UC-NRLF 
 
 SB E&Q 251 
 
 GOLD PRICE 
 
 AND THE 
 
 WIT WATERS RAND 
 
 R.A.LEHFELDT 
 
EXCHANGE 
 
STUDIES IN ECONOMICS AND POLITICAL SCIENCE 
 
 Edited by the >on. W, PEMBER REEVES, Ph.D., 
 
 Director of the London School of Economics and Political Science 
 
 No. 54 in the series of Monographs by writers connected 
 with the London School of Economics and Political Science 
 
 GOLD, PRICES, AND THE 
 WITWATERSRAND 
 
GOLD, PRICES, 
 
 AND THE 
 
 WITWATERSRAND 
 
 BY 
 
 R. A. LEHFELDT, D.Sc. 
 
 PROFESSOR OF ECONOMICS AT THE SOUTH AFRICAN SCHOOL OF 
 MINES AND TECHNOLOGY, JOHANNESBURG (UNIVERSITY OF SOUTH 
 
 AFRICA); CORRESPONDENT FOR SOUTH AFRICA OF THE ROYAL 
 ECONOMIC SOCIETY 
 
 LONDON 
 
 P. S. KING & SON, LTD. 
 
 ORCHARD HOUSE, WESTMINSTER 
 
 1919 
 

 BY THE SAME AUTHOR: 
 ECONOMICS IN THE LIGHT OF WAR 
 
 Published by the S. A. School of Mines and 
 
 Technology, Johannesburg, 1916. London : 
 
 W. WESLEY. Price, One Shilling. 
 
CONTENTS 
 
 CHAP. PAGE 
 
 I. THE GOLD SUPPLY i 
 
 II. THE REQUIREMENTS OF COMMERCE .. 23 
 
 III. PAPER SUBSTITUTES 38 
 
 IV. INFLUENCE OF THE WAR 62 
 
 V. POSITION OF THE WITWATERSRAND .. 79 
 
 APPENDIX A. STATISTICAL TABLES . . . . in 
 
 B. THE VALUATION OF MINES .. 124 
 
 389097 
 
LIST OF ILLUSTRATIONS 
 
 FIG. PAGE 
 
 1. GOLD OUTPUT, 1840 AND ONWARDS . . 5 
 
 2. GOLD OUTPUT, 1908 AND ONWARDS, TRANS- 
 
 VAAL AND WORLD . . . . . . . . 6 
 
 3. ACTUAL AND REQUIRED STOCK OF GOLD . . n 
 
 4. SAUERBECK INDEX NUMBER, 1840 AND ON- 
 
 WARDS . . 16 
 
 5. VALUE OF GOLD, 1825 AND ONWARDS . . 19 
 
 6. GROWTH OF COTTON PRODUCTION . . . . 28 
 
 7. PRICE INDEX AND STOCK OF GOLD . . . . 35 
 
 8. VALUE OF GOLD, 1910 AND ONWARDS . . 76 
 
 9. VALUATION AND LIFE OF MINES . . . . 129 
 
GOLD, PRICES, AND THE 
 WITWATERSRAND 
 
 CHAPTER I. 
 
 THE GOLD SUPPLY. 
 
 Outline of the history of the production of gold Dis- 
 posal of the product Estimate of the stock accumu- 
 lated, and its rate of increase Outline of the history 
 of prices The quantity theory of money in a primi- 
 tive stationary community Modifications required 
 by growing scale of trade, and by the use of paper 
 money The course of prices must be compared 
 with the course of the stock, not of the production 
 of gold. 
 
 To understand the relations between the 
 supply of gold and the general level of prices, 
 it is necessary to bear in mind the outlines of 
 the history of each. 
 
 Beginning with the supply of precious 
 metal, we are faced with this difficulty, that 
 whilst at the present day gold is the sole 
 
 G.P. B 
 
2 GOLD, PRICES WITWATERSRAND 
 
 standard of value through nearly all the 
 civilised world, in past times gold and silver 
 were used jointly. The change has come 
 about gradually, and is not yet complete, so 
 that it is difficult to say with regard to any 
 period whether the stock of gold only, or of 
 gold and silver, or of gold and a part of the 
 silver, should be regarded as the basis on 
 which the monetary system of the world 
 lay. 
 
 It is well known that gold and silver were 
 very scarce in the Middle Ages, and that an 
 increased supply came into use after the dis- 
 covery of America. Thereafter until the 
 nineteenth century no change of the first 
 magnitude occurred, and we may conveni- 
 ently begin our study when the disturbance 
 due to the Napoleonic wars had subsided, 
 say about 1825. At that time the annual out- 
 put of gold was about two million pounds 
 worth. In the course of the next twenty 
 years the output increased slowly, chiefly on 
 account of discoveries in Russia, but did not 
 exceed some four millions at the date of the 
 Californian discovery. The available stock 
 at that date was about 150,000,000. 
 
THE GOLD SUPPLY 3 
 
 The starting of the Californian mines, 
 followed almost immediately by those in 
 Australia, raised the output in the course of 
 five years to thirty millions ten times what 
 it had been only a little while before. 
 
 The usual history of a minefield is that after 
 the rush to use the ore immediately exposed 
 a falling off takes place ; then more careful 
 methods and improvements in technique 
 restore the output for a while ; lastly comes 
 the inevitable decline and exhaustion. This 
 has been the history of the goldfields. By the 
 early eighties the world's production had 
 fallen to about twenty millions a year. At the 
 present day California yields about four 
 millions, chiefly from deep level mines, and 
 the colony of Victoria less than two millions 
 a year. 
 
 The supply of gold was restored by the 
 finding of the Witwatersrand fields in 1887, 
 of the alluvial deposits in Alaska, and the 
 mines of Western Australia, as well as of new 
 deposits in the United States. As a conse- 
 quence the output reached ninety millions in 
 1908, since when it has remained approxi- 
 mately constant. The Witwatersrand, how- 
 
 B 2 
 
4 GOLD, PRICES WITWATERSRAND 
 
 ever, is affording an increased share of the 
 whole. 
 
 OUTPUT OF GOLD* (IN THOUSAND POUNDS). 
 
 
 Transvaal. 
 
 Rest of world. 
 
 Total. 
 
 % Transv. 
 
 1908 
 
 29-973 
 
 6l,022 
 
 90,995 
 
 33'0 
 
 1909 
 
 30,988 
 
 62,312 
 
 93,302 
 
 33'2 
 
 1910 
 
 3L973 
 
 6l,57I 
 
 93,544 
 
 34'2 
 
 1911 
 
 35,041 
 
 59,889 
 
 94,930 
 
 36-9 
 
 1913 
 
 38,712 
 
 57,071 
 
 95,783 
 
 40-4 
 
 1913 
 
 37,373 
 
 56,043 
 
 93>4i6 
 
 40-0 
 
 1914 
 
 35,657 
 
 57.197 
 
 92,854 
 
 38-3 
 
 1915 
 
 38,628 
 
 57,668 
 
 96,296 
 
 40-1 
 
 1916 
 
 39,475 
 
 56,250 
 
 95,725 
 
 4i-3 
 
 1917 
 
 38,306 
 
 51,694 
 
 90,000 
 
 42 - 6 
 
 It will be noticed that the production of the 
 rest of the world shows a tendency to fall off, 
 but that the deficiency has been met so far 
 from the Witwatersrand. Figs, i and 2 give 
 the annual output in graphic form. 
 
 What is of immediate interest for monetary 
 theory is not, however, the output, but the 
 available stock of gold. This cannot be 
 arrived at by simply accumulating the figures 
 
 * Transvaal Chamber of Mines, Twenty- eighth Report t 
 PP- 367> 37- 
 
THE GOLD SUPPLY 
 
 of annual production, for a large amount of 
 gold is used up in ways that make it unavail- 
 able as money. Some, which is used in photo- 
 graphic chemicals, in gilding, and other arts, 
 
 Fig: i 
 
 Gdld 
 
 Output 
 
 4-0 
 
 85O 60 
 
 70 
 
 80 
 
 90 1900 
 
 10 
 
 20 
 
 is reduced to such a fine state of division that 
 it can never be recovered ; other portions 
 are converted into jewellery, which might 
 conceivably be coined in the stress of the 
 present war some of it has been but in 
 ordinary circumstances must be considered 
 
6 GOLD, PRICES WITWATERSRAND 
 
 unavailable. Moreover, jewellery and coins, 
 too, suffer wear ; and gold occasionally gets 
 lost in the sea. 
 
 COLD OUTRUT. 
 
 OF* W0f=?l_0 
 
 910 
 
 i>6 
 
THE GOLD SUPPLY 7 
 
 There is another influence to be taken into 
 account. The people of India have for cen- 
 turies had an inordinate love for gold and 
 silver, and spent a large part of their scanty 
 earnings in accumulating coins and orna- 
 ments, which they hoard. India is in fact a 
 regular sink for the precious metals, into which 
 they disappear. It should, indeed, be borne 
 in mind that considerable stores of gold and 
 silver might be given out again by the people 
 of India should they change in their taste for 
 ornament, or should they come to appreciate 
 the advantages of modern banking as com- 
 pared with hoarding money. 
 
 For the present it is probably best to ex- 
 clude India altogether from the commercial 
 world whose monetary supply we are con- 
 sidering. 
 
 We shall also exclude China, Siam, and 
 French Indo-China, but for a different reason. 
 These countries use silver as their standard 
 money. In India the usual money is of silver, 
 it is true ; but the rupee is only a token coin. 
 Its value is greater than the value of the silver 
 it contains, being one fifteenth part of the 
 value of a sovereign, for the reason that the 
 
8 GOLD, PRICES WITWATERSRAND 
 
 Government of India is always willing to 
 give a sovereign for fifteen rupees. But in 
 China silver, whether coined or not, stands on 
 its own base as money ; a payment due in 
 China is a payment of so much silver irrespec- 
 tive of the weight of gold which may at the 
 moment be exchangeable for it. 
 
 We may then best consider the world with- 
 out India and China as one community using 
 money on a gold basis; and proceed to esti- 
 mate the stock of gold it possesses. The best 
 estimates are those of the United States Mint. 
 Particularly careful statistics for the United 
 States are kept, and the Director of the Mint 
 gives estimates for other countries, based, so 
 far as possible, on official information. The 
 statistics are admittedly incomplete, several 
 of the smaller countries South Africa among 
 them affording no proper returns. The 
 total however will not be very much out. At 
 the beginning of 1914 it is given as * : 
 
 Gold in banks and public treasuries . 1111,139 
 Gold in circulation . . . 552 
 
 Total . . . .1111,691 
 * United States Mint Report, 1915, p. 63. 
 
THE GOLD SUPPLY 9 
 
 There are two ways of studying the change 
 in stock. One is to make periodical estimates 
 of the gold in banks and in circulation, similar 
 to the above ; the other is, starting from a 
 given date, to add up the statistics of produc- 
 tion after allowing for export to the East, 
 consumption in the industrial arts, and wear 
 and tear. Fortunately the two methods are 
 found to give results in reasonable agree- 
 ment. 
 
 As a sample let us take the figures for the 
 quinquennium 1901-5 inclusive. The total 
 value of gold produced from the mines was 
 331,000,000. The Indian customs returns 
 give a pretty trustworthy account of the 
 movement to and from that country, and 
 show that on balance 21,000,000 worth of 
 gold went there. The U.S. Mint publishes 
 estimates of the metal used in the arts ; the 
 estimates for consumption in America are 
 fairly accurate, those for many other coun- 
 tries less so. Taking them as they stand, it 
 appears that 80,000,000 worth of metal was 
 used in manufacture (of which more than a 
 quarter was used in the United States). 
 There remained therefore a balance of about 
 
io GOLD, PRICES WITWATERSRAND 
 
 230,000,000 added to the available monetary 
 stock. 
 
 The drain to India fluctuates according to 
 the prosperity of that country. As far back 
 as the middle of the last century India some- 
 times imported five or six million pounds 
 worth a year, whilst in years of bad harvest 
 there is sometimes a net export. But from 
 1907 until the outbreak of the great war the 
 flow to India reached a magnitude previously 
 unknown, sometimes exceeding twenty million 
 pounds worth a year, and so absorbing a 
 quarter of the whole output. It is impossible 
 to say what will happen after the war ; but if 
 India continues to prosper and retains its taste 
 for jewellery, no doubt a large part of the 
 output of the mines will be sent there. One 
 must remember the vastness of the popula- 
 tion ; large as the recent exports seem, the 
 largest annual figure does not amount to two 
 shillings worth of gold per inhabitant. 
 
 With regard to the industrial consumption 
 in the rest of the world, the rate of increase is 
 not greater than is to be expected from the 
 growth of population, wealth, and luxury. 
 Soetbeer estimated that in Californian times 
 
THE GOLD SUPPLY 
 
 ii 
 
 (1850-60) some four million pounds worth a 
 year was used in the arts ; the latest figures 
 indicate about twenty-four million pounds 
 
 Fig3 
 
 Actual and required stock of gold 
 (excluding India & China) 
 
 
 
 
 
 \ 
 
 
 
 / 
 
 
 1500 
 
 
 
 
 
 
 
 /-I 
 
 ; 
 
 
 
 
 
 
 
 1 
 
 / 
 / 
 / 
 / 
 
 ,' 
 
 
 1000 
 
 
 
 
 
 
 /" 
 
 
 
 
 
 
 
 
 ,/ 
 
 
 
 
 600 
 
 
 JTT^" 
 
 .^ 
 
 ~r*> 
 
 S 
 
 
 
 
 , -*- - 
 
 / 
 
 S" 
 
 
 
 
 
 
 
 
 \ 
 
 
 
 
 
 
 
 
 
 60 
 
 80 
 
 1900 
 
 20 
 
 worth. The result of these calculations, 
 checked by comparison with the known 
 currency at intervals, is shown in Fig. 3. It 
 will be seen that the monetary stock is now 
 
12 GOLD, PRICES WITWATERSRAND 
 
 more than tenfold what it was before the 
 Calif ornian discoveries, and nearly threefold 
 what it was before the discovery of the Rand. 
 The world, of course, requires more gold than 
 it did, as it has a larger amount of business 
 to transact ; the question to discuss is whether 
 the increase in stock has been more or less 
 rapid than the world's growth calls for. It 
 may be noted at once that the increase in 
 stock has taken place in a somewhat jerky 
 manner, while the increase in trade has been 
 steady, so that a certain want of adjustment 
 is to be looked for. 
 
 The other historical outline that must be 
 borne in mind is that of the general trend of 
 prices. It is a truism nowadays that the 
 purchasing power of money is not constant. 
 Through the early years of the twentieth 
 century a steady rise in the price of most 
 articles forced itself on public attention ; then 
 the war came, to make the change so acute 
 that no one could overlook it. It must not 
 be supposed, however, that a change in the 
 purchasing power of money is a new thing ; 
 change in one sense or the other has always 
 been going on, but it is only of late years that 
 
THE GOLD SUPPLY 13 
 
 the efforts of economists have given exact 
 expression to it. At the same time more 
 frequent discussion in parliaments and news- 
 papers, and especially the increased share in 
 public affairs taken by the working classes, 
 has made the notion familiar to every one. 
 
 The principal use of money is to be a 
 standard of value, and it is consequently a 
 natural error to fall into to suppose that the 
 value of money is invariable. It is hardly 
 necessary to remark that the constant price of 
 gold has nothing to do with the question. 
 The fact that 1,000 ounces of gold are always 
 coined into 4,248 sovereigns tells nothing as 
 to whether the sovereign is worth much or 
 little. The value of gold does not vary rapidly 
 in ordinary circumstances because the stock of 
 money is very large, so that the supply is not 
 exposed to fluctuation in the same way as an 
 animal or vegetable product, which is depen- 
 dent on the seasons. But though the varia- 
 tions in the value of money are slower than 
 those of most important commodities, they 
 are not less great in extent. 
 
 In order to study changes in the value of 
 money, economists have introduced the device 
 
14 GOLD, PRICES-WITWATERSRAND 
 
 of index numbers. When the price of a com- 
 modity goes up or down that may be due to 
 some change affecting the commodity or some 
 change affecting money. It is unlikely that 
 all commodities should, in ordinary times, be 
 influenced in the same direction by circum- 
 stances peculiar to each. A bad harvest may 
 raise the price of wheat one year, a failure 
 of the rubber trees may raise the price of 
 rubber another year ; but it is very unlikely 
 that there should be bad harvests of wheat, 
 maize, rubber, cotton, sugar, and rice 
 simultaneously, and still more unlikely that 
 the prices of these articles and also of animal 
 and mineral products should all rise or all fall 
 together. 
 
 Economists therefore take an average of the 
 prices of many suitable materials in order to 
 eliminate causes affecting them singly. But 
 the price of anything is the proportion in 
 which it exchanges for gold, so that if the 
 prices of many things rise it is highly probable 
 that the cause is to be found in something 
 that makes gold less valuable, and conversely 
 when prices in general fall, the cause is 
 probably an increase in the value of gold. 
 
THE GOLD SUPPLY 15 
 
 1 Probably " because there are conditions 
 which affect the price of all commodities 
 together. Of these the most important is 
 war, which makes productive labour scarce, 
 transport difficult, and in every way raises 
 the real cost of goods. When, therefore, the 
 index number of price rises in the course of a 
 great war, it cannot be concluded without 
 further evidence how far the rise is due to 
 monetary influences and how far to diffi- 
 culties of production. But in peace-time it 
 is safe to say that considerable changes in 
 price level are due principally to monetary 
 changes. 
 
 Such an index number as that published 
 for many years by Mr. Sauerbeck, and 
 now continued by the Statist newspaper, is 
 found by expressing the prices of important 
 raw materials as percentages of the prices 
 during some period chosen as a basis and then 
 finding the mean of those percentages. If, 
 for example, the decade 1868-77 * s chosen as 
 basis, and the index number for a certain year 
 is 82, that means that 82 will then go as far 
 in buying raw materials and foodstuffs as 
 100 would in 1868-77. About forty-five 
 
16 GOLD, PRICES WITWATERSRAND 
 
 materials were used by Sauerbeck in making 
 the calculation. 
 
 In order to eliminate unimportant details 
 in the history of prices and bring out clearly 
 
 . 
 
 Sauerbeck index number., decennial average 
 
 100 
 
 \ 
 
 V 
 
 70 
 
 
 the main tendencies, it is well to take a 
 decennial average of index numbers ; i.e., 
 instead of the index for 1905 we take the 
 mean of the years 1900-9, instead of 1906 
 the mean of 1901-10, and so on. Fig. 4 is 
 constructed in this way. The figure shows 
 
THE GOLD SUPPLY 17 
 
 that prices were on the down-grade before the 
 Californian discoveries, rose to a maximum 
 and remained fairly steady in the sixties, fell 
 continuously and largely till a few years 
 before the end of the nineteenth century, and 
 have been rising since. There have thus been 
 four broad movements in the course of a 
 century two up and two down. We have 
 heard so much of rising prices lately that it 
 has been forgotten how recent the movement 
 is, but the older men amongst us can remember 
 the days when the constant complaint was 
 of falling prices. The diagram shows that 
 we have not to go very far back in history to 
 find that the difficulties we are now meeting 
 with have been met and overcome before. 
 
 When an ordinary commodity becomes 
 more valuable, the fact shows itself by a rise 
 in its price ; when the standard of value 
 gold becomes more valuable, the effect is a 
 fall in the price of other things. This inver- 
 sion, though not really complicated, has given 
 rise to much confusion at times, and in order 
 to think clearly on the subject a certain 
 device may be recommended that of choos- 
 ing some other standard material, such as 
 
 G. P. C 
 
i8 GOLD, PRICES WITWATERSRAND 
 
 wheat. There is no difficulty in understand- 
 ing such statements as " The price of a suit 
 of clothes is twelve bushels of wheat/' " The 
 doctor charges two bushels a visit/' There 
 would be no need to carry sacks of wheat 
 about with one in order to fulfil such transac- 
 tions, for payments might be made by cheque. 
 Now at the beginning of this century an ounce 
 of gold was worth twenty-six bushels, before 
 the outbreak of the great war it had fallen to 
 seventeen bushels, and at the present day it 
 is only worth about ten. This way of put- 
 ting it, perhaps, brings out more clearly 
 the depreciation of gold that has been 
 going on. 
 
