CORRESPONDENCE.

THE REMARKABLE DEPRECIATION OF GOLD. iTo TER EDITOR On THE SPECTATOR.")

8x,—I contributed to your columns on February 23rd a short letter on the evident depreciation of gold. My letter elicited from Mr. Mainprice on March 2nd a table of numerals which, though quite noteworthy, bad but little to do with the subject. matter of my letter. On March 16th you published a letter signed "B. W." which elaborates what is irrelevant in Mr. Mainprice's letter.

Prices depend upon demand and supply, and why is gold alone to be excepted from. this rule ? It is true that since 1873 the conditions of gold demand have been more imponder- able than even the amazing supplies of the metal. When writing to you I was particularly careful to draw attention to this, and I added that, as there were now no considerable conditions of new demand to reckon with, and as supplies promise to be colossal, prices, of commodities for the coming quarter of a century, and the rate of wages, are likely to advance, and to advance phenomenally. There was a great rise of prices after the :Californian gold discoveries in 1849. In 1066-Professor Jevons wrote of this rise :— • " The normal course of prices in the present progressive state of things is, I think, downward ; but for twenty years this ba.s been checked, and even reversed. Why should we hesitate to attribute this abnormal effect to the contemporary and extra- ordinary discoveries of gold ?

But the scribes who "learn nothing and forget nothing" jerked columns of figures at Jevons, disputing what no one bow, I suppose, does dispute,—namely, that inflation, metallic inflation, inflates ; that the enormous abundance of the new gold was responsible for the rise of prices after 1850. Where- upon Jevons, with that patience so delightful in a great scientific mind, submitted anew the "index numbers" to careful analysis on the basis of mathematical probability, and he &includes :— "It may be safely said that the odds are ten thousand to one in favotir of 'a real depreciation of gold. The meaning of this is that the chances are ten thousand to one against a series of discon- nected and casual circumstances having caused the rise of prices, One in the case of one commodity, another in the case of another, instead of some general 'cause acting over them all. It is true that as the commodities do not' all. vary independently, different kinds of corn, for instance, generally varying together, the im- probability is not so great as stated, but if we reduce it ten times to one'thutuiand to one it is great enough for my purposes."

Before 1896 the demand for, gold, on the part of nations pre- v,ionsly using silver or paper had been abnormal and excessive. During the last ten years the irregular absorption, chiefly by the governments of Russia and India, has not considerably minced the huge annual :surplus from the mines; hence the rise ,of prices.. Do Mr. Mainpriee and "H. W." mean that there has ever in the world's history been a general advance of thirty per cent, in prices in a single decade, when that rise had; or, could, have had„ some other cause than currency expansion ? The world's industrial production of commodities during the past ten years has been the greatest in its history; the record of that production, especially in America and Qmmany, reads like a fairy-tale; and yet prices are soaring! Only a metallic inflation of the world's currencies could possibly account for- such price movements as the present. In the United States the official figures show that in these ten`years the gold in their' currency has, per capita, ju'st' doubled.

"That an increase," said J. S. Mill, "in the quantity of money raises prices, and a diminution leviers them, is the most elementary proposition in the theory Of the currency, and without it we should have no clue to any of the others." In my previous letter I had no desire to advance Mill's or Jevons's or Adam,. Smith's "quantity theory" of money. In- this twentieth century 'that theory is not, pace" H. W.," any longer in dispute; but I thought, not the cause of the rise of prices, but its consequences, to be important, and I held that any Chancellor of the Exchequer who fails to consider this great rise when dealing with the incidence of taxation will be deplor- ably unscientific and unfair. For example, the interest on our

Three per Cents, at a time when gold was appreciating, and because it was appreciating, was reduced to 23/4. percent., Now it is increasingly evident that holders of Consols have both had the amount of interest reduced and are being paid that interest in a rapidly depreciating currency. Similarly proprietors of fixed incomes and pensioners have in ten years found their incomes reduced in the ratio of 81 to 61. If prices have risen from index number 61 to index number 81, then, as far as the general taxpayer is concerned, the cost of the Boer War is already about written off. A National Debt represents some portion of the assets of the Community; and if prices dotible, then that Debt would be liquidated by one bullock, not two ; by one ton of steel rails, not two; by one cube of timber, not two.

