Far different, on the other hand, is the second delusion—the delusion of those who mistake a transitional for a permanent prosperity, and many of whom go so far in their frenzy as to see only matter of congratulation in the very extremity of changes, which (if realized) would carry desperate ruin into our social economy. For these people there is no indemnification. I begin with this proposition—that no material extension can be given to the use of gold after great national wants are provided for, without an enormous lowering of its price: which lowering, if once effected, and exactly in proportion as it is effected, takes away from the gold-diggers all motive for producing it. The dilemma is this, and seems to me inevitable: Given a certain depreciation of gold, as, for instance, by 80 per cent., then the profits of the miners falling in that same proportion[44] (viz., by four-fifths) will leave no temptation whatever to pursue the trade of digging. But, on the other hand, such a depreciation not being given—gold being supposed to range at anything approaching to its old price—in that case no considerable extension as to the uses of gold is possible. In either case alike the motive for producing gold rapidly decays. To keep up any steady encouragement to the miners, the market for gold must be prodigiously extended. That the market may be extended, new applications of gold must be devised: the old applications would not absorb more than a very limited increase. That new applications may be devised, a prodigious lowering of the price is required. But precisely as that result is approached the extra encouragement to the miners vanishes. That drooping, the production will droop, even if nature should continue the extra supplies; and the old state of prices must restore itself.
The whole turns upon the possibility of extending the market for gold. A child must see that, if the demand for gold cannot be materially increased, it is altogether nugatory that nature should indefinitely enlarge the supply. In articles that adapt themselves to a variable scale of uses, so as to be capable of substitution for others, according to the relations of price, it is often possible enough that, in the event of any change which may lower their price, the increased demand may go on without assignable limits. For instance, when iron rises immoderately in price, timber is substituted to an indefinite extent. But, on the other hand, where the application is severely circumscribed, no fall of price will avail to extend the demand. Certain herbs, for instance, or minerals, employed for medicinal purposes, and for those only, have their supply regulated by the demand of hospitals and of private medical practitioners. That demand being once exhausted, no cheapness whatever will extend the market. Suppose the European market for leeches to be saturated; every man, suppose, is supplied; in that case, even an extra thousand cannot be sold. The purpose which leeches answer has been met. And after that nobody will take them as a gift. But in the case of gold, it is imagined that, although the market is pretty stationary whilst the price is stationary, let that price materially lower itself, and immediately the substitutions of gold for other metals, or for other decorative materials (as ivory, etc.), would begin to extend; and commensurately with such extensions the regular gold market would widen. This is the prevailing conceit. Now let us consider it.
What are the known applications of gold in the old state of circumstances, which may be supposed capable of furnishing a basis for extension in the altered circumstances? I will rapidly review them. First, a very large amount of gold more than people would imagine is annually wasted in gilding. Much of what has been applied to other purposes is continually reverting to the market; but the gold used in gilding is absolutely lost. This already makes a drain upon the gold market; but will that drain be materially larger in the event of gold falling by 50 per cent.? Apparently not. Amongst ourselves the chief subjects of gilding are books, picture-frames, and some varieties of porcelain. But none of these would be bought more extensively in consequence of gold being cheap: a man does not buy a book, for instance, simply with a view to its being gilt; the gilding follows as a contingency depending upon a previous act not modified in any degree by the price of gold. In the decoration of houses it is true that hitherto our English expenditure of gilding has been very trifling compared with that of France and Italy, and to a great extent therefore would allow of an increased use. Cornices, for instance, in rooms, and sections of panels, are rarely gilt with us; and apart from any reference to the depreciation of gold, I believe that this particular application of it is sensibly increasing at present. Of course an improvement, which has already begun, would extend itself further under a reduced price of gold; yet still, as the class of houses so decorated is somewhat aristocratic, the effect could not be very important. On the Continent it is probable that at any rate gilding will be more extensively applied to out-of-doors decoration, as for example, of domes, cupolas, balustrades, etc. But all architectural innovations are slow in travelling! And I am of opinion that five to seven thousand pounds' worth of gold would cover all the augmented expenditure of this class. It is doubtful, indeed, whether all the increase of gilding will do more than balance the total abolition of it on the panels of carriages. In the time of Louis XIV. an immense expenditure occurred in this way, and the disuse of it is owing to the superior chastity of taste amongst our English carriage-builders, who, in this particular art, have shot far ahead of continental Europe. But the main consumption of gold occurs, first, I should imagine, in watches and watch chains; secondly, in personal ornaments; and thirdly, in gold plate. Now we must remember, at starting, that what is called jewellers' gold, even when manufactured by honourable tradesmen, avowedly contains a very much smaller proportion of the pure metal than our gold coinage. Consequently an increase in the use of watches and personal ornaments, or of such trinkets as snuff-boxes, supposing it in the first year of cheapened gold to go the length of 20 per cent., would not even in that department of the gold demand enhance it by one-fifth, but perhaps by one-fourth the part of one-fifth—that is to say, by one-twentieth. The reader, I hope, understands me, for upon that depends a pretty strong presumption of the small real change that would be worked in the effective demand for gold by a great apparent change in our chief demand for gold manufactures. There can be no doubt that in watches and personal ornaments is involved our main demand upon the gold market; through these it is that we chiefly act upon the market. Now three corrections are applicable to the primâ facie view of this subject.
The first of these is—that gold chains, etc., and a pompous display of rings have long ago been degraded in public estimation by the practice and opinions prevailing in aristocratic quarters. This tendency of public feeling at once amounts to a large deduction from what would otherwise be our demand.