 Economists do not use wheat as standard 
 because it is liable to fluctuations of its own, 
 but, as explained above, they take the average 
 of a number of commodities. If we take the 
 reciprocals of Sauerbeck's index numbers we 
 shall get a series of numbers indicating the 
 value of gold, that of goods in general being 
 regarded as constant. The series is repre- 
 sented in Fig. 5, and may be regarded as a 
 correct statement of the fluctuations in the 
 value of gold, except in war-time,*jwhen diffi- 
 
THE GOLD SUPPLY 
 
 culties of production raise the value of ordi- 
 nary goods. 
 
 We have now to compare the history of gold 
 production with the history of prices. The 
 relation between the two given by the classical 
 
 WL,UE 
 
 OS 
 
 \ 
 
 \ 
 
 economists is known as the quantity theory 
 of money ; this is most easily expressed with 
 regard to a primitive type of community, and 
 it will not be a waste of time to state it so in 
 the first place, although the economic condi- 
 tions assumed will strike the reader as being 
 
 C 2 
 
20 GOLD, PRICES WITWATERSRAND 
 
 very far away from those of the actual 
 world. 
 
 Let us then suppose a country with station- 
 ary population, and industry that goes on 
 from year to year without change, in which 
 the only money used (except for small change) 
 consists of gold coins. Then if the stock of 
 gold were to be increased by importation or 
 by the discovery of a mine prices would rise, 
 for there would be no more goods to pay for, 
 and the increased stock of gold could only be 
 used by paying more of it for each thing 
 bought. It may perhaps be objected that 
 the new gold would not be used, only hoarded ; 
 but why should the owners of it forego their 
 advantage ? Let the objector imagine him- 
 self in the position of the hoarder of gold ; he 
 has a considerable quantity of go!4 coins that 
 he does not know how to use, and is in want 
 of, say, a pair of boots. Will he not rather 
 bid up the price of boots than go without ? 
 The statement that ceteris paribus prices 
 rise and fall in proportion to the stock of 
 money is the " quantity theory " in its 
 primitive form. 
 
 The chief differences between our imagined 
 
THE GOLD SUPPLY 21 
 
 community and the actual world are, firstly, 
 that the world's population, trade, and 
 wealth are increasing rapidly, and, secondly, 
 that we make a great part of our payments 
 by means of paper money and cheques. We 
 shall proceed to consider these points, but must 
 advert to a fallacy that is often made in dis- 
 cussing the quantity theory. If Fig. I, on the 
 production of gold, be compared with Fig. 4, 
 on the level of prices, it will be seen that the 
 two are not alike. That has been brought 
 forward, erroneously, as an argument against 
 the quantity theory. As a matter of fact 
 there are certain points of similarity, both 
 curves show a rise about 1850 and again at the 
 end of the century, but no one who was not 
 looking for analogies on preconceived grounds 
 would say that they were similar. But they 
 must not be expected to look alike ; if the 
 quantity theory is true the two curves ought 
 not to be alike ; if they were alike that would 
 be evidence that the theory was not true. 
 
 According to the quantity theory, the level 
 of prices is dependent on the stock of money. 
 Fig. i represents only the RATE OF CHANGE of 
 the stock, and therefore cannot look similar 
 
22 GOLD, PRICES WITWATERSRAND 
 
 to the curve of prices. This will be clear if we 
 revert to the imaginary community using gold. 
 Suppose the stock is a hundred millions, and 
 the annual production nothing, and that then 
 a mine is discovered yielding a million a year. 
 The curve of production jumps suddenly from 
 nothing to one million and remains constant 
 at that. The curve of prices will rise from 
 its previous steady level gradually year by 
 year as the stock of gold increases, till in a 
 hundred years it will be double its original 
 height. The two curves are entirely dis- 
 similar. Hence the fact that the historical 
 curves of gold production and of prices do not 
 look alike is no argument against the quantity 
 theory. 
 
 It is clear, however, that in the actual world 
 the increase in trade implies an increase in the 
 demand for gold, and the real question is not 
 whether the supply is increasing, but whether 
 it is increasing faster or less fast than the 
 demand. To discuss that we must first get 
 information as to the rate of increase of the 
 world's trade ; that will be the subject of the 
 next chapter. 
 
CHAPTER II. 
 
 THE REQUIREMENTS OF COMMERCE. 
 
 The rate of increase in demand for gold The increase in 
 population of the commercial world Increase in 
 real wealth. (Digression on increase in govern- 
 mental expenditure.) Production of staple foods 
 and raw material Growth of transport and manu- 
 facture General estimate of rate of increase. 
 Estimate of stock of gold required to meet the needs 
 of trade Comparison with the actual stock Ratio 
 " actual -r- required stock " compared with course 
 of prices. 
 
 WE have now to consider how fast the 
 demand for gold is increasing. The demand 
 arises from the growth of commerce, and may 
 be met partly by economy in the use of gold, 
 a point that will be dealt with later ; it is 
 first necessary to study the rate of growth of 
 the world's production and trade in itself. 
 
 There is at the present time a fairly rapid 
 growth in population of the world, so that 
 even if the quality of the population remained 
 the same, and the methods of industry were 
 
24 GOLD, PRICES WITWATERSRAND 
 
 not changed, more money would be needed 
 to carry on trade. But, as a matter of fact, 
 the improvement in education and health of 
 the community and the progress of invention 
 are continually raising the productivity of the 
 individual, so that wealth grows faster than 
 population. 
 
 Even though we exclude the Orient, for the 
 reasons given in the last chapter, the world's 
 inhabitants are at very diverse levels of 
 commercial civilisation. The population of 
 Europe itself is growing at about i per cent, per 
 annum. It has been estimated as follows : 
 
 1830 . 213 millions. 
 
 1870 . 300 Increase 0-90 per cent. 
 
 per annum. 
 1910 . 448 i -12 per cent. 
 
 per annum. 
 
 But the new countries grow faster, and not 
 only so, but there are countries which at the 
 earlier dates were hardly within the circle of 
 European commerce, but which now take 
 their part. Accordingly the notion of a rate 
 of increase in population is somewhat indefi- 
 nite ; but in making a practical estimate 
 North America, Australia, New Zealand, 
 
REQUIREMENTS OF COMMERCE 25 
 
 South Africa, Siberia, Algeria, and Egypt 
 have been included with Europe at the earlier 
 dates, and Japan, Central and South America, 
 added for the latest date. Reckoned in this 
 way, the numbers are : 
 
 1830 . 232 millions. 
 
 1870 . 355 ,, Increase 1*16 per cent. 
 
 per annum. 
 1910 . 710 ,, ,, 1-84 per cent. 
 
 per annum. 
 
 It appears then that of late years the popu- 
 lations we are concerned with those who take 
 a part in modern commercial life have been 
 increasing at a rate between I J and 2 per cent. 
 The rate of increase in wealth must certainly 
 be greater than this. 
 
 What we require to know is the real produc- 
 tion of goods ; to study money incomes and 
 find the rate at which they are increasing 
 would not give the information sought after ; 
 it would indeed be reasoning in a circle. 
 Nevertheless, in passing, it is perhaps worth 
 while to note one special class of money 
 incomes, those of Governments, on account 
 of the particularly good information available. 
 
 The Governments of Europe had in 1870 
 
26 GOLD, PRICES WITWATERSRAND 
 
 a revenue of 445,000,000, in 1910 about 
 1,260,000,000 (excluding railway revenue). 
 Now the State has of late taken on new func- 
 tions which make its share of the total 
 resources of a country to increase ; but, on the 
 other hand, old war debts, while not as a rule 
 paid off, come to be relatively less important 
 as the world grows richer. On the whole it 
 would be difficult to say whether a greater 
 or smaller fraction of the world's income 
 passed through the hands of the Governments 
 in 1910 than in 1870. //we assume that the 
 fraction was the same we get a rate of in- 
 crease of 2*7 per cent, per annum from the 
 above numbers. This result being already 
 expressed in terms of money, must be received 
 with caution ; but it is probably not far from 
 the real rate of increase of wealth, and so 
 throws a certain light on our problem. 
 
 The level of prices was somewhat higher 
 in 1870 than in 1910, so that the income of the 
 latter date would appear still larger if it were 
 expressed in terms of the purchasing power 
 of money at the former. Hence the rate of 
 increase of true income was rather greater 
 than the figures show. 
 
REQUIREMENTS OF COMMERCE 27 
 
 Turning now to direct statistics of produc- 
 tion, we have information, more or less accu- 
 rate, as to the world's output of raw materials 
 and foodstuffs. As an example the following 
 figures for cotton have been extracted from 
 well-known statistical dictionaries : 
 
 WORLD CROP OF COTTON. 
 
 1831 
 1840 
 1850 
 1860 
 1870 
 1880 
 1891 
 1892 
 1902 
 1906 
 
 Millions of pounds. 
 820 
 
 1,435 
 2,55i 
 2,775 
 3,6oi 
 5,600 
 5,900 
 8,660 
 10,490 
 
 These figures require to be analysed by a 
 suitable mathematical method to find the 
 average rate of increase. The method is to 
 take the logarithms of the quantities and plot 
 a graph of them against the dates as abscissae. 
 This is done in Fig. 6. It will be seen that a 
 straight line can be drawn through the points 
 on the diagram without leaving them very 
 far on either side. The straightness of the 
 line of points indicates that the rate of 
 
28 GOLD, PRICES WITWATERSRAND 
 
 growth has been steady ; the steepness of 
 the line indicates how rapid the growth has 
 been. 
 
 For cotton the result is a rate of increase 
 of 5*2 per cent, per annum, maintained 
 
 
 
 
 
 
 Grc 
 
 DWtl 
 
 7 Of 
 
 Cot 
 
 ton 
 
 DOO 
 
 Produc 
 1 
 
 n; "r p ' 
 
 tior 
 
 ' 
 
 unds 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 V 
 
 X 
 
 3 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ^x 
 
 ^ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 . 
 
 X 
 
 O 
 
 
 
 3 
 
 
 
 
 
 
 
 
 
 
 
 
 
 x 
 
 r 
 
 
 
 
 
 N 
 
 4 
 
 -1 
 
 
 
 
 
 
 
 
 
 x 
 
 x 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ^ 
 
 X 
 
 
 
 
 
 
 
 . 
 
 
 
 
 
 
 
 
 X 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 x 
 
 ^ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ,.( 
 
 
 X* 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 X 
 
 X' 
 
 
 
 
 
 
 
 
 00 n 
 
 illior 
 
 pOCJ 
 
 ids 
 
 
 
 
 
 s 
 
 
 
 
 
 
 
 
 
 
 
 
 
 X 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 1320 30 
 
 80 9O 
 
 with but little fluctuation for the last three 
 quarters of a century. It is by combining a 
 number of results like this that an esti- 
 mate can be formed of the rate of material 
 progress. 
 
 It is not easy however to decide what weight 
 
REQUIREMENTS OF COMMERCE 29 
 
 should be given to the different items of pro- 
 duction. A large part, probably the largest 
 part, of human effort is still devoted to pro- 
 ducing food ; but an estimate based on food 
 alone would be an underestimate, because 
 with the progress in efficiency an increasing 
 share of effort can be given to objects less 
 necessary than food. Raw materials such as 
 iron, copper, rubber, are increasing in import- 
 ance, and also the industries of manufacture 
 and transport. Manufacture takes, of course, 
 a very important place ; the fraction of the 
 world's population so occupied is increasing, 
 and the individual worker is growing more 
 efficient, but any general estimate of the rate 
 of progress would be hard to arrive at. 
 
 For transport a better estimate can be 
 made. Thus the tonnage of ships has been 
 growing of late years by nearly 4 per 
 cent, per annum, and the mileage of railways 
 at about the same rate. But as ships grow 
 speedier, and railways acquire more traffic 
 per mile, the progress of transport must be 
 faster than that. 
 
 Reverting to the production of foodstuffs 
 and raw materials for which the most precise 
 
30 GOLD, PRICES WITWATERSRAND 
 
 figures are obtainable, the following table has 
 been derived (see Appendix, Table VII.) : 
 
 Annual rate of 
 increase. 
 
 Meat . . . . . i-o per cent. 
 
 Corn 
 
 Tea and coffee 
 
 Sugar . . 
 Wool .. 
 Cotton 
 Pig iron 
 Coal 
 
 5*0 
 1-9 
 3-2 
 
 The result for meat being actually less than 
 the rate of increase of population, seems 
 doubtful ; but there is no doubt that meat is 
 growing scarce and expensive. An investi- 
 gation by the present writer,* undertaken for 
 a different purpose, gave 2*2 per cent, as the 
 rate of increase for wheat ; this accords well 
 with the figure given above for corn, as no 
 doubt wheat is coming to be used by many 
 people in place of cheaper kinds of corn. In 
 the same way the high figures for tea, coffee, 
 and sugar are an indication of growing luxury. 
 The richer nations are already fairly well 
 supplied with bread and meat, and are there- 
 
 * Econ. Journ., vol. xxiv., p. 212. 
 
REQUIREMENTS OF COMMERCE 31 
 
 fore able to spend an increasing part of their 
 income on less necessary foodstuffs. 
 
 Wool, like meat, is growing relatively slowly 
 in amount. Wool and cotton combined give 
 (allowing for the greater importance of cotton) 
 an index of 2*8 per cent., which shows that 
 the supply of clothes is gaining considerably 
 on the number of wearers. The very high 
 rates for iron and coal are, of course, a sign of 
 the immense progress that is being made 
 everywhere in structural work and the applica- 
 tion of mechanical power. 
 
 As a sidelight on the problem it is well to 
 refer to a careful estimate by Prof. Irving 
 Fisher of the whole trade of the United States 
 over the period 1896 to 1912. The table 
 which he gives * yields a rate of increase of 
 4*9 per cent, per annum. This is certainly 
 an upper limit to the rate of the world's pro- 
 gress, for it is a matter of common knowledge 
 that, even excluding the Orient, the rest of the 
 wor'd has not progressed as fast as the United 
 States. 
 
 It is evident that there is a large margin of 
 error to any final estimate for the world. If 
 
 * " Purchasing Power of Money," p. 479. 
 
32 GOLD, PRICES WITWATERSRAND 
 
 we were to choose 2 per cent, the population 
 statistics alone would tell us that the rate 
 was too low ; if we chose 4 per cent, a considera- 
 tion of the figures for foodstuffs and of the 
 vast importance food production still exer- 
 cises in the world's economy would show that 
 the rate was too high. We cannot go much 
 beyond saying that the true rate lies between 
 2 and 4 per cent., and is therefore not very 
 different from 3 per cent. 
 
 We have now got an answer, even if rough 
 and provisional, to one of the questions that 
 arises when the quantity theory of money is 
 to be applied to the actual commercial worlds 
 The other difficulty due to the use of paper 
 substitutes for money has still to be considered, 
 but it will be instructive to apply the know- 
 ledge we have already gained without further 
 delay, and so get a clearer insight into the 
 real problem. It is necessary to anticipate 
 one point, however ; the investigation on 
 paper money that will be attempted in the 
 subsequent chapters indicates that some of the 
 increasing demand for money is met by an 
 increasing efficiency in substitutes, so that 
 the demand for gold should be taken to 
 
REQUIREMENTS OF COMMERCE 33 
 
 increase rather more slowly than the world's 
 trade. A rate of 2 J per cent, per annum will 
 be assumed as representing the increase in 
 demand for gold, and the consequences of it 
 compared with the facts. Of course the rate 
 of progress is not quite constant, but to 
 assume that that average rate has held for the 
 last half-century is perhaps as near an approxi- 
 mation as our knowledge allows of. 
 
 The method of comparison is this : a date 
 is chosen as starting point, and preferably 
 a recent date, since the statistics are more 
 trustworthy. January, 1901, has in fact been 
 chosen, partly for the accidental reason that 
 the monetary stock of gold was then as nearly 
 as can be estimated one thousand millions 
 sterling. It is assumed that to maintain a 
 proper proportion to trade this stock must 
 grow at the rate of 2\ per cent, annually ; 
 the required stock at five-yearly intervals is 
 calculated accordingly. The estimated actual 
 stock is then compared with the required 
 stock ; the comparison may be made by aid 
 of Fig. 3. 
 
 The figure shows that the actual stock was 
 before the Californian discoveries on a lower 
 
 G.P. D 
 
34 GOLD, PRICES WITWATERSRAND 
 
 scale than our chosen standard requires ; that 
 the large production of the Californian period 
 brought about a redundancy, which was most 
 marked about 1871, more than twenty years 
 after the mines were discovered ; that the 
 demands of trade gradually overtook supply, 
 so that the redundancy was converted into a 
 deficiency in the later eighties and the 
 nineties ; whilst the renewed abundance of 
 the present or Witwatersrand period has 
 again made the actual stock exceed the 
 required. 
 
 This history obviously accords in a general 
 way with the history of prices during the same 
 epoch, as it should do according to theory. 
 To test the agreement more minutely we pro- 
 ceed as follows: Divide the actual by the 
 required stock. If the quotient is 100 per 
 cent, that shows the supply of gold bears just 
 the same proportion to the demand as it did 
 at the chosen date of January, 1901, and the 
 level of prices ought therefore to be the same. 
 If the quotient is not 100 per cent, it will show 
 in what proportion the supply of gold is 
 greater or less than in January, 1901, and 
 according to the quantity theory the index 
 
REQUIREMENTS OF COMMERCE 35 
 
 number of prices should be in the same pro- 
 portion greater or less than the index number 
 for January, 1901. 
 
 Fig. 7 shows by the full curve the ratio of 
 
 Fig 7 
 
 1502 
 
 150% 
 
 50 
 
 50 
 
 I860 
 
 9OO 
 
 20 
 
 actual to required stock and by the dotted 
 curve the price index. I think no one can 
 examine these two curves without seeing 
 that there is a real relation between them, at 
 
 D 2 
 
36 GOLD, PRICES WITWATERSRAND 
 
 least for the later years. For the earlier years 
 they rise and fall together, but not in the 
 same proportion ; there is however a reason 
 for this. It lies in the circumstance noted 
 at the beginning of this work the gradual 
 supersession of silver. The actual stock 
 estimated for recent years is correct now that 
 silver has been demonetised nearly all over 
 the world ; but in the middle of the last 
 century to the actual stock of gold should be 
 added a large part of the silver in the world. 
 If this were done the curve representing actual 
 stock as a percentage of required stock would 
 be raised in the early part of its course, but not 
 at the end. This would clearly bring it into 
 closer agreement with the curve of prices. 
 No attempt has been made to carry out this 
 correction numerically, as the statistics are 
 too imperfect, and it is almost impossible to 
 say at any given date what part of the silver 
 stock could be regarded as in the same mone- 
 tary position as gold. Still there can be no 
 doubt that, making allowance for the use of 
 silver in the earlier decades, the course of 
 prices has been very closely that which 
 should have taken place in accordance with 
 
REQUIREMENTS OF COMMERCE 37 
 
 the quantity theory of money, and that the 
 assumption of 2| per cent, as the rate of 
 growth is not far from the truth. A dis- 
 cussion of the bearing of paper money on the 
 determination of this figure will form the sub- 
 ject of the next chapter.* 
 
 * The method used above, that of comparing price level 
 with the excess or defect of the whole stock of gold, appears 
 to have been first used by A . Aupetit (" Essai sur la Theorie 
 Generate de laMonnaie/' 1901). It was subsequently used 
 by Cassel (Ekonomisk Tidskrift, Stockholm, 1904), R. H. 
 Hooker (Journ. Roy. Stat. Soc. t December, 1911), and 
 M. Lenoir (" Formation et Mouvement des Prix,' 1 1913). 
 The earlier of these writers, however, take, not the actual 
 stock of gold, but the total production to date, regardless 
 of the fact that much of it has disappeared ; while Lenoir 
 instead of the ratio takes the actual excess or defect from an 
 assumed normal stock. 
 
