CORRESPONDENCE.
AN IMPORTANT PROBLEM OF POLITICAL ECONOMY.
ITo TIER EDITOR OR TOM " SPICOTATOR."1
SIR,-M. Yves Guyot, who is one of the most prolific as well as one of the most thoughtful and suggestive of modern writers on economic subjects, has published in the form of a revised and recast edition his " Science Economique " (Paris : Schleicher Freres, 5 fr.), a book which is well worth the attention of English students. Much of the ground covered has, of course, been trodden by many feet before ; but even when dealing with well-worn themes M. Guyot has a happy knack of brightening his pages with effective illustrations. For example, in order to prove how misleading statistics may be, he gives the following figures showing the population of a particular town :-1801, 128,883; 1881, 50,526 ; 1901, 26,823. These figures, standing alone, appear to point to a town in decadence, perhaps some dying city of Central Asia. Yet in reality they are the Census figures for the City of London. As another example he takes the fact that during an important period in the expansion of German industries the traffic on German canals increased by three hundred per cent. This fact has been used by enthusiasts for canals as a proof that Germany's prosperity was largely due to the development of her canal system. M. Guyot replies that the actual increase of canna traffic in the period in question was twenty-one million tons, and that during the same period th railway traffic in Germany increased by eighty-nine million tons. It is not unfair to conclude that railways have contributed four times as much as canals to the industrial expansion of Germany.
The point, however, to which we wish specially to direct the attention of English readers is M. Guyot's criticism of what is known as the quantitative theory of money,—namely, the theory that the general range of prices depends on the quantity of money in circulation. This theory is laid down in the most rigid terms by John Stuart Mill. After some preliminary paragraphs, be states categorically (" Political Economy,"
Book III., chap. 8, § 2) :—" If the whole money in circulation was doubled, prices would be doubled. If it was only increased one-fourth, prices would rise one-fourth." The present writer has for many years felt profoundly sceptical about this theory, and therefore it is a pleasure to him to find that M. Guyot has the courage to attack it root and branch. English monometallists certainly ought in this matter to accord M. Guyot a careful hearing, for if the quantitative theory of money disappears, the whole case for bimetallism goes with it. If there is no connexion between the quantity of money and the general range of prices, it is clearly impossible for anybody to argue that the demonetisation of silver depressed prices. Happily, the bimetallic controversy is for the present dormant, if not dead ; but the theoretical point which M. Guyot submits for discussion is of immense importance, for no one can know how soon it may not be necessary to combat some fresh currency craze.
The fundamental weakness of the proposition put forward by John Stuart Mill becomes manifest directly we attempt to give a rigid definition to the word "money." Does money mean metallic money ? and if so, does it include subsidiary silver and copper coins ? Or if money means gold, does it mean the gold in a particular country, or the gold in all the world; and does it mean gold actually coined and in circulation, or does it mean all gold, including coins hidden in old stockings and ornaments displayed on neck and wrist? Or does money mean legal-tender money, including Bank of England notes P If so, does money include cheques drawn by trustworthy persons on a solvent bank ? There is not a man in the kingdom who would not accept Lord Rothschild's cheque for five pounds at least as willingly as be would accept a five-pound note or five golden sovereigns. Why, then, is such a cheque not money ? and if it is money, what meaning are we to attach to Mill's proposition ? The number of persons whose cheques are accepted as money by those who have business relations with them is enormous, and the volume of business disposed of by such cheques is many hundred times as great as the total value of metallic money in the country. If goods are to be measured against currency, as Mill argues, in order to determine the general range of prices, surely this vast voluntary currency must have a far greater influence on prices than the relatively insignificant volume of metallic money. Yet no one would be so bold as to argue that an increase of twenty-five per cent. in the cheques passing through the London Clearing House involved an increase of twenty-five per cent, in the general range of prices throughout the kingdom.
If, on the other hand, in defiance of everyday practice, we confine the word " money" to metallic money, the difficulty of applying Mill's proposition is equally great. Prices fluctuate enormously, but the quantity of gold and silver coin in circulation alters very slightly, and it is impossible to trace any connexion between the one set of slight changes and the other set of large changes. On this point M. Guyot makes a very pertinent comment. Taking the figures furnished by the French Mint, he shows that there has been during the past fifty years a slow but steady increase in the sum total of coins in circulation in France. If Mill's theory were true, there would have been a steady increase of prices. (By a slip of the pen M. Guyot says " decrease.") As a matter of fact, prices have constantly fluctuated up and down.
