The New Reformation. .„i!„;„„ how best to realize the personal " A striking; presentation of the nascent religion, how oesi lo reauio f and social idt"xI.'—H'fs/(,i;-i.';«'-A«vi«w. rp ^ Kebbel. 63. The Agricultural Labourer. onnendices on wages, education, allot- " A short summary of his position, with appenaices on wiiKt», ments, etc., etc." - , , t,„,„„„.- E. Bernstein. 64. Ferdinand Lassalle as a Social Reformer. BconomUt. " A worthy addition to the .Social Science beries. -North Brxtuh nconomxMi. SOCIAL SCIENCE SERlES-{Contmtied). 65. England's Foreign Trade In XlXth Century. A. L. Bowley. "Full of valuahli- iiifurmatiun, caiefully compiled." —Times. 66. Theory and Policy of Labour Protection. Dr. Schaffi.e. " An attempt to .systematize a conservative programme of reform."— .l/an. Guard. 67. History of Rochdale Pioneers. G. J. Holyoake. " iSrought down from 1844 to the Kochdale Congress of 1892."— Co-Oy^. Sues. 68. Rights of Women. M. Ostuaoouski. 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