THE DEPRECIATION OF GOLD AND RISING PRICES.
[TO THE EDITCR 07 THE 5PEC7ILTOR.']
Sin,—Some four years ago your columns were thrown open to a correspondence on the depreciation of gold. The subject is again being brought into prominence by the general rise in prices, of which we are bearing so much both in England and on the Continent. Very few appear to realize the possi- bilities of the situation in this respect. We are most of us naturally more impressed with the events of our own time than with the past. Yet the average working life of a man extends over so short a time that it is well for him to have recourse to history to test, and possibly correct, his own per- sonal experiences.
\ More particularly is this the case with great world-move- ments such as those affecting the value of the precious metals. If we put ourselves in the position of a statesman in the time of Henry VIII. his experience and that of genera- tions before him would have looked on the price of wheat as settled by an almost immutable law at about 6s. the quarter. It is true that within certain limits it fluctuated far more widely than at present, owing to the fact that we were unable to draw our supplies from abroad to any great extent in the event of a bad harvest. But the fact remains that, as has been "pointed out by Professor Thorold Rogers, it averaged 5s. 101d. for the 140 years 1260-1400, and 5s. 11.1d. for the succeeding 140 years to 1540. Now it is estimated that at the beginning of the sixteenth century the yearly pro- duction of silver was about £425,000, and of gold £800,000, or a total of £1,250,000. At the end of the century, owing to the discoveries in America, the production of gold bad increased to £1,000,000 a year, and that of silver to £3,750,000, or a total of 24,750,000. In other words, the total output of the precious metals had increased by three hundred per cent. during the century.
Now mark the result on the price of wheat, which may be looked on as the most important article of commerce. Accord- ing to Rogers, the prices for the last decade-15904600- averaged from five to seven times as much as those prevailing for the 260 years between 1260 and 1540. And, although it may be true that the great rise was in the first instance started by the successive debasements of the currency under Henry VIII. and Edward VI., yet, as the standard was re-established by Elizabeth in 1560, it is only reasonable to ascribe the figures quoted for the decade 1590-1600 to the depreciation in the values of the precious metals, resulting from the immensely increased amounts in circulation.
To come now to the 19th century. After the great discoveries in California and Australia—about the year 1850—the output of gold increased from a yearly average of £2,000,000 or £2,500,000 for the 150 years preceding 1830 to an average of £17,000,000 for the fifty years 1830-1880, while for the decade 1850-1860 it was as high as £28,000,000. The result was a marked rise in general prices, amounting, according to the Economist's index numbers, to no less than 40 per cent. for the decade 1861-1870 as compared with the basis period 1845-1850, which, however, was succeeded by a fall from 140 to 92, or a percentage of approximately 34 per cent. between the decades 1861-1870 and 1891-1900. The production of gold had meanwhile been fall- ing off until for the five years 1880-1885 it averaged under £21,000,000. But with the discoveries in South Africa a new phase altogether has been opened up, and the output has in- creased with giant strides until now it is well over £90,000,000, or considerably over four times the amount at which it stood 25 years ago. In view of these figures we may well feel surprised that the index numbers only show a rise from 87 to 114, or of, say, 31 per cent. between the year 1895 and the present time, and it is a most serious question whether we have yet witnessed more than the beginning of the upward movement It may be said that the "quantity "theory of money is far too well established to stand in need of any such arguments as these. But it is so commonly regarded rather in the light of an abstract theory than as the most important factor in the general level of prices that it seems to deserve rather special consideration at the present time. It may be quite true that it only accounts to a negligible extent for the fluctuations in market values from day to day. But as far as these are concerned much the same may be said as to the cost of pro- duction. Supply and demand exerts a vastly greater influence, reflecting as it does, among other considerations, the conditions of the moment as to the money market. Again, the general range of prices co-existing with a given available supply of gold will of course vary indefinitely in accordance with banking conditions, the use of paper money and of cheques, and a, variety of other circumstances. But when all is said the " natural " value of gold, as of any other commodity, must in the long run assert itself, and the general level of prices must always be tending to adjust itself thereto. To form a just estimate of the present situation, we ought to eliminate ideas as to their normal range based on the experience of our own lifetime. The rise which has recently taken place still leaves prices at a level lower by 18 per cent, than those prevailing during the period 1861-1870. Surely it is fair to assume that a continuance of the present supplies of gold must tend to raise them, not merely to the figures at which they then stood, but very possibly to a higher level than any of which we have records in the past.—I am, Sir, Sze., GEORGE BRISCOE.
[Our correspondent's contention that the great increase of recent years in the production of gold has caused its deprecia- tion, and therewith a general rise in prices, seems to us incon- trovertible. No doubt there are counteracting influences also at work, but these only decrease the rapidity of the augmen- tation of prices due to the increased gold supply. It should be remembered, however, that there is no reason to think that the present conditions will prove permanent.—ED. Spectator.]
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