16 NOVEMBER 1907, Page 30

[To rss EDITOR or THR "SeircrAroa."1 Six,—The " quantity theory

" of money is a very essential postulate of political economy. The "iron theory " of M. Guyot merely distracts and misleads. If the "iron theory" of the rise of prices after the Californian gold discoveries is even arguable, there is no longer any theory remaining of the foreign exchanges ; our chart and compass are overboard. M. Guyot is " distinguished," no doubt ; his infinite versatility has long been my admiration ; but his is not the mind to wrestle, with an esoteric problem such as the currency, and that is why I described him as a sciolist (I am sorry the Word " Socialist" appeared in my " copy ") (Spectator, Novem- ber 2nd). Mr. Carlile objects in your last issue to my state- ment that " there is not one reputable economist " who denies the quantity theory, and he cites Tooke, who was born in 1774; but the writings of Tooke and his coadjutor Newmarch abound in 'the admission of the quantity theory ; see Tooke% " State of the Currency," published in 1826, when his mind was at its best :—" It not unfrequently requires an interval of some length before the commodities which are interchangeable with other countries are affected by an excess in circulation in such a degree as to produce the effect of increased export." The money metal from Potosi in the sixteenth century, where the mines were worked by Spanish slaves under the lash, came first to Spain and Portugal, raising prices there hugely, and then slowly distributing itself over the whole earth's surface. In England prices rose four hundred per cent., but rose only after the cup of Western Europe was filled and overflowed. When explaining the method by which a world-wide rise of prices radiates from a newly discovered source of the precious metals, Professor Francis Walker says (" Money," p. 150) :—" Professor Cairnes holds strongly that it is of distinct economic consequence where the gold supplies issue and in what relations, geographical and commercial, other nations stand to the source of the new production." Cairnes then adds of the " silver age "' of the sixteenth century : " This disturbance was in favour of the Spanish, the Portuguese, and Dutch No doubt this was a leading cause of the industrial distress which prevailed throughout a portion of the reign of Elizabeth, and which led to the introduc- tion of the Poor Laws." Of the Californian and Australian inflation Cairnes says : " In the present gold movement the tables have been turned, and the monetary disturbance is now in favour of the Anglo-Saxons. It is now [1858] England and the United States that have their hands in the till, and the money which they extract is employed in raising 'prices against the nations which in the sixteenth century were gainers at their expense." For this reason the Rand goldfields in Kruger's hands gave the Dutch once more their opportunity. In conclusion, let me say that the Athanasian attitude in economics is wholly mischievous, and if there is anything in authority, in reason, or in experience, surely we have about beard the last of M. Guyot's " iron theory " of prices.— [We cannot continue this correspondence.—ED. Spectator.]