CHAPTER III. 
 
 PAPER SUBSTITUTES. 
 
 Paper money and bank deposits as circulating medium 
 Amount available How far an accurate measure 
 American and other statistics Definition of 
 " currency factor " to measure efficiency in use of 
 gold Evaluation of the factor in various countries 
 Tendency to change. Frequency of sale of goods 
 Tendencies to change of frequency Effect of de- 
 velopment of speculative markets Of facilities for 
 borrowing on produce Frequency of use of money- 
 Irving Fisher's estimates Tendencies to change 
 due to habits, transportation, banking facilities. 
 
 GOLD is not the only means of exchange, 
 and the next point to deal with is what rela- 
 tion exists between the stock of gold and the 
 total of currency. 
 
 With regard to silver coins it is only 
 necessary to remark that they now constitute 
 token money (except in China and the neigh- 
 bouring countries), i.e., they only pass current 
 at their nominal value because some authority 
 is willing and able to exchange them at that 
 rate for gold. They are, therefore, nearly in 
 
PAPER SUBSTITUTES 39 
 
 the same position as paper promises to pay. 
 This is true even in three important countries 
 which still hold large stocks of silver coins 
 that are legal tender to an unlimited extent ; 
 these countries are India, France, and the 
 United States. In the latter the coins in 
 question (silver dollars) are not wanted by the 
 people, and so lie, for the most part, a useless 
 burden in the United States Treasury : in 
 France about two-thirds of the ecus were in 
 circulation, the remainder being held by the 
 Bank of France (in peace-time). 
 
 Notes issued either by the banks or the 
 government exist in all countries, and during 
 the war belligerent governments have yielded 
 to the temptation of borrowing by means of 
 note issues, as they have so frequently in the 
 past. The most legitimate use of that re- 
 source has been made in England, where the 
 public has been persuaded to accept Treasury 
 notes in place of the large amount of gold coin 
 that was current formerly. This change of 
 habit is an economy of gold precisely to the 
 extent that the issue is fiduciary, i.e., is not 
 covered by a store of gold held by the issuing 
 authority. Nearly 250,000,000 of Treasury 
 
40 GOLD, PRICES WITWATERSRAND 
 
 notes are in issue, and nine-tenths of the 
 amount is fiduciary. 
 
 In France, Russia, Germany, and Austria, 
 at the present time, despite their large gold 
 reserves, the gold standard is no longer 
 effectively in use, so that the large issues of 
 bank notes stand on a different footing; 
 even in England, though gold reserves have 
 been used more freely, the sovereign has not 
 been kept at par with neutral countries. But 
 to appreciate the situation in normal times we 
 may revert to the reports of the United States' 
 Mint, from which we find that the fiduciary 
 or " uncovered " circulation of paper money 
 in the world (excluding India and China) was 
 at the beginning of 1914 some 737,000,000 
 sterling. This together with the silver money 
 is an addition of more than one half to the 
 gold stock on which it is based, so that the 
 total money in circulation is estimated as 
 
 equal to : 
 
 m 
 Gold ...... 1,615 
 
 Silver . . . . . . 425 
 
 Paper (uncovered) . . 737 
 
 But, after all, in English-speaking countries, 
 
PAPER SUBSTITUTES 41 
 
 when we want to make a payment, we 
 commonly employ neither coin nor notes ; we 
 write a cheque for the amount. It has been 
 estimated that, in the United States, 92 per 
 cent, of the amount (not the number) of all 
 payments is made by cheque. 
 
 A cheque must not in itself be compared 
 with a coin. A cheque is an order for the 
 transfer of a certain amount of bank deposit 
 from one person to another ; it is merely the 
 instrument that effects the transfer, and is 
 therefore strictly comparable, not with a coin, 
 but with the act of handing a coin from one 
 owner to another. It is true that cheques are 
 occasionally kept by their payees, and handed 
 on to another person, in the same way as bank 
 notes, but such use is rare, and tending to 
 diminish as more and more people keep bank 
 accounts. Moreover, the use of cheques as 
 currency in that way is confined to the smaller 
 ones : cheques for considerable amounts are 
 practically always paid at once into the 
 account of the payee, and serve to liquidate 
 one transaction only. 
 
 The valuable which is used for payment is 
 therefore not the cheque but the bank 
 
42 GOLD, PRICES WITWATERSRAND 
 
 deposit ; and, in fact, if any one of us stops to 
 think how much money he has available, he 
 at once adds together the coin and notes in 
 his purse, and the amount standing to his 
 credit at the bank. However rich he may be 
 he does not usually consider that he has more 
 funds to pay with than the amount of cash 
 and bank balance added together. If that 
 sum is not sufficient to meet his prospective 
 liabilities he proceeds to make an arrange- 
 ment with his banker, whereby some of his 
 other wealth is made the basis of an increased 
 bank deposit. 
 
 It has been objected that banks will some- 
 times cash cheques for customers whom they 
 trust, in excess of the amount standing to the 
 customer's credit. In so far as this is done 
 the total of bank deposits is rendered an 
 inaccurate measure of the funds available for 
 making payments ; but such unsecured over- 
 drafts are probably small compared with the 
 total of deposits. Again, a customer may 
 arrange for a secured overdraft, without a 
 special account of the loan being kept, and 
 may not immediately avail himself of the 
 right. In this case also there is a latent fund 
 
PAPER SUBSTITUTES 43 
 
 available for payment which does not figure 
 in the bank's total of "deposits/' but, as a 
 rule, such funds are drawn upon soon after they 
 are secured. As soon as they are drawn upon 
 they are handed on to some one who adds the 
 amount to the funds standing to his credit ; 
 so that, again, the total of deposits measures 
 the current resources available for payment. 
 The inactive period during which the original 
 customer has the right to draw and does not 
 use it may be compared with the period that 
 elapses between the digging up of a piece 
 of gold and its first issue from a bank as a 
 coin. 
 
 We may then conclude that the funds for 
 payment are represented, fairly closely, by 
 deposits on current account or what the 
 Americans call checkable deposits (in addi- 
 tion, of course, to coin and notes). Time 
 deposits are not to be included, any more than 
 other securities. There are certain details, 
 such as those affecting foreign bills and postal 
 drafts, which should be considered in attempt- 
 ing to arrive at the most accurate statistics, 
 but it would be of little consequence to touch 
 on them here. It is then of the highest 
 
44 GOLD, PRICES WITWATERSRAND 
 
 importance for our purpose to know the 
 magnitude of these deposits. 
 
 The banks of the United States are required 
 by law to give a full account of their position, 
 and amongst other details must state their 
 checkable deposits separately from deposits 
 subject to notice of withdrawal. It is note- 
 worthy that the former class preponderates 
 very largely in the National Banks, which are 
 the leading members of the banking system. 
 Thus on June 4, 1913, " individual deposits 
 subject to cheque " constituted 4,866 million 
 dollars out of 5,953 millions of " individual 
 deposits," or 82 per cent. Besides the 
 National Banks there are many others, but 
 these do much business of the savings bank 
 character, as well as ordinary banking. Never- 
 theless they raise the total of individual 
 deposits subject to cheque to 8,241 millions, 
 at the same date ; there are large sums 
 deposited by one bank with another, e.g., 
 by country banks with their New York 
 correspondents ; these, however, appear sepa- 
 rately in the returns, as they should do. 
 They do not constitute funds that the public 
 can use in payment ; to count them in 
 
PAPER SUBSTITUTES 45 
 
 would be to count the same money twice 
 over. 
 
 In England, although banking is most highly 
 developed, the statistics published by the 
 banks are most imperfect. The totals of 
 deposits do not distinguish between money 
 on current account and deposits that can only 
 be withdrawn after notice, and are, therefore, 
 not available as currency. On this important 
 point, one who has not access to confidential 
 information can do nothing better than make a 
 guess. For instance, at the beginning of 1914 
 the " deposits and current accounts " of 
 English, Scotch and Irish banks totalled 
 1111,054. Of this, the Bank of England held 
 m52, and as the bank's business is largely to 
 hold a central reserve on behalf of the other 
 bankers, it will be best to omit this item alto- 
 gether. It is true that it is not altogether a 
 duplication of other bank's deposits, but 
 there is a small, unknown amount of duplica- 
 tion in the figures published by the other 
 banks themselves ; as a working rule we shall 
 leave the Bank of England's deposits out. 
 This leaves mi,oo2. Now, if guided by the 
 United States statistics and such general 
 
46 GOLD, PRICES WITWATERSRAND 
 
 information as is to be had, we take 60 per 
 cent, of deposits (outside the Bank of England) 
 as " checkable " we get practically m6oo. 
 To this, however, must be added something 
 on account of the colonial and foreign banks 
 which have offices in London. The colonial 
 banks alone showed 111405 of deposits, of 
 which it is perhaps reasonable to assume that 
 one-tenth was located in London. The foreign 
 banks also hold large sums there chiefly for 
 use in exchange operations. At a guess we 
 may take m5o as the current deposits at the 
 colonial and foreign banks in London together, 
 so raising the total to 111650. 
 
 In France deposit banking is far less deve- 
 loped. The Bank of France returns some 
 twenty to thirty millions sterling of deposits, 
 a sum insignificant beside its issue of notes. 
 According to the Aldrich report,* deposits in 
 the chief other French banks in 1903 amounted 
 to mi20 and included some time deposits.! 
 
 In Germany banking has progressed more 
 
 * National Monetary Commission of the United States 
 (1909) Report and Statistics. 
 
 f The total for France seems too small, and has certainly 
 increased much since the date given. 
 
PAPER SUBSTITUTES 47 
 
 than in France, although the German banks 
 are very far from being on the same scale as 
 those of England, and the use of cheques is 
 not nearly so widespread as in England. The 
 nine large Berlin banks, shortly before the 
 war, showed total liabilities of 111315.* 
 
 We have then to make the best of an imper- 
 fect collection of statistics. Fortunately, two 
 circumstances help to make the statistics 
 more dependable than they appear at first 
 sight ; first, that the best and most complete 
 returns are made in the country which is 
 coming more and more to preponderate in the 
 commercial world ; second, that we are more 
 concerned with the time-changes of the figures 
 than with the figures themselves, and even 
 though statistics are collected on different and 
 imperfect systems, if the publication is con- 
 tinued from year to year, a fairly close deduc- 
 tion can be made as to the rate of change. 
 
 Our object is to find how far the various 
 currency devices have been successful in 
 economising gold. With this aim we shall 
 endeavour to work out a currency factor, 
 
 * L. Joseph : " The Evolution of German Banking/' 
 Table 5, (Statistics for 31 Dec., 1912.) 
 
48 GOLD, PRICES WITWATERSRAND 
 
 defined as follows : All the currency (or 
 means of payment) actually used by the public 
 of a country (i.e., not belonging to the banks 
 and treasuries) divided by the stock of gold in 
 that country. 
 
 As an illustration take the figures for the 
 United States in the year 1909. For the 
 amount of currency we take the calculations 
 of Prof. Irving Fisher, based on the reports of 
 the Controller of the Currency. An estimate 
 is first made of the total stock of money in 
 the United States : gold, silver, nickel, and 
 copper, gold and silver certificates, treasury 
 and bank notes, and clearing-house certifi- 
 cates ; from this is deducted the money in the 
 treasury and in the banks (with a calculated 
 allowance for banks that neglected to make 
 returns a very small percentage). The resi- 
 due was 1,630 million dollars. To this must 
 be added the much larger sum of " individual 
 deposits subject to cheque " estimated at 
 6,750 million dollars, giving a total of 
 8,380 millions (on June 30, 1909). Accord- 
 ing to the Director of the Mint, at the same 
 date there was in the United States gold coin 
 and bullion to the value of 1,641 millions. 
 
PAPER SUBSTITUTES 49 
 
 The ratio is therefore 5*1. That is, if the 
 people of the United States wished to conduct 
 all their business with gold coins, using them 
 with precisely the same frequency and in the 
 same manner as they now use coin notes and 
 deposits, they would need five and one-tenth 
 times as much gold as they actually possess. 
 The currency factor is high, in accordance 
 with the high development of the banking 
 system of the country. 
 
 It would take too long to give, here, detailed 
 estimates for other countries estimates 
 which, indeed, would be very imperfect ; it 
 must suffice to make some general statements : 
 further information is given in the Appendix, 
 Table XIII. In England the currency factor is 
 as high as, or even higher than, in the United 
 States, owing to the excellent monetary and 
 banking systems in vogue, and the enormous 
 amount of business concentrated in a small 
 area. In Germany the factor is much lower, 
 but is increasing. In France it is lower still : 
 the French people have long distinguished 
 themselves by the possession of an enormous 
 stock of " hard money," as well as by extreme 
 conservatism and soundness in their business 
 
50 GOLD, PRICES WITWATERSRAND 
 
 methods. France is a wealthy country and 
 can afford this luxury if it chooses. 
 
 The very rough estimate which alone is 
 possible : for the world at large (still excluding 
 India and China) brings out the currency 
 factor as something between 2*5 and 3. 
 What we want to know for the purpose of the 
 present study is, whether this factor is in- 
 creasing and, if so, how fast.* 
 
 At first sight it might be supposed that the 
 rapid progress of commerce which is noted in 
 all parts of the world would bring with it a 
 rapid advance in the economy with which 
 gold is used. If the currency factor in 
 England is twice as high as in the world at 
 large there is clearly room for great improve- 
 ment, and it might be expected that other 
 countries would hasten to imitate the methods 
 that in England have led to so great economy. 
 However, national customs with regard to 
 currency are remarkably tenacious. For 
 instance, there is no doubt that France could 
 save half its stock of gold by a proper develop- 
 ment of deposit banking ; yet though the 
 Government now does its best to encourage 
 
 * All these estimates refer to peace-times. 
 
PAPER SUBSTITUTES 51 
 
 the use of cheques, progress is very slow. 
 An estimate of the currency factor, based on 
 figures given in the Aldrich report, brings it 
 out at about the same value 2 in 1903 as a 
 quarter of a century previously (Table XIII.). 
 Again the banking system of the United States 
 suffers from defects which were commonly 
 recognised for several decades before the 
 Federal Reserve Act, which partly remedies 
 them, was passed, and since the resumption 
 of specie payments after the American Civil 
 War was completed, it is probable that the 
 currency factor has never been lower than 4 
 nor higher than 6. Recently, in fact, there 
 has been such a flow of gold to the United 
 States that the " factor " has fallen rather 
 than risen. 
 
 It is in Germany that the most noteworthy 
 progress has taken place, in the rapid develop- 
 ment of the large German banks. Germany 
 has never felt it necessary to accumulate such 
 a vast stock of gold in the central bank as 
 France and Russia have done ; it has aimed 
 rather at imitating the success of England, 
 which carries on the largest international 
 trade in the world with the aid of a moderate, 
 
 E 2 
 
52 GOLD, PRICES WITWATERSRAND 
 
 but efficiently used, gold reserve. Germany 
 found that its rapidly growing trade could be 
 managed without increasing the Reichsbank 
 reserve in proportion. That reserve was fifty 
 millions sterling in 1901, and only seventy 
 millions in 1913. 
 
 Russia has imitated France in accumulating 
 a vast central store of gold ; but there is little 
 in circulation. The trade of the country is 
 increasing exceedingly fast, probably much 
 faster than the gold stock, so that we have 
 here another country in which a progressive 
 economy in the use of gold is observable. 
 
 There are countries, however, in which the 
 currency factor is high, not on account of 
 wealth and excellence of banking organisa- 
 tion, but because they have not been able to 
 afford to buy the gold they need. In these 
 cases progress will be in the direction of a fall 
 in the magnitude of the factor, and will conse- 
 quently set off, to some extent, the rise in 
 other parts of the world. 
 
 On the whole, it seems that any change in 
 the currency factor for the world has been very 
 slow ; though the war may possibly make an 
 abrupt change in this matter. 
 
PAPER SUBSTITUTES 53 
 
 We have not yet come to the end of the 
 causes affecting the demand for money, we 
 have not considered the rapidity with which 
 it is used. There are two allied influences ; 
 the first is, how often the same goods are sold ; 
 the second, how often the same money is 
 passed from hand to hand. 
 
 The wheat that springs up in the fields is 
 destined to become bread on the breakfast 
 tables of the people ; how often does it change 
 ownership in the course of this journey ? A 
 piece of iron ore in the ground is eventually 
 converted into a razor ; how many sales are 
 involved before the transformation is com- 
 plete ? 
 
 It is impossible to answer these questions 
 with any approach to precision, still less to 
 arrive at an average frequency of sale for all 
 goods. We can, however, make some attempt 
 to discuss the changes that industrial progress 
 is bringing about. There is an ever-growing 
 elaboration in the methods of production, 
 which makes the number of processes through 
 which goods are passed to increase ; but 
 passing from one process to another does not 
 always imply a change of ownership. If a 
 
54 GOLD, PRICES WITWATERSRAND 
 
 cowhide is passed from a farmer to a small 
 local tannery, and thence to a cobbler, the 
 sales may not be fewer than if it goes to a 
 wholesale bootmaking company ; and possibly, 
 the company may set up its own tanneries. 
 There are businesses in existence which, 
 starting from their own coal and iron ore, do 
 all the processes necessary to putting finished 
 steel rails on shipboard for export. It appears 
 then, so far as manufacture is concerned, the 
 growth of machine production may at one 
 stage increase, at another decrease, the fre- 
 quency of sale of goods manufactured. With 
 regard to the distributive side of production 
 we are, perhaps, more likely to find an increase 
 in frequency of transfer. An elaborate com- 
 mercial organisation of exporting and import- 
 ing merchants, factors, brokers, jobbers, and 
 retailers, grows up in connection with each 
 staple commodity ; this has meant an im- 
 mense growth of commerce as compared with 
 the primitive production of a village com- 
 munity for its own needs. But in the more 
 advanced countries there is some tendency to 
 squeeze out middlemen, so that it is difficult 
 to say what the tendency may be on the whole. 
 
PAPER SUBSTITUTES 55 
 
 There are two modern developments that 
 certainly tend to increase the frequency of 
 money payments. One is the formation of a 
 speculative market ; when this is fully estab- 
 lished e.g., the Chicago market for wheat 
 the same goods may be sold any number of 
 times whilst making no manufacturing pro- 
 gress, but only being held for use at a more 
 convenient time. The second is the growth 
 of facilities for borrowing on produce. When 
 goods are exported on a bill of exchange, 
 although the legal ownership of the goods does 
 not change, the bill may be sold a number of 
 times over ; by the grower to his bank, by it 
 to a metropolitan bank, then to a London bill 
 broker, and then to a London bank, for 
 instance. 
 
 This leads one to consider the selling of 
 capital goods. The modern development of 
 joint-stock companies, and of the share 
 market, have made the sale of industrial 
 properties infinitely easier, so that there is an 
 immense business done in property rights that 
 hardly existed a hundred years ago. 
 
 On the other hand labour, apart from its 
 embodiment in goods, is rarely sold more than 
 
56 GOLD, PRICES WITWATERSRAND 
 
 once ; though there are exceptions, as when 
 an actor sells his services to a theatrical com- 
 pany which resells them to the public. But 
 as personal services form an increasing frac- 
 tion of the whole of employment, this is a 
 small influence tending to reduce frequency of 
 sales. 
 
