THE TRUTH ABOUT GOLD.
WE referred a fortnight ago to the news of the dis- covery of goldfields in Newfoundland, and its possible effects on the prospects of the colony. Since then similar finds have been reported in several quarters. of the world, espccially Grahamstown, and it is worth while, perhaps, to consider how far such discoveries, and the considerable addition to our gold-supply that they foreshadow, are likely to affect the course of commercial and social development. It is generally believed that the recent revival in industrial activity and the rapid recovery of confidence that first showed itself in the second half of last year were caused, in a great measure, by the considerable additions to the world's stock of gold which resulted from the activity of mining enterprise in South Africa and Australia, and that abundance of gold was the healing tonic which was putting new life into the commercial body. We have dealt on a previous occasion with the actual dimensions of the increase in the annual output of gold, and we need only remind our readers that last year over forty millions' worth of gold was turned out, whereas during the first fifty years of the present century the output averaged about three and a quarter millions' worth per annum.
If we look at these figures alone, we might well be tempted to draw the conclusion that such an increase is obviously far in excess of the growth in the amount of gold that was actually required owing to the addition to the world's population, and that there is now a large balance, the use and circulation of which is putting every- thing right in the world of commerce. But it must be remembered that gold is not only required in proportion to the numbers of the population—it is rather the state of development to which a community has attained that affects its demand for the metal. And if we compare the increase in the gold-supply during the present century with the advance that has been made in all departments of commerce owing to such causes as the improvement in means of transport, the growth of deposit banking, and the creation of limited joint-stock companies, it may be doubted, though the comparison is necessarily hazy and indefinite, whether the supply of gold has even kept pace with the demands upon it. When we consider that within the last hundred years several continents have been converted from uncultivated wildernesses into terri- tories fitted, more or less completely, with all the material appliances pertaining to modern civilisation, and that bustling communities now thrive where no explorer had set his foot in 1800, it becomes evident that the enor- mously rapid growth of the commercial body is quite sufficient to absorb the increase, great as it has been, in the circulating medium which may be called its life-blood. It may, indeed, be urged that side by side with the exten- sion of industrial activity, the system of economising the use of gold by the use of cheques and bills of exchange has been developed, and that the growth of deposit banking, to which we referred as one of the causes of the increase of commerce, has tended at the same time to lessen the demand which commerce makes on the amount of the precious metal. But although it is true that deposit banking lessens the necessity for the actual passing to and fro of gold coins, on the other hand, by providing a ready store of credit for the use of the producer and merchant, it brings into life, wherever it is found, a hive of busy workers whose energy swells the volume of trade and the number of commodities, thus reacting on the medium which is required as a basis for their exchange ; modern banking makes one sovereign do the work of a hundred, but it also develops the need for thousands. Moreover, though in ordinary times the gold may lie idle while cheques and bills do its work, it must not be for- gotten that these cheques and bills are only accepted as currency because it is known that the gold is there, and that they are merely bullion certificates. It may be true that we carry on nearly 97 per cent. of our commerce prac- tically by processes of barter, but a large reservation is implied by the word "practically." Barter, which is com- plicated by the fact that any one through whose hands the goods pass can demand gold from his buyer, is a very different matter from a mere exchange of commodity for commodity, and obviously implies a reserve of gold which must be large enough to command confidence, or commerce will be demoralised into panic and chaos. Bankers and merchants are wont to forget these simple facts from time to time, and to give credit and trade on it to an extent that the collective gold reserve does not warrant, and then comes the inevitable crisis ; for commerce is still feeling its way in this matter, and has not yet arrived at any definite notion as to the relation between the size of the inverted pyramid of credit and that of the golden apex on which it is always dizzily balanced.
Such is the result of the development of commerce on the question of the increased supply of gold. But it is only one side of the matter. For there is another, perhaps an even more important tendency, which demands gold so greedily that it will be able to absorb an almost indefinite amount for years to come. Nations which have hitherto made a shift to carry on trade with depreciated paper or silver currencies are constantly being urged by the example of their more favoured neighbours to acquire a stock of gold, and put gold coins, or notes issued on a gold basis, into circulation. The most notable instance was that of Germany, which took advantage of the hand- some balance which the proceeds of the French war left her to establish her currency on a gold basis. The same operation is now being carried out, more gradually and tentatively, by Russia and Austria, and the consequent demand for gold in the Continental centres, which reacted on the London market, was one of the causes which recently compelled the Directors of the Bank of England to take measures for the protection of their reserve. More- over, it has been stated in the House of Commons by a Secretary of State for India that the Indian Empire must, "sooner or later," have a gold standard, and those faithful spirits who still believe in the ultimate victory of common- sense in the United. States maintain stoutly that gold, and convertible paper based on gold, will shortly be the cur- rency of the American Republic.
When we consider how many are the channels into which the stream of gold is readily attracted it becomes apparent that so far from any genuine superfluity having been caused by the recent increase in the supply, it has but barely sufficed to fill what would otherwise have been a very uncomfortable vacuum. The Japanese Government is now issuing notes which are based on its balance at the Bank of England, a remarkable fact which enables part of the Bank's store, apparently lying idle in its vaults, to circulate, practically, at the other end of the world. And it must be remembered that, besides the demand for gold for currensy purposes, its use in the arts goes on increasing with the advancement of wealth and the growth of luxury in all nations. Under these circum- stances, we have constantly to modify our notion of what is an adequate store of gold for the world's use, and we can only come to the conclusion that such a thing as real superfluity is impossible with speculation ever ready to seize on any fresh instrument that is put into its hands, and apt enough to outrun the constable in the use of it. An instructive example of the manner M which old-fashioned estimates of the needful amount of gold for commercial purposes have been super- seded was given by the Directors of the Bank of England a fortnight ago, when they raised their rate to check withdrawals of gold, though their reserve was three times as large as what would formerly have been con- sidered quite an adequate amount. Sanguine estimates anticipate that early in the next century the annual output will reach fifty-five millions and more, and even if this gigantic total is reached, we have no doubt that, if industrial progress advances at its present pace, no more gold will lie idle than is necessary for a sufficient basis for credit.
Previous page