Whatever interpretation, then, we give to the word " money," it is impossible to,find any definite evidence to support Mill's proposition, and yet the theory has so much plausibility that it requires some courage directly to challenge it. The most telling argument in its favour is drawn from the fact that the gold discoveries in the middle of last century were followed by a remarkable activity of trade throughout Europe and by an increase in prices. But this fact gives no real support to Mill's theory unless it can be proved that the addition made to the pre-existing stock of money in the world was propor- tionately the same as the addition made to pre-existing prices. The contrary is the case. Prices rose according to place and circumstances twenty-five, fifty, a hundred per cent., but it is doubtful whether Australia and California combined added as much as one per cent. per annum to the world's stock of precious metals. M. Guyot gives a truer explanation of the phenomena attending the discovery of new goldfields. He contends that the activity of trade, with the resulting rise of prices, was not due to the fact that more money was put on
the market, but that more wealth was introduced into the world. The phenomena would have been approximately the same if coal or iron mines of corresponding accessibility and richness had been discovered. Men would have rushed to get the new wealth, and as fast as they got it they would have exchanged it for other forms of wealth, thus stimulating trade and raising prices.
What, then, is the peculiar property of gold that distin- guishes it from all other commodities P To this question M. Guyot answers that the only commercial peculiarity about gold lies in the fact that its price is fixed. Other commodities are subject to fluctuations of price; but gold can always be sold to the Bank of England for the fixed price of 2317s. 9d. per ounce. At first sight this reply seems an evasion of the issue. The gold purchased by the Bank of England' is coined into sovereigns of such weight and fineness that an ounce of gold is the exact equivalent of 23 17s. 10d., the odd 1d. being the commission charged by the Bank. Hence it may be argued that the gold merely changes its form, and that the Bank price of 23 17s. 9d. is not a price in the ordinary meaning of the word. The answer is that this change of form involves a change of character. A sovereign is a very different thing from a lump of uncoined gold of the same weight. For proof of this statement it is sufficient to point out that when the Bank Charter Act is suspended the gold basis of our currency is temporarily cut away, yet a sovereign remains a sovereign.
What, then, is a sovereign ? It is a thing which possesses certain powers by virtue of law and custom and contract. The 'holder of a sovereign can buy a third-class railway ticket for a journey of two hundred and forty miles ; he can buy postage- stamps for two hundred and forty letters; he can despatch forty telegrams ; he can subscribe for forty copies of the Spectator, or eighty copies of the Times. With a 'fixed number of sovereigns or fractions of a sovereign he can obtain the legal right to keep a dog, or carry a gun, or use a motor- car. With a third of a sovereign he can secure the pleasure of a brief interview with his lawyer ; and with two sovereigns and two-twentieths of a sovereign he can pay for the luxury of a still briefer interview with a fancy physician. An eighth of a sovereign commands a seat in the pit of a London theatre, and ten sovereigns will cover the annual subscription to a first-class London club. Contracts for the letting of land and houses, many of them running for nearly a hundred years, are all expressed in a stated number of sovereigns. In the same way the salaries and pensions of Government officials, and of the officials employed on railways and in other large concerns, are stated in sovereigns, and the statements remain unaltered for long periods.
These attributes of a sovereign in no way depend on the cost of winning gold from the ground, or on the number of sovereigns in existence. Nor do they depend on the con- stantly fluctuating prices of staple commodities. They are fixed permanent attributes, and their existence necessarily affects our whole mental attitude towards the thing we call a sovereign, a thing which may be gold, or may be paper, or may be merely a book-entry. By virtue of these attributes a sovereign becomes a thing apart from all other things, and we can therefore use it, and do use it, to measure the value of every commodity the world contains. In addition, the sovereign, with its paper equivalents and its subsidiary token- coins, serves as a vehicle for conveying values, just as a railway- truck is a vehicle for conveying goods. If there are more sovereigns in the country than we want for our daily use, we do not on that account alter our estimate 'of the number of sovereigns that we ought to give in exchange for the goods we buy ; we just put the extra sovereigns away in the bank until they are wanted. Without attempting to be dogmatic on such a difficult subject, it is submitted that this explanation of the nature of money is nearer the truth than Mill's crude state- ment of the quantitative theory.—I am, Sir, &c.,
HAROLD COX.
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