 Turning now to the other side the fre- 
 quency of use of money we are in a better 
 statistical position. The term commonly used 
 by writers on the subject, by the way, is 
 :f velocity of circulation/' not perhaps a very 
 happy term. By it is meant the average 
 number of times the money passes from one 
 ownership to another in a year. It is to be 
 arrived at by dividing the amount of any 
 particular class of money into the total value 
 of payments made with it in a year. This is 
 more easily done in the case of bank deposits 
 than in that of gold or notes ; cheques drawn 
 constitute a record of the employment of 
 deposits, and a large fraction of the cheques 
 drawn pass through clearing houses, which at 
 least publish their totals. Estimates of the 
 magnitude of payments made in coin and notes 
 are indirect and much less certain. 
 
PAPER SUBSTITUTES 57 
 
 The observations of Pierre des Essars in 
 1895 are amongst the earliest attempts to 
 determine velocities of circulation (the contri- 
 butor to Palgrave's dictionary, who could not 
 have written much before that date, regards 
 the determination as impossible). Subse- 
 quent work by Kemmerer * and, especially, by 
 Irving Fisher f has carried our knowledge a 
 long way further forward ; but these two 
 writers deal only with the United States. For 
 details of the methods, which are very in- 
 genious, we must refer to the originals ; but the 
 results are important to quote. Fisher finds 
 that between 1896 and 1914 the " velocity " 
 of money in the narrower sense (coin and 
 notes) has varied between nineteen and 
 twenty-two times per year, showing, perhaps, 
 a slight tendency to increase ; while for bank 
 deposits the velocity has shown a notable and 
 pretty steady increase during the same period 
 from thirty-eight to fifty-four times a year. 
 It is important not only to know these num- 
 
 * " Money and Credit Instruments " (New York : Holt, 
 1907). 
 
 t " Purchasing Power of Money " (New York : Mac- 
 millan, 1911). 
 
58 GOLD, PRICES WITWATERSRAND 
 
 bers, but to understand what causes of change 
 they imply. 
 
 If money in the form of coin or notes is used 
 on the average twenty times a year, that 
 means that it remains on the average about 
 eighteen days in the possession of one person. 
 Now it is clear that the extent to which a man 
 lays in a stock of money depends largely on 
 his habits, and his accessibility to banks and 
 markets. The average town-dweller prob- 
 ably keeps by him enough to pay his expenses 
 for a week or two ; he may be paid weekly 
 wages and spend them in the course of the 
 week ; or he may draw enough from his bank 
 to serve as pocket-money for, say, a fortnight. 
 On the other hand a farmer, or anyone to whom 
 it is inconvenient to go into town often, will 
 keep a good deal of money on hand. Accord- 
 ingly one would expect that as population 
 grows denser, and means of communication 
 cheaper and more rapid, that frequency of use 
 of money will increase. The numbers given 
 above are for the United States ; very prob- 
 bably in Europe the frequency is greater. 
 There must be a limit however to the economy 
 that is practicable, and presumably that limit 
 
PAPER SUBSTITUTES 59 
 
 has already been reached by the inhabitants 
 of large cities. 
 
 With regard to bank currency, we may con- 
 veniently deal separately with commercial 
 and non-commercial depositors. A man who 
 lives on a salary, professional fees, or divi- 
 dends, unless he indulges in speculation, hardly 
 draws any more in cheques than the amount 
 of his income. Since his turnover is thus 
 limited, the only way in which an increase in 
 the frequency of circulation of his deposits 
 could occur is by keeping his bank balance 
 down. If facilities for small investments are 
 improved and the public grows more careful 
 to secure interest on small balances this may 
 happen, and then a smaller amount on deposit 
 will serve to do the same work of payment. 
 
 Commercial depositors are in a position to 
 use their resources with varying degrees of 
 activity, according to the way they conduct 
 their business ; but if they succeed in develop- 
 ing a more active business, they are bringing 
 into existence transactions that would not, 
 otherwise, have occurred. Hence they increase 
 simultaneously the use of money and the 
 demand for it. In this case too, then, the only 
 
60 GOLD, PRICES WITWATERSRAND 
 
 way of obtaining an increase of frequency 
 which will really economise money is to con- 
 duct business on a narrower margin of balance 
 at the bank. How far this tendency can go 
 depends chiefly on the policy of the banks 
 themselves. It would be interesting to know 
 whether the American banks are inclined to 
 allow customers to work within a smaller 
 average balance in proportion to their daily 
 turnover than they used to ; also whether the 
 custom of allowing unsecured overdrafts is 
 more widespread than formerly. On all such 
 points practical bankers might give valuable 
 information if they are not debarred by a 
 policy of secrecy. 
 
 Some limit to narrowness of margin is 
 inevitable. A broker in a great city whose 
 transactions are nearly all with persons having 
 banking accounts in the same city may perhaps 
 manage with an average balance equal to no 
 more than two days' transactions ; in that 
 case the velocity of circulation would be about 
 150. But a merchant dealing with persons 
 at a distance and receiving payments some- 
 what irregularly, could hardly be content with 
 so little. The change which Fisher notes as 
 
PAPER SUBSTITUTES 61 
 
 having taken place in the United States during 
 the last two decades may then ultimately be 
 referred to increased facility of communica- 
 tion ; it may therefore be expected to con- 
 tinue for many years to come, but not to an 
 unlimited extent. 
 
CHAPTER IV. 
 
 INFLUENCE OF THE WAR. 
 
 Summary of influences tending to increase in demand 
 for, and to economy in the use of gold Effects of 
 the War Increased demand for certain goods 
 Hindrances to supply Consequent revaluation 
 Inaccuracy of the customary index numbers 
 Inflation of currency Statistics Gold has fallen 
 in value because the demand for it is less than 
 in peace-time Analysis of the demand Redund- 
 ance in America Policy of Sweden Prospects 
 after the War. 
 
 BEFORE proceeding to consider the present 
 situation we must summarise the results of the 
 last chapter. We found the following causes 
 tending to make the gold supply of the world 
 become more effective as time goes on : 
 
 (1) The spread of the custom of using 
 cheques, especially on the Continent of Europe. 
 
 (2) The development of a more efficient 
 banking system in the United States. 
 
 (3) Tendency to combine manufacturing 
 processes of different grades, and manufac- 
 
INFLUENCE OF THE WAR 63 
 
 turing with merchanting, under a single busi- 
 ness, and associated tendency to eliminate 
 middlemen. 
 
 (4) Increasing importance of personal ser- 
 vices as compared with work spent in produc- 
 ing goods. 
 
 (5) Increasing frequency in the use of 
 money, due to denser population and improved 
 means of transport. 
 
 (6) Care over investment of small sums, 
 and consequent cutting of bank balances to a 
 minimum. 
 
 On the other hand are causes which in- 
 crease the amount of work the gold supply 
 has to do, or which make it less effective : 
 
 (1) Desire of nations in a weak financial 
 position to strengthen their gold reserves (e.g., 
 Brazil). 
 
 (2) Increasing elaboration of productive 
 processes, and greater use of raw material 
 from a distance. 
 
 (3) Development of speculative markets in 
 raw materials. 
 
 (4) Increased facilities for borrowing on 
 produce. 
 
 (5) Increased marketability of business 
 
64 GOLD, PRICES WITWATERSRAND 
 
 capital through organisation into limited 
 companies. 
 
 It is clearly almost impossible to make a 
 quantitative estimate of all these factors ; 
 all one can say is that the first group probably 
 prevails over the second numbers (i) and (6) 
 being the most important. The striking con- 
 clusion is, that all these causes between them 
 produce much less effect than the supply of 
 gold and the growth of trade ; in other words, 
 the quantity theory of money, as it would be 
 if there were no money but gold, is but slightly 
 modified by the circumstances of the modern 
 commercial world. If it is true that the 
 economising group of influences prevails, then 
 the situation is the same as if the rate of 
 increase of trade were somewhat less than it 
 actually is. Now in the second chapter it was 
 concluded that the rate of increase of trade is 
 about 3 per cent, per annum ; but a rate of 
 2| per cent, was subsequently adopted as 
 expressing the rate of increase in the demand 
 for gold. The justification for this lies in the 
 arguments which have now been summarised ; 
 the correctness of the estimate is confirmed 
 by the agreement which was noted between 
 
INFLUENCE OF THE WAR 65 
 
 the course of prices and the stock of money 
 metal.* 
 
 It should be unnecessary to repeat here the 
 deductive reasoning on which t|he quantity 
 theory is based, and which is to be found in 
 all the treatises on economics ; but it has 
 sometimes been objected to the theories that 
 they do not sufficiently explain the mechanism 
 by which a change in the amount of money 
 affects prices. A suggestion of this in the 
 case of a primitive community, using metallic 
 money, has been given already ; that of the 
 miner with gold dust in his pocket, but in want 
 of a pair of boots. It is, however, more inte- 
 resting to consider the action in a developed 
 commercial country. If there is an influx of 
 gold into a certain country, the first holders 
 of it usually are the banks. As bankers are 
 in the habit of regulating their offers of credit 
 
 * If Fig. 7 be drawn with the "required stock " increasing 
 at rates of 2, 2j, 3, 3^ per cent, in turn, it will be found that 
 the lowest and highest rates yield curves that depart 
 excessively from the price curve. Between the curves for 
 2j and for 3 per cent, it is not altogether easy to decide, 
 but, on the whole, the preference is with 2 J per cent. In any 
 case the conclusion holds, that there was (before the war) 
 only a very slow change in the currency factor. 
 
 G.P. F 
 
66 GOLD, PRICES WITWATERSRAND 
 
 in pretty close proportion to their stocks of 
 gold, they will wish to extend their loans ; 
 there will be a period of easy money, and there 
 may be a fall in the rate of discount. This 
 makes traders generally anxious to seize the 
 opportunity of doing increased business ; 
 they make speculative purchases, especially of 
 raw materials, which raise the price of the 
 goods bought. The rise cannot be restricted 
 to certain classes of goods, however it is 
 bound to spread. For all the persons who 
 sell at a higher price have more money to 
 spend, and will therefore come into the market 
 for such goods as they choose ; but though 
 there is more money to buy with, there are no 
 more goods for sale (the incoming of gold does 
 not increase the stock of food, of houses, or 
 manufactures), and the inevitable effect of 
 this is a rise in price. One of the most easily 
 recognised instances is the demand for houses, 
 pictures, motor cars, and so on, that springs up 
 when a number of people have made money 
 by speculation. The rise spreading to retail 
 prices and wages, will call for more coin in 
 circulation, and if the increased supply of gold 
 stops, this will stop the rise, as the demand for 
 
INFLUENCE OF THE WAR 67 
 
 circulation will deplete the bank reserves. 
 But if the inflow of gold continues the rise in 
 prices will continue. The process has been 
 in full swing recently in America, where the 
 banks have been receiving so much gold from 
 Europe that the extension of credit and rise 
 of prices seems to have alarmed them. 
 
 We have now to try and get a conspectus of 
 what has really happened during the war. It 
 was pointed out above that when the price of 
 a commodity changes, the cause of the change 
 may be in the commodity or in money ; but 
 that a change in price, common to many diffe- 
 rent articles simultaneously, cannot usually 
 be expected to have its origin in the commo- 
 dities. War makes an exception, for it makes 
 production of all kinds more difficult. This 
 is due to the withdrawal of skilled labour and 
 enterprise, as well as of capital, for the new 
 occupation of fighting, and its subsidiary 
 trades, such as munition making ; production 
 of staples such as foodstuffs and ordinary 
 manufactures is rendered more difficult and, 
 at the same time, the needs of the army 
 increase the demand for food, clothing, steel, 
 and other goods. The combination of in- 
 
 F2 
 
68 GOLD, PRICES WITWATERSRAND 
 
 creased demand with more difficult supply 
 naturally raises values ; it is, however, impor- 
 tant to be clear as to the meaning of such an 
 expression. 
 
 Value is a mere relation ; the ratio of 
 exchange between different things. A uni- 
 versal rise in values is, therefore, nonsense ; 
 as much so as saying that two men have grown 
 so fast that each has grown bigger than the 
 other. If there has been a rise in value 
 common to a large number of things, there 
 must be other things that have fallen in value. 
 In the case of war we unconsciously take 
 average labour as our standard of value, and 
 really imply that labour of all grades has on 
 the whole fallen in value ; that wages have 
 not kept pace with the increased cost of 
 living. This is an inevitable consequence of 
 war. Further, most capital goods have fallen 
 in value and notably bonds and shares. 
 
 In ordinary circumstances index numbers 
 based on the price of raw materials form a 
 generally trustworthy, though not perfect, 
 measure of the relation of values to money. 
 In war-time this is not true, because such 
 index numbers are not widely enough based, 
 
INFLUENCE OF THE WAR 69 
 
 and the whole group of prices from which they 
 are calculated has suffered a shift relatively 
 to wages, and capital goods, which are not 
 included in the calculation. We may, there- 
 fore, conclude that the observed rise in the 
 usual index numbers is partly due to general 
 scarcity and difficulty of production, without 
 falling into the fallacy of positing a universal 
 rise in values. 
 
 Only partly, however. A great deal of the 
 rise is due to inflation of the currency. When 
 war breaks oiit every one wishes to have as 
 much cash in hand as possible, so that all 
 sorts of steps are taken to increase the cur- 
 rency the English Treasury notes are an 
 example. If the war is long the public gets 
 used to it, and the financial crisis passes ; but 
 the extra currency that has been issued is not 
 withdrawn, for that would be equivalent to 
 paying back a debt, and war is not a time 
 for paying debts. On the contrary, govern- 
 ments, pressed for money, nearly always yield 
 to the temptation of inflating the currency 
 further, as a means of raising funds. Neutral 
 countries do not escape, for the rise in prices 
 in belligerent countries causes gold to be 
 
70 GOLD, PRICES WITWATERSRAND 
 
 exported, and the stock in neutral countries 
 being thus increased, their bankers increase 
 credit, and the rise in prices thus comes to 
 extend all over the world. 
 
 These facts have long been known to econo- 
 mists, and can be read in standard treatises ; 
 what is new, is that one of the belligerents, 
 England, has, in the course of the three years 
 of war, grown partly aware of them. Whereas 
 the banks were encouraged to subscribe 
 heavily to the second war loan (of 1915) with 
 the consequence of adding to the inflation of 
 currency, they seem to hav'e regarded it as a 
 duty not to subscribe to the third loan (of 
 1917). 
 
 It is too soon to make a quantitative 
 estimate of the inflation due to the war. All 
 that one can do at present is to give illustra- 
 tions of it. The inflation has taken two forms, 
 increase in paper money, and in bank deposits. 
 With regard to the former, we have already 
 remarked on the use of Treasury notes in 
 England. They have been issued to the 
 extent of about 250,000,000, and at the same 
 time the Bank of England notes in circulation 
 have increased by some 20,000,000 above 
 
INFLUENCE OF THE WAR 71 
 
 the pre-war amount. Against this has to be 
 set a considerable withdrawal of gold coins 
 from circulation ; the amount is not known 
 with any certainty, but it is supposed that 
 about 100,000,000 was held by the public 
 and the banks other than the Bank of England. 
 Sovereigns are now hardly seen in England ; 
 so, if we suppose the whole of that amount to 
 have been withdrawn, there remains a balance 
 of 179,000,000 increase in circulation. 
 
 This increase appears trifling when com- 
 pared with that in other countries. In 
 France the banknote circulation in April, 
 1914, was 238,000,000 ; in July, 1918, it was 
 1,158,000,000, or an increase of 920 millions 
 sterling. In Russia, June, 1914, the note 
 circulation was 185,000,000 ; in February, 
 1917, 920,000,000, or an increase of 735 
 millions sterling. Under the revolutionary 
 governments the increase has been enormously 
 greater. These amounts will be difficult 
 to " digest " after the war ; moreover, they 
 are still increasing fast. Germany, despite 
 the common opinion to the contrary, has 
 been more careful in its finance ; still note 
 circulation of the Imperial Bank has increased 
 
72 GOLD, PRICES WJTWATERSRAND 
 
 from 95,000,000 to 625,000,000 (July, 
 1918). ' 
 
 If England has been modest in the issue of 
 notes, that is largely because cheque currency 
 is more important ; the figures of bank 
 deposits show far too great an increase. Thus 
 the nineteen chief banks give these figures : 
 
 m 
 June 30, 1914 747 
 
 1915 943 
 
 1916 987 
 
 This increase is not a healthy one due to 
 increasing real wealth, for before the war the 
 annual charge was only twenty to thirty 
 millions a year ; there has evidently been an 
 enormous artificial extension of credit, chiefly, 
 in the first instance, in the form of loans to the 
 Government. 
 
 Again, the New York Associated Banks 
 return deposits of : 
 
 m 
 
 July i, 1915 524 
 
 1916 688 
 
 and although the United States has been 
 making vast profits out of the war, the exten- 
 sion of credit has undoubtedly gone beyond 
 
INFLUENCE OF THE WAR 73 
 
 them. All this extra currency has doubtless 
 contributed largely to the rise of prices a 
 rise that is less marked in South Africa than 
 in most countries, though even here it is 
 sufficient to attract general attention. 
 
 The fact is that gold has been depreciated 
 by the war, because the demand for it has 
 fallen off. Some readers may suspect paradox 
 in this statement ; it is, however, nothing 
 more than straightforward common sense. 
 
 The demand for gold let us say in England, 
 to fix the attention may be divided into 
 three parts ; it is wanted for use in the arts, 
 for internal currency, and to regulate foreign 
 exchange. The first demand has undoubtedly 
 fallen off, the uses of gold in the arts being such 
 as can conveniently be spared in time of need ; 
 and, indeed, the Government has practically 
 forbidden it, by making it illegal to melt coin. 
 The second demand, that for circulation in 
 the country, has disappeared altogether ; this 
 is a psychological change, the public having 
 been persuaded that it is patriotic to use 
 paper money instead. The third demand 
 remains, and a large amount of gold has been 
 used for exchange purposes ; but it is a mis- 
 
74 GOLD, PRICES WITWATERSRAND 
 
 take to suppose that this one demand, though 
 abnormally great, exceeds the three demands 
 that existed previously. If this is the case in 
 England, which has sedulously kept the 
 foreign exchanges about par, what is the case 
 in France, Russia, Italy, Germany, and 
 Austria ? They have all given up gold circula- 
 tion ; the gold-using industries are far from 
 flourishing in any of them ; indeed, appeals 
 are made to the public to melt down their 
 jewellery for coinage ; and none of these 
 countries has paid any serious attention to 
 foreign exchange ; they have all let their 
 currency be depreciated. Is it not clear, 
 then, that the demand for gold has almost 
 ceased ? and that it can only be disposed of by 
 offering it to neutral countries ; and they 
 show a decided unwillingness to take it. 
 
 Probably no one will maintain that America 
 shows any keen demand for extra supplies of 
 g6ld, and America has been by far the most 
 important of the neutrals ; but events in 
 Sweden are even more instructive. The 
 National Bank of Sweden usually buys gold 
 at par ; in other words it accepts gold coin 
 and bullion, and credits the depositors with the 
 
INFLUENCE OF THE WAR 75 
 
 value in its books, in the same way as the Bank 
 of England does. But owing to the excess of 
 Swedish exports over imports during the war, 
 so much gold has been presented that the 
 Swedish Bank finds it unprofitable to hold any 
 more and now refuses to accept any. The 
 result is that Swedish currency is no longer on 
 a gold basis ; but not in the sense that is true 
 of the currencies of France or Germany. The 
 franc and the mark are depreciated relatively 
 to gold which is not obtainable by the public ; 
 but in Sweden it is gold that is depreciated 
 relatively to the currency. Sweden realises 
 that to accept more gold would only be to 
 accumulate a useless stock, and to suffer the 
 disadvantage of a rise in prices. She refuses 
 it accordingly, just as a merchant might refuse 
 to accept pig iron in payment of debts, if he 
 had already a larger stock of iron than he 
 knew what to do with. Of course the amounts 
 dealt in by Sweden are small ; the action is 
 none the less worth pondering over. 
 
