It was on the 10th of September, 1852, that the West India mail steamer brought news to England which revived the old yearning for the discovery of the fabled El Dorado—dormant in the English breast since the days of Raleigh. Gold, it was reported, had been found near Bathurst, in New South Wales, where a frantic rush to the diggings had taken place. The merchant left his warehouse, the shopman his counter, even the lawyers deserted their clients—all eager to join in the headlong race to the mines. But all the gold they were likely to win could not possibly balance the loss caused to the Colony at the time by the mad stampede of the shepherds, who abandoned their countless flocks for the mines. The gold fever was further exacerbated by the subsequent discovery of another rich deposit in Victoria. America had found her El Dorado in California; Englishmen accordingly heard with pride that they, too, had come into a richer heritage in the hitherto despised convict settlements of Australasia. On the 23rd of November, 1852, three vessels from Australia sailed into the Thames with a cargo of seven tons of solid gold. The Eagle brought 160,000 ounces, worth £600,000, and she had made the passage from Melbourne to the Downs in seventy-six days; the Sapphire and Pelham, from Sydney, brought 14,668 ounces and 27,762 ounces respectively; the Maitland, from Sydney, followed with 14,326 ounces; the Australia, the first steamer that arrived from these Colonies, next came in with a still larger quantity; and in December the Dido appeared with a cargo of gold-dust valued at £400,000.
Politically the Protectionists tried to turn these discoveries to some account. They had predicted that Free Trade would ruin the country. On the contrary, £6,000,000 of taxation had been remitted since 1846, and yet there was no shrinkage of revenue. Exports had risen from £58,000,000 to £78,000,000, the shipping trade was brisker than ever, and on the 1st of January, 1853, there were not quite 800,000 paupers in the country.[93] Even the landed interest could not pretend to have been ruined, seeing that the Income Tax assessment under Schedule B, which is levied on rents of agricultural land, had risen from £46,328,811 in 1845 to £46,681,488 in 1852. This tide of prosperity under Free Trade seemed certain to flow rather than to ebb, so that the Tories were taunted with the utter failure of their dismal Protectionist prophecies. It need hardly be said that the Queen, who, as a strong Free Trader, had watched with deep anxiety the result of the great revolution in fiscal policy which she had helped Peel to initiate, was intensely gratified, not to say relieved in mind, when the figures illustrating the commercial condition of her realm were brought under her notice. The Protectionists, however, had an answer to these facts. It was, they averred, the unexpected discovery of gold in Australia that had saved the country from the ruin which they predicted must come from Free Trade. It may be pointed out that the figures we have given for the purpose of showing how the trade of the country stood after 1846, cover the period before, and not the period after, gold was imported from Australia—a circumstance which the Queen and Prince Albert were quick to note and appreciate. The Tory Protectionists, in fact, completely misunderstood the effect which would be produced by any sudden increase in the supply of gold. That effect was two-fold: (1) on the mother country, and (2) on the Australian Colonies.
There is very little mystery about the effect of an increase in the production of gold. The more we put into the market the less valuable will it become. If we double the quantity of gold in circulation, it follows that an article which could be bought for a sovereign will not be sold for less than two sovereigns. The price of the article is thus said to rise, whereas the value, or, properly speaking, the purchasing power of the gold, for which it is exchanged, is said to fall. An increase in the stock of gold ought, therefore, to lead to a rise in prices, and to a fall or depreciation in the value of the metal. In 1853 some foolish persons therefore predicted that gold would soon be as cheap as silver; and yet, though the supply was trebled, gold was not trebly depreciated in value. “Undoubtedly some effect,” says Mr. Walpole, “was consequently made on prices; but the effect was probably only slowly and gradually felt. Gold was absorbed in vast and unprecedented quantities in the arts, and the supply which was actually available for barter was not immediately augmented to the same degree.”[94] It is difficult to understand how so able a writer has been led into an error which must vitiate every deduction drawn from the effect of the Australian gold discoveries on the prosperity of the English people, in the Victorian period. Nobody has ever been able to estimate even approximately the amount of gold that is absorbed in the arts. All that we know is that the amount is so small, that it could not affect such an enormous increase in the supply as that which came from Australia.[95] Besides, as gold did not fall much in value, it was not likely that it would be much absorbed in the arts. But, then, what became of all the gold that was so suddenly poured into England from Australia? Some of it was absorbed in coinage,[96] but not enough to account for the absorption of the vast quantity that remained. The key to the puzzle is, in truth, to be found in the statistics of commerce which we have already cited.
