CURRENCY AND PRICES.
In order to measure the proportionate effect which any increase in the sup- ply of gold will have upon prices, the first point to be settled is, with what is that increase to be compared ? 1. It may be with the amount of similar currency; such as gold, silver, and bank-notes previously in circulation. 2. It may be with all that performs in any degree the functions of currency ; that is, with transferable credits in any shape, such as bankers' deposits, bills of exchange. 3. It may be with the whole amount of exchangeable wealth in the country. If it be with the first, the disturbance now to be apprehended in prices generally would probably be very great. If it be with the second, it might still be considerable. If it be with the last, it would be very slight.
It is quite clear, I think, without argument, that the comparison is not to be with the first. Nor is it, I think, with the.secoud, except as regards the cheapness of money in the market as a subject of investment, which is a very different thing from the cheapness of money in reference to commodities. I apprehend, then, that the comparison must be with the last, i. e. that to measure the effect upon prices in general of any increase in gold, we must compare the amount of that increase with the whole value of exchangeable wealth, fixed or moveable, commodities or labour.
I do not pretend to say that this is a proposition which proves itself, nor have I yet sufficiently worked it out in my own mind to propound it with unhesitating confidence. I content myself, for the present, with submitting it to the consideration of others, with one or two observations in support of its probability. 1. Even as an addition to the currency, gold acts rather indirectly than directly. It is the basis upon which the other part, at least the paper part, rests ; the condition rather than the cause of its increase.
This observation applies rather to the effect of new gold in increasing the currency, than to the effect of an increase in the currency upon prices. But even with reference to the latter question, it is important to consider how far any increase of gold is necessarily an increase of the currency.
2. Gold, or any other medium of circulation, in its practical use is rather an instrument of exchange than a measure of value : there is at any rate much that is hypothetical in its application as a measure. For instance, when we say that a quarter of wheat and twenty pairs of stockings are severally worth two sovereigns, we don't mean that the amount of labour and self-denial, with due allowance for risk, which would produce either the corn or the stockings, would produce the weight of two sovereigns
i in gold ; but practically the comparison is between the corn and the stockings, and the result is that if one is worth forty shillings so is the other.
3. The leading principle must be, I submit, that prices will rise so far, and so far only, as the purchasing power, i. e. the ability and will to purchase, increases in proportion to the producing power.
An addition of many millions of gold would be a very slight direct addition to the purchasing power of this country. How far, by multiplying its in- strument, it might add to its efficiency, is a question which can only be solved by experience. It does not seem that at present there is any want, in ordi- nary times, of additional currency as an instrument of exchange, or of gold as a metallic basis ; though it is probable, nay it is certain, that there would have been such a want if the imports of foreign corn had not been met by an import of new gold. 4. Whatever effect additional gold may have in increasing either the amount or the efficiency of the purchasing power of the country, against that is to be set its effect in increasing the producing power.
It has little scope for such action in England, (though even here it will reduce profits and interest, which tends to cheapness,) but there are doubt- less many parts of the world whose productiveness may be increased, and is now being increased, for our benefit among others, by the surplus of our. gold.
The great increase in prices which followed upon the great discoveries of gold three hundred years ago has misled many. Gold was but one of the causes, though it may be it was a necessary instrument, of that great increase in the wealth of the community which the time was ripe for bringing forth; and as every branch of industry which was then either created or greatly deve- loped was with reference to the necessaries of life and the commoner sorts of industry a new purchasing power, and a growing demand for articles of limited supply—such, for instance, as corn and labour—the extraordinary increase in the value of such last-mentioned things is easily accounted for. It is in reference to them and such as them that the increase chiefly took place. When the producing power was increased in a greater degree than the purchasing power, there was no such increase. For instance, if I re- member rightly, a pair of silk stockings cost more in the reign of Queen Elizabeth than they do now.
The comparison between gold and silver is a very different thing. They are in an especial manner the measure of each other, the standard or rule of that measure being fixed by law ; and where that measure is at variance with the actual relative values of the two metals, that which is undervalued by the mint will leave the country. The practical difficulty then will occur, when it becomes necessary to re- adjust the mint values of gold and silver. This probably would even now have become necessary, if the mint price of silver had not (before this time) exceeded its market value in the proportion of about 66 to 63 or thereabouts; and it must be done as soon as the market price of a and of silver out- grows the limit of three sovereigns and six shillings, which it probably soon will do. We must then reduce the number or the weight of the shillings for which a sovereign is changeable. There can be little doubt that the course taken will be to reduce the weight. Say, then, that twenty shillings shall only contain as much silver as eighteen shillings do now. What will be the ef- fect upon silver prices and silver incomes ? Will the man who now receives ten shillings a week be content to receive the same number of smaller shillings, and will he be able to buy the same quantity of bread with them ? As to wages, the limit must be what the capitalist can afford to pay at a profit ; and if we are right in saying that the farmer, for instance, was not likely by reason of the increase of gold to get more than two sovereigns for a quarter of wheat, as he does now, he will not be able to give his labourer as wages more fortieth parts of that sum than he does now. The baker, too, buying his corn for the same number of pounds, will be able to sell his loaf at a pro- fit for the same fraction of a fortieth of a pound that he does now.
There is, I am aware, much more to be said upon all these points, espe- cially upon this practical point of the relative values of gold and silver, which will soon force itself upon the attention of the Legislature : but I fear I have already asked for more space than you are likely to grant me. C. N.
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