 Fig. 8 shows the course of prices in the same 
 way as Fig. 5, that is by the reciprocals of 
 Sauerbeck's index number ; only as the period 
 covered by the diagram is short, instead of 
 
76 GOLD, PRICES-WITWATERSRAND 
 
 decennial averages, the numbers for each 
 quarter, as published, are taken. The figure 
 must be read with the proviso already ex- 
 plained, that the real value of raw materials 
 
 Fig. 8 
 
 Reciprocals of Sauerbecks Index Number (quarterly) 
 
 has risen, so that the depreciation of gold is 
 exaggerated ; despite this it is genuine and 
 striking enough. 
 
 What can one say of the future, after the 
 war ? No doubt the demand for gold will 
 
INFLUENCE OF THE WAR 77 
 
 revive. The continental nations will want to 
 restore their currencies to a gold basis ; and 
 for that purpose will strengthen their gold 
 reserves ; but to some extent the restoration 
 will come about of itself through the cessation 
 of war purchases. If the habit of using paper 
 money persists in England, France, and 
 Germany, as may quite well be the case, now 
 that people have got used to doing without 
 gold, the banks may not need much after all. 
 Put in the form adopted in the last chapter this 
 would mean an increase in the currency factor ; 
 the factor grows very slowly in ordinary 
 times, but it may suffer a sudden shift as a 
 legacy of the war. 
 
 It is little use speculating on the precise 
 action of the nations after the war, but it is 
 of consequence to realise that there are limits 
 to the demand for gold ; or rather to under- 
 stand precisely the sense in which alone the 
 demand is unlimited. It has been stated by a 
 responsible person that if the Rand turned out 
 a hundred million pounds worth of gold a year, 
 the world could absorb it. This is only true in 
 the same sense that if the output of zinc or of 
 rubber were doubled the world could absorb it. 
 
78 GOLD, PRICES-WITWATERSRAND 
 
 Every one realises that in the case of other 
 materials a greatly increased supply could only 
 be absorbed by a fall in value. Gold serves 
 the purpose of facilitating the world's ex- 
 changes. If there were more gold there would 
 be no more use for it (not counting the uses in 
 manufacture) ; it would still do the work of 
 exchange and nothing else, whereas an in- 
 creased supply of zinc or rubber would serve 
 new utilities. How can it be expected that if 
 there be a larger supply of metal, with no 
 more useful work for it to do, that the value 
 should not fall ? If gold became as abundant 
 as silver, no doubt it could all be used for 
 currency purposes, but it would fall to some- 
 thing like the value of silver. 
 
 Further, if the value of gold were to be 
 forced down by over-production, so as to 
 bring about a revolutionary change in its 
 value, the nations might object to using it as a 
 standard of value, just as Sweden has done. 
 
CHAPTER V. 
 
 POSITION OF THE WITWATERSRAND. 
 
 Gold supply Relative importance of the Rand 
 Characteristics of mining on the Rand Analysis 
 of working expenses and effect of rising prices 
 Cost of living on the Rand Labour prospects 
 New mining areas on the Rand, geological expecta- 
 tions, and probable influence on the older mines 
 Problem of a stable money standard Irving 
 Fisher's proposal Alternative solution suggested 
 in the form of international control of gold output 
 and conservation of resources. 
 
 ATTENTION was called in the first chapter 
 to the increasing share that the Witwatersrand 
 is coming to take in the gold production of the 
 world. The share of the Transvaal (and the 
 outlying mines contribute only a minute part) 
 has risen to more than 41 per cent. The 
 Witwatersrand still contains vast untouched 
 stores of gold-bearing rock, whereas in other 
 parts of the world future resources are not 
 so certain. The Australian output is defi- 
 nitely falling off, indicating a tendency to 
 
8o GOLD, PRICES-WITWATERSRAND 
 
 exhaustion, at least of the more payable ore. 
 The same is true of some of the American 
 deposits, although the opening up of others, 
 particularly of low-grade alluvial in Alaska, 
 made available by modern improvements in 
 working, keeps up the total. Mexico and 
 Siberia may, perhaps, show important 
 developments in gold mining, but there is 
 no doubt that taking the world as a whole, 
 outside the Rand, there is a lack of present 
 elasticity in the yield. 
 
 On the Rand itself, according to current 
 geological opinion, and the evidence of bore- 
 holes and prospecting, the output could be in- 
 creased almost indefinitely if sufficient capital 
 were provided ; though, of course, that is not 
 to say that it would be profitable to do so. 
 Mining in the banket formation that charac- 
 terises this field is far more regular than in the 
 alluvial or the quartz deposits found else- 
 where.* There is risk, of course, but not 
 more than in the mining of base metals, nor 
 even much more than in manufacture or 
 transport. Gold mining on the Rand, in fact, 
 is an industry rather than a gamble ; and it 
 
 * Lehfeldt : Econ. Journ. 9 vol. xxii., p. 487 (1912). 
 
POSITION OF WITWATERSRAND 81 
 
 is one conducted on a large scale. Capital 
 running into millions is needed, and it takes 
 some years to develop a new deep level mine ; 
 but it is impossible to make a fairly close 
 estimate of cost and yield, so that the economic 
 results, not, perhaps, of the single mine, but 
 of the field, are calculable. 
 
 In fact, gold-mining comes, for the first 
 time, into the normal economic categories. 
 Alluvial and quartz mining has always been 
 so speculative that no clear connection be- 
 tween cost of production and return could be 
 predicated of it. Thus Soetbeer expresses the 
 opinion that more has been spent on prospect- 
 ing for gold than the product is worth ; and 
 de Launay says, " (the gold output) is far higher 
 than it should be in view of the rare occurrence 
 of gold in the earth's crust, if man did not 
 throw himself upon gold ores with more 
 persistent and exaggerated enthusiasm than, 
 for instance, on iron ores." But a large and 
 approximately known deposit, such as that 
 of the Rand, influences production in the same 
 way as in other industries ; with a fall in 
 working costs (i.e., a rise in value) the margin 
 of production is extended, and vice versa, so 
 
 G.P. G 
 
82 GOLD, PRICES-WITWATERSRAND 
 
 that there is a reservoir, steadying the value 
 of the product. 
 
 It would be very desirable to have some 
 knowledge of the extent of this reservoir ; but, 
 whatever may be known to the heads of the 
 mining industry, little has been published. 
 It is, however, clear that there is a great deal 
 of rock that is auriferous, but not sufficiently 
 rich to be worth mining at present ; so that 
 a reduction in working costs may result in a 
 considerable enlargement of output. What 
 is needed is an estimate of the quantity of ore 
 of each grade of richness. Thus if the normal 
 working cost on a large well-equipped mine 
 is at present such that six grams of gold per 
 ton will cover it, how much more ore would 
 be available if working costs were lowered to 
 the equivalent of five grams ? Probably, the 
 increase would be much more than one-sixth 
 it might be two, three, or four-sixths ; the 
 question is one of the most important with 
 regard to the future of gold. 
 
 Working costs on the Witwatersrand mines 
 are divided into three main groups : stores, 
 white wages, and native wages. The rela- 
 tive importance of these may be judged 
 
POSITION OF WITWATERSRAND 83 
 
 from the following figures, which are for 
 1913 : 
 
 Stores 10,580,000 
 
 White wages . . . . 6,656,000 
 
 Native wages . . . 5,602,000 
 
 Of stores, the most important that are pur- 
 chased oversea are machinery, belting, steel, 
 zinc, timber, candles, and cyanide ; while 
 those bought in South Africa include food- 
 stuffs (for native labourers^) chiefly meat and 
 maize coal, lime, and explosives. The im- 
 ported stores amount to somewhat more than 
 half of the total value. The expenditure and, 
 where possible, the quantities are recorded 
 by the Transvaal Chamber of Mines, so that 
 the average price of a good many articles can 
 be worked out. Table XV. in the Appendix 
 gives the result of such a calculation for all 
 the articles, which come to more than a 
 hundred thousand pounds a year. 
 
 Of imported goods steel and cyanide were 
 nearly stationary in price before the war, but 
 have risen since. Zinc and timber were rising 
 slowly before the war, and the rise has been 
 accelerated by the war. Candles have fluc- 
 tuated irregularly. Explosives, which are made 
 
 G2 
 
84 GOLD, PRICES-WITWATERSRAND 
 
 locally, remained practically unchanged up to 
 the end of 1915. Coal showed an important 
 drop in price in 1912, owing to a reduction in 
 railway rates. Lime has grown cheaper, no 
 doubt partly for the same reason, but also on 
 account of the discovery of better sources of 
 supply. Local foodstuffs have fluctuated 
 irregularly, and show no tendency to rise. 
 
 On the whole, in a period of rising prices, 
 such as that from 1908 on, the record is one 
 of remarkable economy. The mines have 
 suffered but little from the rise in prices 
 during the war ; whilst the price of many 
 commodities in Europe has doubled, working 
 expenses on the Rand have risen no more than 
 five or ten per cent* The reasons for this are, 
 firstly, that local stores have remained cheap 
 in fact some local goods have fallen in price 
 owing to the difficulty of exporting them ; 
 secondly, old stores, especially of machinery, 
 piping, etc., have been drawn upon to an 
 abnormal extent, and new purchases have been 
 put off ; thirdly, with regard to such pur- 
 chases as have been indispensable, the mines 
 
 * Somewhat more in 1918. Cost of living in Johannes- 
 burg has risen about 25 per cent, above pre-war prices. 
 
POSITION OF W1TWATERSRAND 85 
 
 appear to have obtained some effective favour 
 from the British Government, which was 
 anxious that the gold supply should be kept 
 up. All these influences are clearly tem- 
 porary, and while they may protect the mines 
 during the abnormal circumstances of the war, 
 will not save them from having to pay higher 
 prices when it is over. 
 
 With regard to longer period effects, one 
 seems to be observing a struggle between 
 improved efficiency and rising world prices. 
 The engineers are constantly endeavouring 
 to improve methods, and one cannot suppose 
 that their efforts are fruitless. The efficiency 
 of native labour has increased ; that of white 
 labour probably has not, for the class of skilled 
 Cornish miners, on which the Rand used to 
 rely, no longer goes there ; the white workmen 
 are mostly South Africans, and have not yet 
 developed the skill of the Cornishman. But 
 attempts are being made to remedy this by 
 technical instruction, and the heads of the 
 industry are coming to realise the import- 
 ance of being on good terms with the work- 
 men. 
 
 On the whole a fairly steady improvement 
 
86 GOLD, PRICES-WITWATERSRAND 
 
 in efficiency may be looked for ; and the 
 improvement extends, no doubt, to subsidiary 
 industries, of which the manufacture of explo- 
 sives is the most important. It may be 
 possible to effect economies by making, locally, 
 materials that are now imported ; it is even 
 mooted to start a steel industry, based upon 
 local ores, though whether this could compete 
 successfully with international supplies in 
 peace-time is doubtful. 
 
 In the early days of any goldfield, prices 
 there are high. This was true even of the 
 Witwatersrand, though communication with it 
 was never so difficult as with the earlier dis- 
 covered mines. The actual cost of foodstuffs, 
 machinery, and other necessaries was high on 
 account of the difficulties of transport ; and 
 though at an early date most of the gold was 
 sent regularly to London, enough was current 
 locally to create abundant means of exchange. 
 Gold dust was not used for this purpose as it 
 used to be in California, and even in recent 
 times in the Klondike, but a mint was set up 
 in Pretoria, and quite early, banking facilities 
 were carried to Johannesburg, so that in- 
 directly the abundance of gold produced its 
 
POSITION OF WITWATERSRAND 87 
 
 effect, and a tradition of high prices, and also 
 of extravagance, was established that has not 
 quite died away, even now. 
 
 But as time goes on, prices in a gold-mining 
 centre subside, till there comes to be no 
 appreciable difference from the world at large. 
 Good railway and steamship services are pro- 
 vided ; growth of population bring? diversity 
 of industry ; many requirements are met 
 locally, especially in the way of food produc- 
 tion, and, on the other hand, as all the gold is 
 exported, and only so much specie imported as 
 is needed by ordinary commerce, the cur- 
 rency situation becomes indistinguishable 
 from that in other industrial regions. All this 
 has happened on the Witwatersrand, and the 
 cost of living there is now not higher than 
 in many other places. It is true that an 
 economic commission sitting in 1913 found 
 prices to be a good deal higher than in 
 England, but the difference from America and 
 Australia was not very marked, and is prob- 
 ably smaller now, since South Africa has been 
 little affected by the war. 
 
 Labour on the mines, and such stores as are 
 produced locally, are, of course, influenced 
 
88 GOLD, PRICES-WITWATERSRAND 
 
 rather by Johannesburg prices than by prices 
 
 in the world outside. So long as local prices 
 
 were higher, there was always opportunity for 
 
 economy in reducing them ; and much of the 
 
 reduction in working costs on the mines which 
 
 occurred between the first working of the field 
 
 and about 1908 may be attributed to that. 
 
 Cost of living in Johannesburg was falling, 
 
 while that in the world at large was rising. 
 
 But now that there is not much difference 
 
 between local and world prices, this source of 
 
 economies has vanished. Henceforward it 
 
 must be expected that local prices will follow 
 
 more or less closely the trend of prices in the 
 
 rest of the world. 
 
 In harmony with this view, we find from the 
 statistics of the Chamber of Mines that wages 
 of white workmen are practically stationary. 
 The average cost, per head, to the mines 
 between 1908 and 1915 fluctuated between 
 272 and 284 per annum, without any definite 
 tendency to rise or fall. It must be added, 
 however, that the mines have lately had to 
 pay for the prevention of miner's phthisis 
 more than half a million a year, as well as to 
 take various precautions for dust-laying and 
 
POSITION OF WITWATERSRAND 89 
 
 other hygienic measures ; these things are 
 indirectly equivalent to a rise of wages. 
 
 Kaffir wages have actually risen in money, 
 from 25 to 29 in the same interval. More- 
 over the cost of food supplied by the mines has 
 risen from 3! in 1908 to 5! in 1915. Better 
 accommodation and medical attendance is 
 provided also, so that effectively wages have 
 risen quite 20 per cent. This, however, has 
 been balanced by increased efficiency of the 
 native labourers. 
 
 The net result of these various influences is 
 that for eight years working costs on the 
 mines were practically stationary, as the table 
 on p. 90 shows. 
 
 The unit adopted for these statistics the 
 ton of rock passed through the mill is not 
 altogether satisfactory, as it is subject to 
 variation according to the technical condi- 
 tions of mining, e.g., a machine driller may 
 take out more rock from the same stope than 
 a hand driller would ; he secures a little more 
 gold in consequence, but not in proportion 
 to the weight of rock, while the whole weight 
 has to be shovelled, trammed, and hoisted. 
 It is customary to adopt such a unit, however, 
 
90 GOLD, PRICES-WITWATERSRAND 
 
 in order to discriminate between the financial 
 effects of a change in the richness of the ore 
 and a change in the efficiency of working. 
 The steady falling off in richness, seen in the 
 
 WlTWATERSRAND GOLD MlNES. 
 
 
 
 Per ton milled. 
 
 Divi- 
 
 
 TVinc! millpH 
 
 
 dends 
 
 
 j. uiio ii ii 11 cm 
 
 boo omitted). 
 
 Gold 
 
 Working 
 
 Dividends 
 
 as per 
 
 cent, of 
 
 
 
 produced. 
 
 costs. 
 
 paid. 
 
 product. 
 
 
 
 s, d. 
 
 s. d. 
 
 s. d. 
 
 
 1908 
 
 18,197 
 
 3i 5 
 
 18 o 
 
 9 7 
 
 29'5 
 
 1909 
 
 20,544 
 
 28 ii 
 
 17 i 
 
 9 3 
 
 32-0 
 
 1910 
 
 21,433 
 
 28 6 
 
 17 7 
 
 8 6 
 
 29-8 
 
 1911 
 
 23,888 
 
 27 ii 
 
 18 o 
 
 6 9 
 
 23'2 
 
 1912 
 
 25,486 
 
 29 o 
 
 18 8 
 
 6 6 
 
 22'4 
 
 1913 
 
 25,628 
 
 27 9 
 
 17 ii 
 
 6 8 
 
 24-I 
 
 1914 
 
 25,702 
 
 26 6 
 
 17 i 
 
 6 6 
 
 24'5 
 
 1915 
 
 28,315 
 
 26 4 
 
 17 7 
 
 5 5 
 
 20'6 
 
 1916 
 
 28,525 
 
 26 8 
 
 18 i 
 
 5 i 
 
 18-5 
 
 1917 
 
 27,252 
 
 27 i 
 
 19 2 
 
 4 ii 
 
 17-5 
 
 table, makes the comparison of working costs 
 a little difficult, but it is clear that to take the 
 cost per ton milled is to put the matter in a 
 favourable light when the industry is being 
 extended by means of the working of poorer 
 ore. If working costs were taken as a per- 
 
POSITION OF WITWATERSRAND 91 
 
 centage of the gold produced, they would 
 appear less favourably. 
 
 " Working costs/' as published, are not com- 
 plete ; there are also certain charges regarded 
 as exceptional, such as the payments on 
 account of miner's phthisis, and also certain 
 capital charges. 
 
 Strictly speaking, the cost of working the 
 mines must be taken to include all the value 
 of the output, less the dividends, debenture 
 interest, and profits tax * paid. Debenture 
 interest is a very small amount and is here 
 neglected. But the figures for dividends paid 
 still present too favourable a view of the 
 success of the mines, as mines do not last for 
 ever, and an allowance out of profits ought to 
 be made for amortisation of capital expendL 
 ture. There are not sufficient data available 
 for estimating this allowance accurately, but 
 taking it into account as well as one can, it 
 
 * The item of profits tax may or may not be included, 
 according to the view taken. It was an exceptional tax, but 
 it is of the nature of an income tax and has now been assimi- 
 lated to the general South African income tax. It amounts 
 to about 8 per cent, of the dividends (in peace-time), so that 
 if it be included, the figures given in the text for percentage 
 cost of working must be increased by 2 or 3. 
 
92 GOLD, PRICES-WITWATERSRAND 
 
 may be said that the true cost of working the 
 mines of the Witwatersrand has risen from 
 about 71 per cent, in 1908 to 80 per cent, in 
 
 19*5. 
 
 The prospects of this minefield, as esti- 
 mated by the mining engineer, depend on the 
 grade of ore available, as compared with the 
 capital outlay and cost of working ; the costs 
 being taken according to current experience, 
 some allowance being made for improvements 
 in technique and increased efficiency. This 
 treatment, however, is not complete, as it does 
 not take into account probable changes in the 
 Value of money, with their consequent effect 
 on the cost of labour and supplies for mining. 
 The margin between cost and yield is not 
 large in many of the mines, so that the effect 
 of changes in the value of money may easily 
 be important. 
 
 After the war it is to be expected that 
 prices will drop rapidly, as the difficulties in 
 agricultural production and transport are over- 
 come. But so far as high prices are due to 
 currency inflation, they can only come down 
 in one of two ways ; either the inflation must 
 be reduced by the Government contracting 
 
POSITION OF WITWATERSRAND 93 
 
 loans wherewith to redeem paper currency 
 a heroic measure that is not likely to be under- 
 taken ; or else the commerce of the world 
 must slowly grow up to the level of the inflated 
 currency. If , for example, the inflation by the 
 end of the war amounts to 50 per cent, and the 
 rate of increase in commerce were 3 per cent, 
 as calculated in a previous chapter, it would 
 take fourteen years for the demand to overtake 
 the supply of currency, even supposing that 
 no further addition was made. 
 