THE CONVEYING OF AUSTRALIAN GOLD FROM THE EAST INDIA DOCKS TO THE BANK OF ENGLAND.
(After the Engraving in the “Illustrated London News.”)
The value of gold was kept up in spite of the sudden increase in the supply, because, under Free Trade, the commerce of the country began to expand by leaps and bounds. The Australian supplies, in fact, were absorbed in trade, for it is obvious that the sudden expansion of business which followed from Free Trade must have caused a corresponding demand for money, not only to conduct the operations of barter, but to pay the wages of the additional workers who produced the articles sold for money. When this fact is grasped, it is easy to understand what the Australian gold discoveries did for England. Had no new supplies of gold been found in 1853, Free Trade would have brought serious disasters in its wake, but not precisely in the form predicted by the Tories. The sudden expansion of trade would have caused a sudden demand for gold; the value of gold must have risen. Supposing gold had thus doubled in value, then the prices of commodities would have been halved, that is to say, one hundred oxen would have sold only for as many sovereigns as fifty sold for before the value of gold was thus increased. Everybody who had to make a fixed money payment, such as rent or interest, would have had their payment doubled, for they would have had to produce twice as much to meet their obligations as originally sufficed for that purpose. The burden of the National Debt, for example, would have been doubled, for, to pay every pound’s worth of interest to the fundholder, the public would have had to realise what represented two pounds’ worth of wealth when the interest was first fixed. In fact, the only people who would have gained, would have been the few who had to receive fixed payments, at the expense of the many who had to make them. The discovery of gold at a time when a liberated and expanding trade was causing an increased demand for the metal was thus a providential coincidence. By preventing the demand from outrunning the supply, it prevented a sudden increase in the value of the metal, which must have reduced prices and upset all the monetary arrangements of the country.
What was the effect of the discovery of gold on the Australian Colonies? Very much the same as the discovery of rich deposits of any other saleable ore, excepting in this respect, that gold is the one metal that commands an immediate sale, at a high and very slightly varying price. Land, Labour, and Capital are the three great requisites of production. Of these Australia, prior to 1853, had only the first in abundance. The gold mines attracted a rush of emigrants to Australia. But gold mining is a lottery in which the prizes fall to the few. The average earnings of the digger were soon found to be lower than the wages paid in other employments. Hence crowds of men who had been attracted to the mines soon left them, and were ready to follow other pursuits, so that the gold rush gave Australia the second element in production—labour. But the gold which was won, and the demands of the mining population, soon stimulated industry and increased wealth in the Colonies—in other words, the gold rush brought to Australia the third requisite of production—capital.
The Australian gold discoveries, therefore, transformed an insignificant penal settlement into a rich and queenly Commonwealth, and saved England from the gold famine, with its disastrous fall in prices, which a sudden expansion of trade must inevitably have produced after Protective duties were abolished. There were, however, two shadows on the picture. The gold rush to Australia depleted the labour market at home. The demands of the Australian Colonies for British goods, after gold had been discovered, were enormous. A sudden diminution in the supply of labour, combined with a corresponding increase in the demand for the goods which Labour produces, naturally led to a demand in England for increased wages. Strikes broke out all over the country. Labour was scarce and business brisk, and though the conflict was, except in rare cases, unaccompanied by violence, it may be said that generally speaking victory lay rather with the workers than with their masters. Wages were forced up, which was perhaps fortunate, because, as the year wore on, it soon became apparent that a bad harvest in England, France, and Germany would seriously increase the price of food.[97] The enormous impetus given to industry, and the rise in wages which followed, enabled skilled labour to bear this increase in the price of bread. The unskilled labourers, however, who from lack of organisation cannot “strike” with much effect, suffered acutely, especially towards the end of the year. But by that time a calamity was within measurable distance, which diverted the minds of the English people from dear bread and bad harvests. That calamity was the Crimean war, which rendered 1853 the last year of “The Great Peace” which followed the battle of Waterloo.