THE ALLEGED DEPRECIATION OF GOLD. pro THE EDITOR Or TRH
o5rsercroa."1 Sin,—Your correspondent "H. W." in the Spectator of March 16th has shown very effectively that the facts in regard to the output of gold in the world and the fluctuations of prices during the past twenty years negative the opinion that prices must rise as the gold output increases. I think it will be found further that abstract theory, when rightly viewed, points to the same conclusion. One might, indeed, even go further and say that, when the organisation of modern finance and industry is taken into account, the theory of the subject
points to the conclusion that pricea are much more likely to be lowered than raised, in the long run, by an increase in the output of gold. There is a remarkable passage in Gilbart's "History and Principles of Banking" (p. 106) in which be remarks that "an increased quantity of money in the ordinary course of business" (the italics are his) tends not to advance but to lower prices. "The Banks," he observes," by advancing Capital on lower terms than it could be otherwise obtained, diminish the cost of production, and consequently the price." What Wall before Gilbart's mind as an "increase in the quantity of money" was, first and foremost, no doubt, an increase in the issues of convertible notes. There can be no ground, however, for maintaining that what he says about such an increase should not equally apply to an increase in the quantity of gold, on which every increase in Bank issues must ultimately depend. Of course there are cases in which an increase in gold, locally and temporarily at any rate, raises prices. Such a case was that of the discovery of alluvial gold in Australia in the "fifties." This gold passed largely into the hands of obninimers direct, and thus raised the prices, for a time at any rate, of all the commodities on the spot. Such a case, however, does not represent what normally happens with regard to the gold that is produced in the world nowadays. It finds its way first into the vaults of the great European and American banks, and, practically, is only drawn out thence and sent into circulation in as far as it is used in increasing the production of commodities. It passes thus almost directly into the hands of producers, not of. con- sumers, and so tends to the lowering rather than to the raising of prices. The broad facts of the world are clearly in keeping with this conclusion. At the beginning of the nineteenth century we were getting about 22,000,000 of gold out of the ground annually ; now we are getting about 280,000,000. Yet the price of most commodities at the present moment stands at much less than half the amount at which it stood in 1800.-1 am, Sir, &c., • Limpsfield, Surrey. WILLIAM WAERAND CARLILE.
P.S.—The above line of reasoning, I may perhaps be permitted to remark, is a brief summary of that which appears in my book on "The Evolution of Modern Money" (Mac- millan and Co., London, 1901, pp. 299 ff.) It has since, in substance, been reproduced by an American writer of repute, Professor Kinley, who occupies the Chair of Economics in the University of Illinois, first in his book, " Money " (The Macmillan Company, New York, 1904, pp. 168 ad fin. and 169), and subsequently in a speech at the Indianapolis Monetary Convention of 1905.
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