 Meanwhile prices would be high, and it 
 seems too much to expect that the mines 
 of the Witwatersrand should escape the 
 effects. Despite any economies of manage- 
 ment therefore, one may expect the margin 
 of profit to be reduced still further, and 
 the position of the poorer mines to become 
 unfavourable. 
 
 There has recently been an agitation in 
 favour of opening up new mines. It is 
 necessary to look ahead in this matter, 
 as a new deep level mine takes some five 
 to seven years to bring to the producing 
 stage. 
 The older mines of the Witwatersrand 
 
94 GOLD, PRICES-WITWATERSRAND 
 
 stretch in a narrow belt eastwards and west- 
 wards from Johannesburg ; at the eastern 
 end the belt widens out into an immense area 
 of auriferous ground, known as the " Far 
 East Rand/' It has an extent equal to the 
 area of ioo,oo l o claims,* and it is supposed that 
 payable gold reefs, not too deep for working, 
 exist through most of this area. Over the 
 greater part only prospecting by boreholes 
 has been made ; only in the north-western 
 corner near the Kleinf ontein, and in the south- 
 . eastern corner near the Nigel, is mining in 
 operation. The rest of the tract from the 
 mining point of view, vast awaits exploita- 
 tion. 
 
 Much the larger part of the Far East Rand 
 is, so far as mining rights are concerned, 
 Government property. According to the law 
 as it stands, Government can offer their 
 claims, in suitable blocks on lease ; the lessee 
 is required to put up the necessary capital, 
 and to pay to the Government, as rent, a 
 percentage of the profits. One mine is now 
 working under such a lease the so-called 
 " Government Areas " mine, the lessee being 
 
 * A claim is equal to 5,948 square metres. 
 
POSITION OF WITWATERSRAND 95 
 
 the Johannesburg Consolidated Investment 
 Co. In this case the rent is arranged accord- 
 ing to a rather complex sliding scale, designed 
 to give the Government a larger share should 
 the mine turn out to be rich than if it be poor 
 as is just. An area of 1,812 claims next to 
 the Brakpan and a small group of 651 claims 
 on Modderfontein have just been leased, on 
 different terms. 
 
 The South African Parliament, in the 
 session lately closed, appointed a select com- 
 mittee to consider the Far East Rand gene- 
 rally, and especially to advise whether modified 
 terms of lease should be introduced. The 
 committee had before it an important special 
 report by Mr. R. N. Kotze, the Government 
 Mining Engineer.* 
 
 Mr. Kotze puts forward the opinion that 
 outside the boundaries of existing producing 
 companies there are 73,988 claims where the 
 reef lies less than 5,000 feet from the surface ; 
 while, if it be considered that mining to a depth 
 of 7,500 feet is practicable, 19,249 claims are 
 to be added to the number. A modern 
 
 * Memorandum on the Far East Rand (Cape Town, 
 1916). 22 pp. 2s. gd. 
 
96 GOLD, PRICES-WITWATERSRAND 
 
 large mine is usually constituted of some 
 2,000 claims on an average ; so that not 
 less than forty new mines might be staked 
 out. 
 
 The reef in the Far East is " patchy " ; but, 
 so far as experience goes, the richer patches 
 are large and comparatively easily traced out. 
 If this is so, the poorer patches can be avoided, 
 and mines can be laid out with more prospect 
 of success than when rich and poor streaks 
 alternate a few yards apart ; for in the latter 
 case there is nothing for it but to work 
 through both. Allowing as best he can for the 
 geological circumstances, Mr. Kotze concludes 
 that there is an average of 9,000 tons of pay- 
 able ore per claim, and that this ore may be 
 taken as containing about 1*375 worth of 
 gold per ton. 
 
 Assuming these data to be correct, it is 
 possible to calculate the prospects of an aver- 
 age East Rand mine. Working costs fall as 
 the size of a mine increases, so that to obtain 
 a certain standard of success a certain mini- 
 mum size and scale of working is indicated. 
 In endeavouring to find the minimum the 
 Government mining engineer lays down a 
 
POSITION OF WITWATERSRAND 97 
 
 noteworthy standard of the results which he 
 thinks necessary to induce capitalists to 
 undertake a new East Rand mine ; the 
 standard is, that the mine should pay 15 per 
 cent, for twenty years, in addition to such 
 dividend as, accumulated at a low rate of 
 interest, will restore the capital at the end of 
 the twenty years, which he assumes as the 
 working life of the mine. He adds the 
 remark : " This may seem high, but, consider- 
 ing the risks run, such an expectation is by 
 no means an unreasonable demand." 
 
 A good deal has been made of a statement 
 by the Government mining engineer as to the 
 mines which are expected to be exhausted in 
 the next few years. Mines whose production 
 in 1913 was 9,900,000 worth of gold have 
 " lives " officially estimated to end in 1924 
 or earlier. This statement is open to mis- 
 construction. In the first place the official 
 life estimated for the purpose of the 
 profits tax invariably proves to be shorter 
 than the actual. Next, the output of many 
 of the working mines will probably be in- 
 creased by extensions of plant. Hence it is 
 not a legitimate deduction from Mr. Kotze's 
 
 G.P. H 
 
98 GOLD, PRICES WITWATERSRAND 
 
 figures that the output of the Rand will be 
 reduced by 25 per cent, in 1924. At the 
 same time it is reasonable to think of opening 
 up new areas, since a new deep level mine 
 takes so long to prepare. 
 
 Conditions on the Far East Rand are suffi- 
 ciently uniform to make it worth while to 
 calculate the expected yield of an average 
 mine. A recent calculation, reproduced in 
 Appendix B, based on the geological and 
 engineering data from Mr. Kotze's report, 
 brings out two chief points. The first is that, 
 assuming a reasonable rate of interest (4 or 5 
 per cent.), the most profitable rate of working 
 of a large East Rand mine is that which will 
 exhaust it in twelve to fifteeen years : that 
 is to say, the excess of yield over cost, dis- 
 counted so as to give the " present worth," 
 is at a maximum when the life of the mine is 
 of about that duration (from the time of 
 starting crushing operations onwards). The 
 second point is, that a mine with ore worth 
 1*000 to r200 per ton (eight to eight and a 
 half grammes) is of practically no value, but 
 that the " present worth " rises rapidly as the 
 richness of ore increases, so that, if the esti- 
 
POSITION OF WITWATERSRAND 99 
 
 mate of 1*375 is to be relied on (and it is 
 made very conservatively), there are larger 
 profits to be made. 
 
 There can be no question that the right 
 policy with regard to a single mine is to work 
 it out on strict commercial principles, i.e., in 
 such a way that its present worth is a maxi- 
 mum. Allowing for the uncertainty of esti- 
 mates, and for the fact that shareholders like 
 an investment that offers a reasonably long 
 period without disturbance, the assumption 
 of a twenty years " life," made in the report 
 of the Government mining engineer, is a fair 
 one. But it does not follow that a whole 
 mining field should be treated in the same 
 way. 
 
 The reason for the difference is the danger 
 of over-production ; in other words, it is the 
 influence of changes in price level. If it were 
 not for that, then the right policy would be 
 to raise some fifty millions of capital, exploit 
 all the known auriferous area at the highest 
 speed, and throw on the market a supply of 
 gold that Mr. Kotze estimates, very conserva- 
 tively, at 450,000,000. Such a policy would 
 be absurd ; and the absurdity is the logical 
 
 H 2 
 
ioo GOLD, PRICES-WITWATERSRAND 
 
 condemnation of the error of ignoring changes 
 in price level. 
 
 If, after the war, prices remain at a higher 
 level than before, as we have seen to be 
 probable, then a policy leading to a consider- 
 able increase in the gold output would make 
 the matter worse. It would tend to exag- 
 gerate the rise in price level ; and though it is 
 possible that the new mines on the Far East 
 Rand might still remain good investments, if 
 the geological prognostications are sound, yet 
 the rise in working costs would damage the 
 older mines, many of which have a very 
 narrow margin of profit. Such a policy 
 would be short-sighted even in the narrowest 
 commercial sense. Considered from the point 
 of view of the Witwatersrand community, 
 and of South Africa as a whole, it would be 
 disastrous ; and as the Far East Rand can 
 only be developed with the consent of the 
 South African Government, which is the chief 
 landowner there, it is unquestionably the duty 
 of the Government to see that the prosperity 
 of the whole is not sacrificed to the selfish 
 interests of the promotors of particular mines. 
 
 The rapid exploitation of the Far East 
 
POSITION OF WITWATERSRAND 101 
 
 Rand at the present time is equivalent to 
 selling the gold it contains on an unfavour- 
 able market. But prices do not continue to 
 rise indefinitely. All minefields become ex- 
 hausted in course of time, and when the 
 present producers fall off, the value of gold 
 is likely to rise again, as it did when the 
 Californian and Australian fields began to fall 
 off in yield and the Witwatersrand had not 
 been discovered (see Fig. i). In fact, as the 
 world gets more thoroughly explored the dis- 
 covery of a new and vast store of gold becomes 
 more improbable. Unless such a discovery 
 is made, or some new process for producing 
 gold very cheaply is invented, or a change in 
 public sentiment leads to the abandonment 
 of gold as standard of value, ultimate appre- 
 ciation of gold is certain. 
 
 If then, for convenience of argument, we 
 suppose the whole of the Witwatersrand to 
 belong to a single company, with no motive 
 but to get the greatest commercial advantages 
 out of it, the owners would see that the ex- 
 ploitation was conducted at a steady rate, not 
 so fast as to cause the product to depreciate 
 seriously, nor so slow as to postpone realisa- 
 
102 GOLD, PRICES-WITWATERSRAND 
 
 tion longer than could be helped. The pre- 
 cise interpretation of this general rule is diffi- 
 cult, but it is probable that it would lead to a 
 rate of working not exceeding that of the 
 present day, and would conserve a great part 
 of the untouched resources of the Rand for the 
 future times when gold would again have 
 become more valuable. 
 
 But as the course of exploitation rests with 
 the Government of the country, other motives 
 must be considered. It is true that if the 
 Government were perfectly wise, and paid as 
 much regard to the future as to the present, 
 it might be argued, on the lines of Ricardian 
 theory, that its action should be the same as 
 that of the imagined company ; the maxi- 
 mum wealth would be secured by this policy 
 and could then be devoted to the permanent 
 development of the country. 
 
 It is, however, not much use discussing the 
 policy of a perfectly wise and foreseeing 
 Government. Governments in real life show 
 only too strong a tendency to sacrifice the 
 future to the present, by raising loans to meet 
 any difficulty that arises. A Government 
 that bears the responsibility of developing & 
 
POSITION OF WITWATERSRAND 103 
 
 field that contains in gold probably more than 
 the present capital value of all South Africa 
 and everything in it, may well be advised to 
 be conservative. The movement for the con- 
 servation of natural resources, of which so 
 much is heard in America, and which has 
 gained some notice in connection with English 
 coal, is a movement to work those resources, 
 not on commercial lines, but as if the rate of 
 interest were lower than it is. The economic 
 argument (whether the promoters are con- 
 scious of it or not) is this : The relative valua- 
 tion of the present and future made by 
 individuals is such as to lead to a rate of 
 interest of 4 or 5 per cent., and this involves 
 cutting down forests, and mining coal at a 
 certain rate ; but the country as a whole 
 should take longer views, give the future more 
 weight than the individual cares to do, and so 
 practically adopt an interest rate of, say, i or 
 2 per cent. ; the logical consequence being to 
 spread the use of our natural resources far 
 further into the future. 
 
 The true interest of the Government may 
 be expressed as that of watching over the 
 orderly development of the country. Rapid 
 
104 GOLD, PRICES-WITWATERSRAND 
 
 ups and downs of an industry are both to be 
 deprecated ; falling off means unemployment 
 and distress, sudden expansion involves waste 
 and speculation. The early history of 
 Johannesburg affords good examples of the 
 speculation brought by a rapid influx of capi- 
 tal and the undesirable consequences. It is 
 not good even for a Government to be placed 
 suddenly in possession of great new resources, 
 for Governments have shown themselves 
 all over the world unable to resist demands 
 for extravagant spending. But if a large 
 steady income from the mines can be put in 
 the hands of the Government, there is at 
 least a chance that it will be used to effect 
 improvements in railways, roads, harbour, 
 irrigation, and the like, to the permanent good 
 of South Africa. 
 
 This argument does not show whether the 
 production of the mines should be maintained 
 at the present level, or slowly increased, or 
 slowly decreased. The economic discussion 
 already given is against an increase, and the 
 legitimate vested interests of the community 
 of the Rand are against a decrease ; the 
 middle course is the more to be favoured if, 
 
POSITION OF WITWATERSRAND 105 
 
 as suggested, a few years will be sufficient to 
 cause the demand for gold to catch up with 
 the supply. 
 
 The South African Government, in fact, 
 possess the means of exercising an important 
 influence on the monetary position of the 
 world at large. It will be argued, no doubt, 
 and quite rightly, that the Government's first 
 duty is to its own citizens. Fortunately, 
 there need be no serious conflict between that 
 duty and any duty that South Africa may be 
 considered as owing to the world. In the first 
 place world prices react on South Africa, so 
 that South Africa cannot afford to ignore the 
 effect on them of its policy. And then the 
 policy, if the preceding arguments are sound, 
 which will best serve the needs of the country 
 is not very different from that which is in the 
 interests of the world. 
 
 The guide to policy should be maintenance 
 of the level of prices. The present generation 
 has only experienced depreciating money, and 
 it has become familiar with the consequences 
 high interest, disappointing investments, 
 and, especially, labour troubles. The genera- 
 tion before had a money that appreciated 
 
io6 GOLD, PRICES WITWATERSRAND 
 
 steadily, and produced disturbances of other 
 kinds. It will be conceded by most that the 
 ideal is a money which shall maintain a level 
 value ; if the South African Government can 
 help to secure this, even at the cost of some 
 immediate sacrifice, it would be rewarded by 
 the avoidance of labour troubles due to 
 increase in the cost of living. 
 
 Fortunately, the sacrifice need not be great, 
 if the view is correct that the demand for 
 gold is likely to overtake the supply before 
 many years. By not pressing the output 
 now, but reserving a large store of gold ore for 
 development when prices show a tendency to 
 fall, it will be possible to prevent great fluctua- 
 tion in either sense for a generation or more. 
 This would mean that the Witwatersrand's 
 gold was being sold on a favourable market, 
 and would perhaps allow time for commer- 
 cial civilisation to advance far enough for 
 a permanent settlement of the monetary 
 question. 
 
 The world has of late become aware that 
 there are fluctuations in its accepted standard 
 of value, and that grave social inconveniences 
 result ; knowledge of changes in value has 
 
POSITION OF WITWATERSRAND 107 
 
 even led to discussion of remedies, first among 
 economists, and now even amongst commercial 
 and political people. The earliest suggestion 
 was to adopt an index number as a standard, 
 explicitly, for making important contracts, 
 expecially those involving long periods of 
 time. Such a plan, however, would be too 
 cumbrous for the commercial world, and 
 would imply two different currencies, one for 
 everyday use, the other for large transactions, 
 involving the same kind of disadvantages as 
 a country with a depreciated paper currency 
 meets with. A milch more ingenious plan 
 has been devised by Prof. Irving Fisher, 
 which would have the effect of making the 
 coins and paper of any country adopting it, 
 token money based on an international index 
 number as standard. There is a great deal to 
 be said in favour of this scheme ; still it may 
 be doubted whether the world is not too con- 
 servative in its affection for the precious 
 metals to take it up. Probably, it would be 
 wiser at present to try, modestly, to render 
 the value of gold more stable by the action of 
 the law of supply and demand than to aban- 
 don gold as standard. This should not be too 
 
io8 GOLD, PRICES WITWATERSRAND 
 
 difficult ; it is admitted that monopoly gives 
 a means of controlling values to a certain 
 extent ; also that even a private financial 
 syndicate may succeed in partly monopolising 
 the supply of a raw material. A private 
 syndicate would, of course, be of no use in 
 regard to the currency problem, since its 
 interests would not coincide with those of 
 the public ; but what could be done by 
 a group of financiers could be done by the 
 governments of the world, if they chose to 
 unite. 
 
 There are, in fact, only four states within 
 whose territories any noteworthy amount of 
 gold is produced : the British Empire, the 
 United States, Russia, and Mexico. An 
 agreement between these four Powers would 
 be enough to control the output of the 
 world. 
 
 Control of output, however, implies pur- 
 chase of or compensation to some of the mines, 
 and as the benefits to be looked for are open to 
 all nations it would be necessary to try and 
 persuade them to join in the undertaking ; 
 though the four states mentioned, or even 
 Britain and America, might think it worth 
 
POSITION OF WITWATERSRAND 109 
 
 while by themselves, and could do it if they 
 chose. 
 
 It would be necessary first to appoint an 
 International Commission of study to draw 
 up a programme. The enterprise would be 
 facilitated if the governments of the various 
 countries were to acquire the mines in their 
 own territories ; but this would not be indis- 
 pensable. Eventually, an executive body 
 would be instituted, and would be charged 
 with the duty of guiding the constituent 
 governments, which agreed to adhere to its 
 policy. 
 
 At the present time the policy would be one 
 of restriction, and the work of the executive 
 would consist principally in deciding what 
 annual output was desirable, and what mines 
 should be worked in order to provide it ; in 
 advising on this they would make also recom- 
 mendations as to the compensation involved. 
 This sounds perhaps a more formidable 
 undertaking than it really is ; the mines to be 
 closed down would naturally be the poorest, 
 so that the compensation to shareholders 
 would be small. Employees also must be 
 considered (the Swedish Government has set 
 
no GOLD, PRICES WITWATERSRAND 
 
 a good example in this matter in nationalising 
 tobacco factories), but in their case compensa- 
 tion is only needed until they find other work, 
 which should usually be but a short time.* 
 
 * The suggestion of controlling the gold output has 
 been discussed more fully by the present writer in the 
 Journal des Economistes, Paris, 1918. 
 
APPENDIX A 
 
 TABLE I. 
 
 OUTPUT OF GOLD IN THE TRANSVAAL AND 
 ELSEWHERE. 
 
 (See p. 4.) 
 
 TABLE II. 
 WORLD OUTPUT OF GOLD. 
 
 [From Soetbeer, Journ. Roy. Stat. Soc., vol. Ivii., 
 p. 370 (to 1889) and Reports of the Transvaal 
 Chamber of Mines (1890 on).] 
 
 Year. 
 
 Metric 
 tons. 
 
 m. 
 
 Year. 
 
 Metric 
 tons. 
 
 n. 
 
 1841-50 
 
 
 548 
 
 74'8 
 
 1886 
 
 161 
 
 22'O 
 
 1851-55 
 
 
 988 
 
 I34'9 
 
 1887 
 
 158 
 
 21'6 
 
 1856-60 
 
 s 
 
 1,030 
 
 1407 
 
 1888 
 
 164 
 
 22'4 
 
 
 eJ 
 
 -t-j 
 
 
 
 1889 
 
 176 
 
 24-1 
 
 1861-65 
 
 H 
 
 926 
 
 126-4 
 
 1890 
 
 179 
 
 24-4 
 
 1866-70 
 
 
 960 
 
 I3i'0 
 
 
 
 
 1871-75 
 
 
 853 
 
 116-5 
 
 
 
 
 
 
 
 1891 
 
 197 
 
 26-8 
 
 1876 
 
 166 
 
 227 
 
 1892 
 
 221 
 
 30-1 
 
 1877 
 
 179 
 
 24-5 
 
 1893 
 
 237 
 
 32-4 
 
 1878 
 
 186 
 
 25'4 
 
 1894 
 
 273 
 
 37-2 
 
 1879 
 
 167 
 
 23-8 
 
 1895 
 
 299 
 
 40-8 
 
 1880 
 
 163 
 
 22-4 
 
 
 
 
 1881 
 
 161 
 
 22 '0 
 
 1896 
 
 304 
 
 41'6 
 
 1882 
 
 154 
 
 21'0 
 
 1897 
 
 355 
 
 48-5 
 
 1883 
 
 149 
 
 20-3 
 
 1898 
 
 432 
 
 58-9 
 
 1884 
 
 156 
 
 21'3 
 
 1899 
 
 461 
 
 63-0 
 
 1885 
 
 156 
 
 21-3 
 
 1900 
 
 383 
 
 523 
 
112 
 
 APPENDIX A 
 
 TABLE II. continued. 
 