In the late "seventies," when the production of gold had fallen to less than twenty millions. Professor Soetbeer showed that over sixteen millions was being consumed in the arts and manufactures, leaving less than three millions for additions to all the gold currencies of the world. About that time Germany and the United States at one swoop had taken two hundred millions of gold for their currency reforms,—took, that is, in a year or two over sixty years of the effective supply of all the mines of the world. But it was not the purpose of my previous letter to point to stmh historic happenings by which the effects of currency expansion have often been neutralised. I do not suppose that the class for which I write—economic students—are in any doubt that always in the world's history, when metallic currency has increneed more rapidly than population and production, prices have risen ; that when, HE in the eighteenth and the first half of the nineteenth centuries, these conditions were reversed, prices have fallen. I am not interested in, nor would your space permit me to expatiate on, such causes ; what I wished to point out briefly was, not the cause, but the effect, of "inflation," and I quite agree with the letter of your correspondent Mr. Cameron Corbett (Spectator, March 2nd) that it is far from an ideal

standard of value which permits such huge variations. :

I fear that the necessities of rejoinder have led me into -a somewhat dismal discussion. Enough to say that if you submit to the professors some such hypothesis as this : "-If gold increases three times faster than population and indus- trial production, and assuming that no new and important nation adopts a gold currency, will gold depreciate?" such query advanced now would-be entitled, not to our arguments, but to our sympathy. • We stand to-day probably on the threshold of the most remarkable object-lesson in currency since the seventeenth century. The yield of gold doubled between 1886 and 1896,- and again between 1896 and 1906. Will it again double before 1916, and again between 1916 and 1926? I venture to think it will; that the gold for these vast additions is "in sight," unless the consequent inflation is so momentous as automatically to close the world's gold mines. Symptoms of this tendency are even now apparent; 'a few years will decide. I notice that the United States Secretary of the Treasury has sent a circular to every gold mine in America drawing attention to the depreciation of gold, and asking whether this depreciation has thus far considerably reduced its profits. Might not Mr.. Asquith secure similar information? The position may be by no means remotely connected with the malaise in South Africa.

After 1560 the great eilier mines of Bolivia were exploited by the Spaniards, silver being at that time the money metal of England,—its pound a pound-weight of silver. The new money of Potosi flowed first into Spain and Portugal, and thence, filtering through Central Europe, reached Ebgland slowly. But with the close of the century commenced a veritable RenaisZance in the following forty years it Was found that wages had 'advanced from halta crown a week to twelve shillings; that the price of an acre of average land had .riseri. from 25 to £25; that wheat bad risen from ten shillings fn,forty shillings per quarter. Adam Smith writes of this

• great inflation :—

. "Pram Dim to 1640 sliver sunk and corn rose, and instead of being commonly sold for ten shillings of our money, came to be sold for thirty to forty shillings The discovery of tho abundant • mines of America seems to have been the sole cause. It is accounted for in the same manner by everybody, and there never has been any dispute about the fact or about the cause."

Of necessity a huge rise of prices, such as is now going forward, involves high rates of interest. If prices have risen SO per cent, in ten years, the lender. at 3 per cent. has ,practically received no interest at all. True, be has been paid his interest, but the £100 which he loaned, if now repaid to , him, is shorn of a third of its value. During the years of the great fall of prices, from 1870 to 1895, the mortgagor who borrowed at 3 per cent, was really, paying at least 6 per cent. Is it any wonder that money was a drug and congesting in the banks, 'and that Console, their interest paid in a constantly appreciating currency, rose fast?

We are probably commencing what will presently be recognised as a new era in economic hietory. The timely recognition of this, and of its incidence on debt and taxation, may save the community from great mistakes and great injustice. The coming advance of prices is likely to be much more marked and continuous than was the case after the Californian gold discoveries. This rise of, all prices may well be the dominating economic incident of the twentieth century. Nearly thirty years ago, when the production of gold front the mines was rapidly falling off, a writer in the Edinburgh Review closed a very elaborate statement of the social. and industrial effects of the great gold discoveries in California and Australia with these words :— " The world has come to the close of at very memorable epoch ; the present generation has seen come and go the most remarkable outburst of material prosperity which has ever visited the nations of mankind. The epoch has been short-lived as a northern summer, and the world has fallen into winter again ; but a large portion of the fruits of the golden summer enduringly remain a rich heritage for subsequent geneistions."

[We are grateful to " Latona" for a very able exposition

of hie thesis, but cannot pursue the subject further at present. —En. Spectator.]