The second of these corrections is—that, since our main action upon the gold market lies through the jewellers, and, consequently, through jewellers' gold, therefore, on allowing for the way in which jewellers alloy their gold, our real means of operating upon the gold market may be estimated perhaps at not more than one-fourth part of our apparent means.
A third important correction is this—at first sight it might seem as though the purchaser of gold articles would benefit by the whole depreciation of gold, and that the depreciation might be taken to represent exactly the amount of stimulation applied to the sale, for instance, of gold plate. But this is not so. Taking the depreciation of gold at one-half, then upon any gold article, as suppose a salver, each ounce would have sunk from 77s. to 38s. 6d. Next, rate the workmanship at 40s. the ounce, and then the total cost upon each ounce will not be (77s. + 40)/2, or in other words 58s. 6d., as a hasty calculation might have fancied, but (77s./2) + 40, that is to say, 78s. 6d. Paying heretofore £5 17s., under the new price of gold you would pay £4 within a trifle. Consequently, when those who argue for the vast extension of the gold market, rely for its possibility upon a vast preliminary depreciation of gold, they are deceiving themselves as to the nature and compass of that depreciation. The main action of the public upon the gold market must always lie through wrought and not through unwrought gold, and in this there must always be two elements of price, viz., X, the metal, and Y, the workmanship; so that the depreciation will never be = (x + y)/2 but only x/2 + y; and y, which is a very costly element, will never be bound at all, not by the smallest fraction, through any possible change in the cost of x.
This is a most important consideration; for if the price of gold could fall to nothing at all, not the less the high price of the workmanship—this separately for itself—would for ever prevent the great bulk of society from purchasing gold plate. Yet, through what other channel than this of plate is it possible for any nation to reach the gold market by any effectual action upon the price? M. Chevalier, the most influential of French practical economists, supposes the case that California might reduce the price of gold by one-half. Let us say, by way of evading fractions, that gold may settle finally at the price of forty shillings the ounce. But to what purpose would the diggers raise enormous depôts of gold for which they can have no commensurate demand? As yet the true difficulty has not reached them. The tendency was frightful; but, within the short period through which the new power has yet worked, there was not range enough to bring this tendency into full play. Now, however, when new powers of the same quality, viz., in Australia, in Queen Charlotte's Island, in Owhyhee, and, lastly, on Lord Poltimore's estate in South Moulton, are in working, it seems sensibly nearer. It is a literal fact that we have yet to ascertain whether this vaunted gold will even pay for the costs of working it. Coals lying at the very mouth of a pit will be thankfully carried off by the poor man, but dig a little deeper, and it requires the capital of a rich man to raise them; and after that it requires a good deal of experience, and the trial of much mechanic artifice, to ascertain whether after all it will be worth while to raise them. To leap from the conclusion—that, because a solitary prize of 25 lb. weight may largely remunerate an emigrant to California, therefore a whole generation of emigrants will find the average profits of gold-washing, golddigging, etc., beyond those of Russia or of Borneo, is an insanity quite on a level with all the other insanities of the case. But, says the writer in the Times, the fact has justified the speculation; the result is equal to the anticipation; in practice nobody has been disappointed; everybody has succeeded; nobody complains of any delusion. We beg his pardon. There have been very distinct complaints of that nature. These have proceeded not from individuals merely, but from associations of ten or twelve, who, after working for some time, have not reaped the ordinary profits on their expenses; whereas, they were also entitled to expect high wages for their labour, in addition to extravagant profits on their outlay. Yet, suppose this to have been otherwise, what shadow of an argument can be drawn from the case of those privileged few, who entered upon a virgin harvest, applicable to the multitudes who will succeed to an inheritance of ordinary labour, tried in all quarters of the globe, and seldom indeed found to terminate in any extra advantages?
FOOTNOTES:
[43] 'Century of Men,'—It may be necessary to remind some readers that this expression, to which I resort for want of any better or briefer, is strictly correct. The original Latin word centuria is a collection of one hundred separate items, no matter what, whether men, horses, ideas, etc. 'A Century of Sonnets' was properly taken as the title of a book. 'A Century of Inventions' was adopted by Lord Worcester as the title of his book. And when we use the word century (as generally we do) to indicate a certain duration of time, it is allowable only on the understanding that it is an elliptical expression; the full expression is a century of years.
[44] 'In that same proportion,' but in reality the profits would fall in a much greater proportion. To illustrate this, suppose the existing price of gold in Australia to be sixty shillings an oz. I assume the price at random, as being a matter of no importance; but, in fact, I understand that at Melbourne, and other places in the province of Victoria, this really is the ruling price at present. For some little time the price was steady at fifty-seven shillings; that is, assuming the mint price in England to be seventy-seven shillings (neglecting the fraction of 10-1/2d.), and the Australian price sank by twenty shillings; which sinking, however, we are not to understand as any depreciation that had the character of permanence; it arose out of local circumstances. Subsequently the price fell as low even as forty-five shillings, where it halted, and soon ascended again to sixty shillings. Sixty shillings therefore let us postulate as the present price. Upon this sum descended the expenses of the miner. Let these, including tools, machinery, etc., be assumed at three half-crowns for each ounce of gold. Then, at a price of sixty shillings, this discount descends upon each sovereign to the amount of one half-crown, or one-eighth. But at a reduced price of thirty shillings, this discount of three half-crowns amounts to one-fourth. And, at a price of twelve shillings, it amounts to five-eighths. So that, as the gross profits descend, the nett profits descend in a still heavier proportion.