 Year. 
 
 Metric 
 tons. 
 
 0*. 
 
 Year. 
 
 Metric 
 tons. 
 
 m. 
 
 igoi 
 
 393 
 
 53-6 
 
 IQII 
 
 695 
 
 94'9 
 
 1902 
 
 446 
 
 6i'o 
 
 1912 
 
 701 
 
 95'8 
 
 1903 
 
 493 
 
 67-3 
 
 I9 J 3 
 
 684 
 
 93'4 
 
 1904 
 
 523 
 
 71-4 
 
 1914 
 
 680 
 
 92'9 
 
 I95 
 
 572 
 
 78-1 
 
 1915 
 
 705 
 
 96-3 
 
 1906 
 
 606 
 
 827 
 
 1916 
 
 701 
 
 957 
 
 1907 
 
 621 
 
 84-9 
 
 
 
 
 1908 
 
 666 
 
 gi'o 
 
 
 
 
 1909 
 
 683 
 
 93'3 
 
 
 
 
 igiO 
 
 685 
 
 93'5 
 
 
 
 
 TABLE III. 
 NET IMPORTS OF GOLD INTO INDIA. 
 
 [From various issues of the " Statesman's Year 
 Book."] 
 
 (From 1800 to 1864 inclusive India absorbed 
 m256 of gold and silver.) 
 
 Year. 
 
 n. 
 
 Year. 
 
 m. 
 
 1866 
 
 
 
 1876 
 
 i '5 
 
 1867 
 
 +3'8 
 
 1877 
 
 0'2 
 
 1868 
 
 3-6 
 
 1878 
 
 0'5 
 
 1869 
 
 5'2 
 
 1879 
 
 -0- 9 
 
 1870 
 
 5-6 
 
 l88o 
 
 +17 
 
 1871 
 
 2-3 
 
 1881 
 
 37 
 
 1872 
 
 3-6 
 
 1882 
 
 4-8 
 
 1873 
 
 2*5 
 
 1883 
 
 4'9 
 
 1874 
 
 i'4 
 
 1884 
 
 5'5 
 
 1875 
 
 1-9 
 
 1885 
 
 47 
 
APPENDIX A 
 
 TABLE III. continued. 
 
 Year. 
 
 Crores. 
 
 Year. 
 
 Crores. 
 
 1886 
 
 +2-76 
 
 1906 
 
 0-43 
 
 1887 
 
 2'l8 
 
 1907 
 
 14-86 
 
 1888 
 
 2'99 
 
 1908 
 
 17-37 
 
 1889. 
 
 2'8l 
 
 1909 
 
 436 
 
 1890 
 
 4-61 
 
 I9IO 
 
 21-68 
 
 1891 
 
 5-64 
 
 igil 
 
 23-98 
 
 1892 
 
 2 '41 
 
 1912 
 
 37-76 
 
 1893 
 
 2-8l 
 
 1913 
 
 34-01 
 
 1894 
 
 +0-64 
 
 1914 
 
 23-32 
 
 1895 
 
 -4-97 
 
 1915 
 
 7'65 
 
 1896 
 
 +2'53 
 
 1916 
 
 I'll 
 
 1897 
 
 2'29 
 
 1917 
 
 +13-24 
 
 1898 
 
 4'9I 
 
 
 
 1899 
 
 6-61 
 
 
 
 1900 
 
 9*44 
 
 
 
 1901 
 
 0-84 
 
 
 
 1902 
 
 1-96 
 
 
 
 1903 
 
 8-77 
 
 
 
 1904 
 
 9"93 
 
 
 
 1905 
 
 971 
 
 
 
 TABLE IV. 
 
 INDUSTRIAL CONSUMPTION OF GOLD (NEW MATERIAL 
 ONLY) IN U.S.A. 
 
 [From the U.S. Mint Reports.] 
 
 Years. 
 
 Metric 
 tons. 
 
 * 
 
 Years. 
 
 Metric 
 tons. 
 
 m. 
 
 1881-85 
 1886-90 
 1891-95 
 1896-00 
 1901-05 
 
 8 4 
 
 99 
 89 
 92 
 171 
 
 ii'S 
 I3-5 
 
 I2-I 
 12-5 
 23-5 
 
 1906-10 
 I9II-I5 
 
 228 
 260 
 
 31-3 
 
 35-6 
 
 G.P. 
 
APPENDIX A 
 
 TABLE V. 
 
 INDUSTRIAL CONSUMPTION OF GOLD IN THE WORLD 
 (EXCLUDING THE ORIENT). 
 
 [From U.S. Mint Reports.] 
 
 Year. 
 
 Metric 
 tons. 
 
 m. 
 
 Year. 
 
 Metric 
 tons. 
 
 n. 
 
 l8gi 
 
 
 
 _ 
 
 igo6 
 
 183 
 
 25-0 
 
 1892 
 
 
 
 
 
 1907 
 
 149 
 
 20-4 
 
 1893 
 
 75 
 
 I0'2 
 
 1908 
 
 117 
 
 i6'o 
 
 1894 
 
 79 
 
 10-8 
 
 1909 
 
 
 
 
 1895 
 
 80 
 o 
 
 12*0 
 
 igiO 
 
 168 
 
 23-0 
 
 1896 
 
 89 
 
 I2'I 
 
 igil 
 
 172 
 
 23'5 
 
 1897 
 
 89 
 
 I2'I 
 
 igi2 
 
 187 
 
 25-6 
 
 1898 
 
 98 
 
 13*4 
 
 19*3 
 
 
 
 1899 
 
 109 
 
 I4'9 
 
 1914 
 
 
 
 1900 
 
 US 
 
 15*5 
 
 1915 
 
 
 
 igoi 
 
 
 
 
 
 1916 
 
 
 
 1902 
 
 114 
 
 I5'6 
 
 
 
 
 1903 
 
 H5 
 
 157 
 
 
 
 
 1904 
 
 120 
 
 16*4 
 
 
 
 
 I95 
 
 128 
 
 17*5 
 
 
 
 
 [From Soetbeer, " Precious Metals " (Berlin, 1888).] 
 
 Year. 
 
 Metric tons. 
 
 fm. 
 
 1841-50 
 1851-60 
 1861-70 
 1871-80 
 
 200 
 280 
 
 570 
 
 840 
 
 27 
 
 38 
 7 8 
 
 H5 
 
 NOTE. The annual reports of the Director of the 
 U.S. Mint are most valuable ; indeed, the best source 
 of information on the precious metals. But they are 
 
APPENDIX A 
 
 unsystematically arranged ; the grouping of the 
 statistics is frequently changed without explana- 
 tion ; and sometimes a return is omitted altogether. 
 There are also arithmetical mistakes. It is there- 
 fore quite possible that, in quoting statistics for 
 these tables, the reports may have been misinter- 
 preted in places. 
 
 TABLE VI. 
 
 ACTUAL AND REQUIRED STOCK OF GOLD (EXCLUDING 
 THE ORIENT). 
 
 (In millions of pounds sterling.) 
 
 Date. 
 
 Gross 
 output 
 inp 
 
 Loss to 
 India 
 eriods of 
 
 Loss in 
 industry 
 five years 
 
 Net in- 
 creases 
 
 Stock. 
 
 Required 
 stock. 
 
 Ratio 
 per 
 cent. 
 
 1841 
 
 25 
 
 
 
 10 
 
 15 
 
 95 
 
 227 
 
 44 
 
 1846 
 
 50 
 
 I 
 
 15 
 
 34 
 
 no 
 
 257 
 
 43 
 
 l8 5 I 
 
 135 
 
 2 
 
 15 
 
 118 
 
 144 
 
 291 
 
 50 
 
 1856 
 
 141 
 
 2 
 
 25 
 
 114 
 
 262 
 
 329 
 
 80 
 
 1861 
 
 126 
 
 7 
 
 30 
 
 89 
 
 376 
 
 372 
 
 IOI 
 
 1866 
 
 131 
 
 7 
 
 45 
 
 79 
 
 465 
 
 421 
 
 no 
 
 1871 
 
 116 
 
 ii 
 
 55 
 
 50 
 
 544 
 
 477 
 
 114 
 
 1876 
 
 119 
 
 3 
 
 60 
 
 56 
 
 594 
 
 539 
 
 no 
 
 1881 
 
 106 
 
 23 
 
 61 
 
 22 
 
 650 
 
 610 
 
 109 
 
 1886 
 
 114 
 
 12 
 
 60 
 
 42 
 
 672 
 
 690 
 
 97 
 
 1891 
 
 167 
 
 O 
 
 60 
 
 107 
 
 714 
 
 781 
 
 9i 
 
 1896 
 
 264 
 
 17 
 
 68 
 
 179 
 
 821 
 
 884 
 
 93 
 
 1901 
 
 33i 
 
 20 
 
 80 
 
 231 
 
 1,000 
 
 1,000 
 
 IOO 
 
 1906 
 
 445 
 
 39 
 
 105 
 
 301 
 
 1,231 
 
 1,131 
 
 109 
 
 1911 
 
 473 
 
 84 
 
 120 
 
 269 
 
 1,532 
 
 1,280 
 
 I2O 
 
 1916 
 
 
 
 
 
 
 
 
 
 1,801 
 
 1,448 
 
 124 
 
 1921 
 
 
 
 p 
 
 1 
 
 
 
 
 
 1,639 
 
 
 Dates are January ist of years given. 
 The stock on January ist, 1901 is assumed to be 
 mi,ooo (U.S. Mint gives for July ist, 1900, 4,841 
 
 I 2 
 
n6 
 
 APPENDIX A 
 
 million dollars ; for July ist, 1901, 4,907 ; mean, 4,874, 
 equal to mi,ooi). 
 
 The seventh column gives the stock calculated to 
 increase uniformly at 2j per cent, per annum, that for 
 1901 being taken as basis. 
 
 TABLE VII. 
 
 STATISTICS OF PRODUCTION. 
 
 [From Mulhall's & Webb's Dictionaries, " States- 
 man's Year Book," and " Whitaker's Almanack."] 
 
 COTTON 
 (millions of 
 pounds). 
 
 WOOL 
 (millions of pounds). 
 
 PIG IRON 
 (thousands of 
 English tons). 
 
 1831 
 
 820 
 
 1820 
 
 560 
 
 1830 
 
 i,585 
 
 1840 
 
 1,310 
 
 1840 
 
 786 
 
 1840 
 
 2,680 
 
 1850 
 
 1,435 
 
 i860 
 
 1,108 
 
 I8 5 
 
 4422 
 
 1860 
 
 2,551 
 
 1880 
 
 1,988 
 
 1860 
 
 7,180 
 
 1870 
 
 2,775 
 
 1887 
 
 2,218 
 
 1870 
 
 11,910 
 
 1880 
 
 3,601 
 
 1894 
 
 2,390 
 
 1880 
 
 18,140 
 
 1891 
 
 5,600 
 
 1902 
 
 2,651 
 
 1889 
 
 25,160 
 
 1897 
 
 5,900 
 
 1906 
 
 2,605 
 
 1895 
 
 29,300 
 
 1902 
 
 8,660 
 
 
 
 1905 
 
 52,200 
 
 1906 
 
 10,490 
 
 
 
 
 
 COAL 
 (millions of 
 English tons). 
 
 GRAIN 
 (for men and beasts, 
 millions of tons). 
 
 MEAT 
 (millions of tons). 
 
 1820 
 1840 
 1850 
 
 1860 
 1870 
 
 17-2 
 44-8 
 81 
 142 
 213 
 
 1831-40 
 1851-60 
 
 1875-84 
 1888 
 1895 
 
 101 
 
 139 
 204 
 241 
 232 
 
 1831-40 
 1851-60 
 
 1875-84 
 1888 
 
 1895 
 
 87 
 10-5 
 
 13*3 
 14-4 
 15-2 
 
APPENDIX A 
 TABLE VII. continued. 
 
 117 
 
 COAL 
 (millions of 
 English tons). 
 
 GRAIN 
 (for men and beasts, 
 millions of tons). 
 
 MEAT 
 (millions of tons). 
 
 i860 
 
 340 
 
 19*5 
 
 376 
 
 
 
 1889 
 
 485 
 
 
 
 
 
 1897 
 
 610 
 
 
 
 
 
 1907 
 
 1,080 
 
 
 
 
 
 (Grain and meat are for Europe, Colonies, and U.S.A. 
 only). 
 
 SUGAR 
 (thousands of English tons). 
 
 TEA AND COFFEE 
 (thousands of English tons). 
 
 1831-40 
 
 530 
 
 1831-40 
 
 210 
 
 1851-60 
 
 1,100 
 
 1851-60 
 
 390 
 
 1875-84 
 
 3,670 
 
 1875-84 
 
 745 
 
 1888 
 
 5>26o 
 
 1888 
 
 920 
 
 1907 
 
 14,100 
 
 1905 
 
 1,300 
 
 1913-14 
 
 16,080 
 
 
 
 TABLE VIII. 
 
 RATE OF INCREASE IN PRODUCTION OF COMMODITIES. 
 (See p. 30.) 
 
n8 
 
 APPENDIX A 
 
 TABLE IX. 
 
 GOLD, AND INDIVIDUAL DEPOSITS SUBJECT TO 
 CHEQUE, IN U.S.A. 
 
 [U.S. Mint Reports: and Fisher, Amer. Econ. Rev., 
 
 vol. v.] 
 In millions of dollars on June 30th. 
 
 Year. 
 
 Gold. 
 
 Deposits. 
 
 Ratio. 
 
 1896 
 
 600 
 
 2,710 
 
 4'5 
 
 I8 97 
 
 696 
 
 2,66o 
 
 3-8 
 
 1898 
 
 861 
 
 3,220 
 
 37 
 
 1899 
 
 962 
 
 3,880 
 
 4-0 
 
 1900 
 
 1,034 
 
 4,440 
 
 4'3 
 
 1901 
 
 1,125 
 
 5,130 
 
 46 
 
 1902 
 
 1,192 
 
 5,400 
 
 45 
 
 1903 
 
 1,249 
 
 5,730 
 
 4'5 
 
 1904 
 
 1,328 
 
 5,770 
 
 4'4 
 
 1905 
 
 ' 1,358 
 
 6,540 
 
 47 
 
 1906 
 
 1,473 
 
 6,810 
 
 4-6 
 
 1907 
 
 1,466 
 
 7,130 
 
 4'9 
 
 1908 
 
 1,615 
 
 6,570 
 
 4'* 
 
 1909 
 
 1,641 
 
 6,680 
 
 4'i 
 
 I9IO 
 
 1,635 
 
 7,230 
 
 4'3 
 
 I9II 
 
 i,753 
 
 7,78o 
 
 4'3 
 
 1912 
 
 1,813 
 
 8,170 
 
 4'5 
 
 1913 
 
 1,867 
 
 8,150 
 
 4'4 
 
 1914 
 
 1,872 
 
 8,890 
 
 47 
 
 19*5 
 
 i,973 
 
 ~ 
 
 
APPENDIX A 
 
 119 
 
 TABLE X. 
 
 DEPOSITS IN BANKS OF UNITED KINGDOM (INCLUDING 
 THE BANK OF ENGLAND). 
 
 (Current and time deposits are not distinguished.) 
 [Economist, Banking Number, 1916.] 
 
 Year. 
 
 j m 
 
 Year. 
 
 n. 
 
 1896 
 
 731 
 
 igil 
 
 973 
 
 1897 
 
 
 1912 
 
 1,015 
 
 1898 
 
 
 1913 
 
 1,054 
 
 1899 
 
 
 1914 
 
 1,104 
 
 1900 
 
 
 1915 
 
 1,290 
 
 1901 
 
 827 
 
 1916 
 
 1,405 
 
 1902 
 
 
 1917 
 
 
 1903 
 
 
 
 
 1904 
 
 
 
 
 1905 
 
 
 
 
 1906 
 
 861 
 
 
 
 1907 
 
 885 
 
 
 
 1908 
 
 891 
 
 
 
 1909 
 
 925 
 
 
 
 1910 
 
 939 
 
 
 
 The figures are for January ist in each year. 
 
 NOTE. Statistics of bank deposits are given in the 
 Economist, Bankers' Magazine, "Statesman's Year Book," 
 and elsewhere. All the different authorities give different 
 figures. 
 
120 
 
 APPENDIX A 
 
 TABLE XL 
 
 RESOURCES OF FRENCH BANKS. 
 [Aldrich Currency Report, Statistics, vol. ii., p. 345.] 
 In millions of francs. 
 
 
 GOLD. 
 
 SILVER. 
 
 
 Deposit and 
 current account. 
 
 Year. 
 
 
 
 
 
 circula- 
 
 
 Four 
 
 
 B. of Fr. 
 
 Total. 
 
 B. of Fr. 
 
 Total. 
 
 tion. 
 
 B. of 
 Fr. 
 
 other 
 chief 
 
 
 
 
 
 
 
 
 banks. 
 
 1878 
 
 I,II 4 
 
 5,000 
 
 960 
 
 3,000 
 
 2,339 
 
 (1,390) 
 
 1885 
 
 1,103 
 
 5,000 
 
 1,073 
 
 3,000 
 
 2,846 
 
 (1,469) 
 
 1891 
 
 1,279 
 
 4,000 
 
 1,255 
 
 2,500 
 
 3,085 
 
 740 
 
 1,409 
 
 1897 
 
 1,963 
 
 4,200 
 
 1,222 
 
 2,175 
 
 3,687 
 
 
 1,993 
 
 1903 
 
 2,493 
 
 4,800 
 
 1,110 
 
 2,130 
 
 4,3io 
 
 615 
 
 2,923 
 
 The deposits include some time deposits. 
 Silver is taken at its nominal value. 
 
 TABLE XII. 
 
 RESOURCES OF GERMAN BANKS. 
 
 [Aldrich Currency Report, Statistics, vol. ii.] 
 
 In millions of marks. 
 
 Year. 
 
 Gold and 
 silver in 
 Reichsbank. 
 
 Notes in 
 circulation. 
 
 Deposit and 
 ! current account, 
 ! all joint stock 
 banks. 
 
 i860 
 
 562 
 
 735 
 
 529 
 
 1885 
 
 586 
 
 727 
 
 j 1,034 
 
 1890 
 
 801 984 
 
 1,509 
 
 1895 1,012 1,096 
 
 2,243 
 
 1900 817 
 
 1,139 
 
 3,502 
 
 1905 973 
 
 i,336 
 
 5,745 
 
APPENDIX A 
 
 121 
 
 TABLE XIII. 
 ESTIMATED CURRENCY FACTORS (see definition, 
 
 P- 47-) 
 United States. 
 
 Period. 
 
 Average. 
 
 Money and 
 deposits in 
 circulation. 
 
 Gold. 
 
 Factor. 
 
 1896-1900 
 1901-1905 
 1906-1910 
 1911-1914 
 
 4.374 
 7.054 
 8,526 
 10,015 
 
 831 
 1,250 
 
 1,606 
 1,826 
 
 5'3 
 5'2 
 5'3 
 5'5 
 
 [Fisher, " Purchasing Power of Money " and U.S. 
 Mint reports.] 
 Quantities in millions of dollars. 
 
 United Kingdom. 
 
 In millions sterling. 
 
 
 1895- 
 
 1903. 
 
 I9IO. 
 
 Gold in circulation outside 
 banks 
 Silver 
 Notes 
 Sixty per cent, of deposits. . 
 
 Total currency 
 
 Gold coin (Mint estimate) . . 
 Bullion in B. of E., say . . 
 
 Total gold 
 Factor . . 
 
 72 
 
 24 
 40 
 
 415 
 
 75 
 24 
 44 
 505 
 
 84 
 24 
 45 
 585 
 
 55i 
 
 648 
 
 738 
 
 92 
 13 
 
 100 
 
 17 
 
 U3 
 19 
 
 105 
 
 117 
 
 132 
 
 5 '2 
 
 5'5 
 
 5'6 
 
122 
 
 APPENDIX A 
 
 The British gold coin in the country has been 
 estimated from time to time by the Mint. We have 
 assumed that half the gold in the Bank of England 
 is foreign coin and bullion ; also that the other banks 
 hold gold equal to i per cent, of their deposits. 
 These assumptions may be far from the truth ; 
 English banking statistics are in a most unsatis- 
 factory state. 
 
 France. 
 
 (In millions of francs.) 
 (See Table XL) 
 
 
 1878. 
 
 1885. 
 
 1891. 
 
 1897. 
 
 1903. 
 
 Gold outside Bank 
 of France 
 Silver ditto 
 Notes 
 Deposits 
 
 3,886 
 2,040 
 2,339 
 i,390 
 
 3>897 
 1,927 
 2,846 
 1,469 
 
 2,721 
 
 1,245 
 3,085 
 2,149 
 
 2,237 
 
 953 
 3,687 
 2,826, 
 
 2,307 
 
 I,O2O 
 4,310 
 3,538 
 
 Total currency 
 Total gold 
 
 9,655 
 5,000 
 
 10,139 
 5,000 
 
 9,200 
 4,OOO 
 
 9,703 
 4,200 
 
 H,I75 
 4,8OO 
 
 Factor.. 
 
 1-9 
 
 2*O 
 
 2-3 
 
 2-3 
 
 2-3 
 
 The amount of gold in circulation at the earlier dates 
 is probably exaggerated. 
 
 TABLE XIV. 
 
 YIELD AND WORKING COSTS OF THE WITWATERSRAND 
 
 MINES. 
 
 (See p. go.X 
 
APPENDIX A 
 
 123 
 
 Q m 
 
 A ^L 
 
 o S 
 
 a 
 
 fe Bfi 
 ^ 1 
 
 ** 
 
 M *"2 
 
 53 eg 
 
 5 
 
 H en 
 
 S 
 
 - 
 
 M 
 
 ON 
 
 CO 
 
 a 
 
 O C^T}-OO WO "^t 1 
 
 WOOWOCOCO OtxHO 
 
 in f/^op ino)in H **? <Nl r l 
 w H 
 
 ooo 
 
 COVO 
 M H 
 
 m rs v 
 
 H tx JS.VO ^ ^ H 
 
 COOO O CO O VO O H ix, COVO 
 "^HVOH CSIHOO^HOIH 
 
 VkSrvvv 
 
 o tx CN GO o 
 
 H VO CO H tX ^1O 
 M H tx ON H W H 
 
 VO H O VO ON 
 
 C7> W CO O OO ^ Tf- 
 H C^ tx ON H W H 
 
 I 
 
 S 
 
 o 
 
 PH 
 
 o* H o m co co o 
 oo in O*NVO o o oo 
 m H H H tx O"N H 
 
 co ON H vo "*5" m oovo 
 
 ^V^HOOVOH GO m N o ~ 
 
 VO ^T rf H m H H H ^ 
 
 0* H 
 
 CO (N H OO 
 COOO ^ H VO H 
 
 VO H GO 
 
 GO m ON W O, 
 H H VO O^ H 
 
 O O 
 VO VO 
 
 <M H 
 
 H H 
 ^t- CST 
 O 10 O 
 
 CO 
 
 m Tf- M tx H 
 "3- m tx ^cx o m 
 
 OO H O O H O H 
 H O O O O CO O 
 
 O O O O 
 
 o o o o o o o 
 
 PH 
 
 CJ 
 
 8 8 
 ,2 
 
 CD 
 
 'I 
 
 _ o - - 
 
 iisi 
 
APPENDIX B 
 
 THE VALUATION OF MINES. 
 
 (From the Journal of the Chemical, Metallurgical 
 and Mining Society of South Africa, for July, 
 1916.) 
 
 By PROF. R. A. LEHFELDT, D.Sc. 
 
 THE problem of estimating the present worth of 
 a mine has usually been dealt with mathematically 
 only to the extent of capitalising dividends at various 
 assumed rates of interest.* Arithmetical examples 
 dealing more fully with capitalisation and working 
 costs are given by some writers,f but without an 
 algebraic basis. It is sometimes thought that the 
 data of mining are too uncertain to make it worth 
 while to apply mathematical methods to them ; 
 but arithmetical treatment suffers from the dis- 
 advantage that it does not show what is the effect of 
 varying the factors involved, so that misleading 
 conclusions may easily be drawn from the more or 
 less accidental cases which are chosen for working 
 out. 
 
 In the present paper an attempt is made to deal 
 with the question mathematically, with the aid of 
 
 * Hoover, H. C., "Principles of Mining." Lawn, J. G., 
 " Mine Accounts and Mining Book-keeping/' 
 
 t Ross Browne, " Working Costs of the Mines of the 
 Witwatersrand " (Appendix 3) (Johannesburg, 1907). Memo, 
 on Far East Rand, by the Government Mining Engineer 
 (R. N. Kotze), pp. 8, 14, 15 (Cape Town, 1916). 
 
APPENDIX B 125 
 
 assumptions that are not too far from the facts to be 
 of practical service. 
 
 Let there be a mine containing X tons of ore 
 whose average value is p pounds per ton. The 
 mine is worked on the scale of x tons per year : the 
 working costs on this scale are q pounds per ton, and 
 the capital required C pounds. Let i be the rate of 
 interest. 
 
 The life of the mine is X/# = T. 
 
 In any short time dt the ore milled is xdt, and the 
 working profit made is (p q)xdt. 
 
 If the time t be counted from the time of starting 
 the mill, and the value of the mine at that moment 
 is required, each element of profit must be discounted 
 at the rate of e~^ y so that the whole present worth of 
 the working profit is 
 
 /* 
 
 I 
 
 J o 
 
 o 
 
 but as this can only be obtained by means of the 
 capital outlay C the net value of the mine at the time 
 of starting the mill is 
 
 v =(>-)*{ ^ 1- c ..... > 
 
 Here the capital that has been spent earlier must be 
 accumulated at compound interest i up to the given 
 moment ; in other words, C is the " accrued capital/' 
 in Mr. Kotze's sense of the term. 
 
 It will be noticed that this formula is not, like 
 those in the books quoted, based on two rates of 
 interest. That is an inadvisable way of expressing 
 the facts. There is only one rate of interest ; the 
 compensation that a capitalist requires on account 
 
126 APPENDIX B 
 
 of the risk of mining is another matter. It is hardly 
 necessary to remark that the rate of interest has 
 long ceased to be anywhere near 3 per cent. At 
 present it is about 5 per cent. the yield on good 
 Government stocks, and some such rate should 
 be taken in dealing with amortisation, and with 
 accumulation of capital expenses. 
 
 To make use of the formula for V it is necessary to 
 assume forms for the quantities q and C, which are 
 functions of x. The simplest form that is reasonably 
 near the fact is the linear form. Accordingly, I 
 shall put 
 
 C = C -f- ex 
 
 where C and c are constants. This is equivalent 
 to dividing the capital expenditure into two parts, 
 one fixed in amount (for the given mine), the other 
 proportional to the scale of working. The former 
 part may, it is true, be a function of X, the size of 
 the mine, but that point need not be considered for 
 the moment. 
 
 Similarly the working costs may be divided into 
 fixed annual charges and a part proportional to the 
 tonnage milled, giving 
 
 where Q and r are constants. 
 
 Substituting, and remembering that x = X/T, we 
 have 
 
 Co- w 
 
 Hence, for a given mine, in order that the present 
 worth should be a maximum the scale of working 
 
APPENDIX B 127 
 
 must be such as to make the life T satisfy the 
 equation 
 dV 
 
 cX 
 - T2 = 
 
 i p r 
 
 Qr- ~~ /"VT^ *3/ 
 
 This equation cannot be solved directly, but it is 
 easily evaluated with the aid of a table of exponen- 
 tials. 
 
 Through the courtesy of the officials of the Depart- 
 ment of Mines, I have obtained some figures repre- 
 senting approximately the constants in the above 
 equations as applied to gold mining in the East 
 Rand area. The figures should not be applied to 
 different conditions without separate consideration ; 
 and, in particular, the linear form of the expressions 
 for C and q is only applicable within moderate limits 
 of scale. The numbers given below may be regarded 
 as applicable to mines of about 1,000 to 3,000 claims, 
 equipped according to the present standard of 
 mining engineering. 
 
 The capital expenditure necessary depends on 
 (i.) the depth, (ii.) extent of the mine, (iii.) scale of 
 working. Accordingly, in comparing one mine with 
 another, the value of C may vary on account of 
 difference in depth ; and c, so far as it depends on 
 shaft sinking, will vary too. Further, it is difficult 
 to bring the number of shafts into relation with the 
 extent of the mine, and only through that connec- 
 
128 
 
 APPENDIX B 
 
 tion can it be related to the scale of working ; more- 
 over, technical practice seems to vary much on this 
 point. On the other hand, the outlay on advance 
 development is approximately proportional to the 
 scale of working, and the cost of equipment depends 
 almost exclusively on the scale of working, but is 
 not proportional to it. 
 
 Experience for mines of average depth may be 
 summed up in the values 
 
 C = 500,000 
 
 c = 1-5 per ton milled per year. 
 
 To check the accuracy of these values I give the 
 comparison between calculation and experience in a 
 few instances. 
 
 Capital Expenditure. 
 
 
 
 
 Years 
 
 
 By formula, 
 
 Actual. 
 
 before 
 starting 
 
 
 
 
 mill. 
 
 Brakpan 
 
 1,580,000 
 
 l,l85,000 
 
 7 
 
 Geduld 
 
 950,000 
 
 1,100,000 
 
 12 
 
 Govt. Areas 
 
 1,400,000 
 
 1,570,000 
 
 6 
 
 Modder Deep 
 
 1,000,000 
 
 672,000 
 
 5 
 
 Van Ryn Deep . . 
 
 1,250,000 
 
 1,155,000 
 
 8 
 
 Working costs vary considerably with depth, but 
 have no direct relation to the extent of the mine. 
 Assuming an average depth of 3,500 ft., they may 
 be represented with sufficient approximation by the 
 formula given above, with 
 
 Q = 150,000 per year. 
 f = 0*68 per ton milled. 
 
APPENDIX B 
 Fig 9 
 
 129 
 
 1 1. 000. 
 
 I.OOO OK 
 
 3,000.001 
 
 8.000.00C 
 
 7.0W.OOO 
 
 6,000.000 
 
 5.CCOCM 
 
 4,000.000 
 
 a.oooocv 
 
 2,000006 
 
 <C-> \ooo.oo67~7' 
 Life in 
 
 rJKt'7 
 
 ?- *OS 
 
 0- ' 
 
 \t . '0 
 
 O K /<o 
 
 't~ -* 
 
 p. -/> 
 
 ' 
 
 // 
 
 IS 17 
 
 21 
 
 p * Value, of ore in t per ton 
 i = Interest 
 
 G.P. 
 
130 APPENDIX B 
 
 The results of the formula q = Q/x + r agree 
 closely with an empirical curve, supplied by the 
 Department of Mines. It yields these results. 
 x Tons. q 
 
 600,000 0*930 or 18/7 
 
 900,000 0*847 16/11 
 
 1,200,000 0-805 16/1 
 
 1,500,000 0780 15/7 
 
 But what is called " working costs " does not 
 cover the whole expenditure of the mines. There 
 are other expenses that it is customary to charge 
 against net revenue, on one pretence or another, 
 thus making the mines seem cheaper to run than they 
 are. These expenses add quite a shilling a ton, so 
 we will take 
 
 r = 075 per ton milled 
 instead of the figures given above. 
 
 Further, in working out the most advantageous 
 life of a mine by equation (3) it is necessary to 
 know X. But as this only comes in in a small 
 correction term it will be sufficient to take an 
 average amount, say, 20,000,000 tons. 
 
 The results for ore of different grades, taking the 
 rate of interest at either 4 per cent, or 5 per cent., 
 are shown on Fig. 9. 
 
 P. S. KING & SON, LTD., 2 & 4, GT. SMITH ST., WESTMINSTER. 
 
STUDIES IN ECONOMICS AND 
 POLITICAL SCIENCE. 
 
 A Series of Monographs by Lecturers and Students connected with 
 
 the London School of Economics and Political Science. 
 
 EDITED BY THE DIRECTOR OF THE LONDON SCHOOL 
 
 OF ECONOMICS AND POLITICAL SCIENCE. 
 
 Published by P. S. KING & SON, Ltd., Orchard 
 House, 2 & $, Gt. Smith St., Westminster. 
 
 A FEW SELECTIONS. 
 
 HISTORY OF FACTORY LEGISLATION. 
 
 By B. L. HUTCHINS and A. HARRISON (Mrs. F. H. 
 Spencer), D.Sc. Lond. With a Preface by Sidney Webb, 
 LL.B. 2nd Edition, revised, with a new chapter. 
 Demy 8vo. Cloth, 7s. 6d. net. Inland postage, 6d. 
 
 Westminster Gazette : ' ' The authors of this book have done a piece of work that 
 was badly wanted." 
 
 ENGLISH PUBLIC HEALTH ADMINISTRATION. 
 
 By B. G. BANNINGTON, Inspector of Nuisances, County 
 Borough of West Ham; Cert., Royal Sanitary Institute. 
 Introduction by GRAHAM WALLAS, M.A. 
 Demy 8vo. Cloth. 8s. 6d. net. Inland postage, 6d. 
 
 Journal of Royal Sanitary Institute: "It has charm and personalty: it treats 
 of the various matters dealt with interestingly, stylishly and learnedly, but not 
 too learnedly. . . . For the serious student there is not at the moment a book to 
 compare with this." 
 
 ELEMENTS OF STATISTICS. 
 
 By ARTHUR L. BOWLEY, Sc.D., F.S.S., Professor of 
 Statistics in the University of London. 3rd Edition. New 
 Impression. 344 pages. Demy 8vo. Cloth. Numerous 
 Diagrams. 1 2s. net. Inland postage, 6d. 
 
 Economic Journal: " Without further ado it maybe plainly stated that . . . 
 this book is the best book on the Elements of Statistics written in English. French, 
 German or Italian. . . ." 
 
 NATIONAL AND LOCAL FINANCE. 
 
 A Review of the Relations between the Central and JLocal 
 Authorities of England, France, Belgium, and Prussia, during 
 the Nineteenth Century. By J. WATSON GRICE, D.Sc. 
 With a Preface by Sidney Webb, LL.B. 
 Demy 8vo. Cloth. 1 2s. net. Inland postage, 6d. 
 
 Manchester Courier; "Contains an enormous mass of information, and the 
 volume will be of great service to the expert. . . . Mr. Grice is ... to be 
 congratulated on the thoroughness with which he has carried out this task." 
 
 THE NATURE AND FIRST PRINCIPLE OF 
 TAXATION. 
 
 By ROBERT JONES, B.Sc. (Econ.), with a Preface by 
 
 Sidney Webb, LL.B. 
 
 Demy 8vo. Cloth. 7s. 6d. net. Inland postage, 6d. 
 
 Academy : " An excellent Handbook for the Statesman, the Political Economist, 
 and the Student." 
 
KING'S BOOKS ON QUESTIONS 
 OF THE DAY. 
 
 SECOND EDITION. 
 
 WAR FINANCE. (Deals with the question of 
 Inflation). 
 
 With New Chapters on BOLSHEVISM, ANOTHER YEAR OF INFLATION, 
 and THE PROPOSED LEVY ON CAPITAL. By J. SHIELD NICHOLSON, 
 M.A., Sc.D., LL.D., Professor of Political Economy in the University of Edinburgh. 
 Demy 8vo. Cloth, 12s. 6d. net. Inland postage, 6d. 
 
 Scotsman: " Currency and inflation, prices and profits, extravagance in public 
 and private expenditure, borrowing and taxation, are the principal subjects dis- 
 cussed in the volume ... of permanent value as a contemporary record and 
 criticism of war finance under unprecedented conditions. . . . Many of ihe 
 earlier judgments have already been justified by the course of events." 
 
 MONEY: Its connection with Rising and Falling 
 Prices. 
 
 By EDWIN CANNAN, M.A., LL.D. Professor of Political Economy in the 
 University of London. Author of "Wealth/' etc. 
 Crowa 8vo. 28. 6d. net. Inland postage, 2d. 
 
 CONTENTS. I. Introduction. II. Recognition and Measurement of Changes- 
 in the Value of Money. III. The Value of Money or General Level of Prices. 
 where the Unit of Account is a Fixed Quantity of Bullion, Uncoined or Coined. 
 IV. The Value of Money or General Level of Prices where the Unit of Account 
 is a Coin of which the Issue is Limited. V. The Value of Money or General 
 Level of Prices where the Unit of Account is a Bank-note or Currency Note. 
 Appendix. Some Topical Illustrations. 
 
 BRITISH INCOMES AND PROPERTY. 
 
 THE APPLICATION OF OFFICIAL STATISTICS TO ECONOMIC PRO- 
 BLEMS. By J. C. STAMP, D-Sc. (Econ.), F.S.S., CobdeH Prizeman of the 
 University of London. With Illustrative Charts. 
 Demy 8vo. Cloth, 128. 6d. net. Inland postage, 6d. 
 
 Daily Telegraph: "In this work the author, who writes with an intimate 
 practical knowledge of his subject, has made an important contribution to- 
 eoonomic history, which should prove invaluable to Economists, Statisticians, 
 Politicians, and Officials. The Civil Service of this country has produced many 
 notable men. and this book by Mr. Stamp, written with a clearness and precision 
 not often found in works of a technical kind, at once places him in the ranks of 
 those great officials who have rendered lasting service to the nation." 
 
 RUSSIA a Its Trade and Commerce. 
 
 Edited by ARTHUR RAFFALOVICH, President of the Russian Chamber of 
 Commerce in Paris. Demy 8vo. Cloth, 128. 6d. net. Inland postage, 6d. 
 
 Glasgow Herald: " It is a book that should be read from cover to cover by 
 every British merchant and manufacturer. The figures and statislics are repre- 
 sentative and well chosen, the text is clear and readable, and the book as a whole 
 gives a thoroughly comprehensive idea of the actualities and possibilities of 
 Russian trade." 
 
 SOME ASPECTS OF FINANCIAL AND COM- 
 MERCIAL AFTER-WAR CONDITIONS. 
 
 REFLECTIONS OF A STUDENT OF FINANCE ON THE PROSPECTIVE 
 
 POSITION. By LEOPOLD SPRINGER. 
 
 Crown 8vo. Cloth. 28. 6dL net. Inland postage, 3d. 
 
 P. S. KING & SON, Ltd., Orchard House, 2 & > 
 Gt. Smith St., Westminster. 
 
?'.'. ' l>: 
 
 "^sss 
 
ID 
 
 UNIVERSITY OF CALIFORNIA LIBRARY