Blackwood's Edinburgh magazine, Vol. 72, No. 442, August, 1852

by Various

“To arrive at an exact solution, it would be necessary to ascertain the amount of gold and silver in the world, and the present annual consumption for coinage and the arts. This is impossible, and conjectural quantities must consequently be taken. The total of coin has been guessed at £400,000,000. Of this £150,000,000 may be assumed to be gold, and £250,000,000 silver. The annual consumption of gold is believed to be under £6,000,000.

“Starting with these figures, if the demand for gold were likely to continue limited to its ordinary amount, an estimate of the effect of the supplies now pouring upon us could easily be formed. Those supplies within the few years since the discovery of California have probably in the aggregate left us an excess of upwards of £30,000,000 over what has hitherto been found sufficient for current wants, and to maintain an equilibrium in the general relations of property. The increase, therefore, has been equal to 20 per cent on the whole sum in existence; in other words, the measure of value would appear to have been extended one-fifth, (just as if a 25-inch measure were extended to 30 inches,) and hence the effect to be looked for is obvious. Where gold is the standard, the price of every article adjusts itself to the relation it bears to that metal. If sovereigns were twice as numerous, a man would demand two where he now takes one. An increase of 20 per cent in the supply should, therefore, have been followed by a proportionate advance in the nominal value of all things.

“We have now, however, to consider the future. So long as there is any silver, to be supplanted in countries where, owing to the existence of a double standard, it is optional for the debtor to pay either in gold or in silver, the effects of the increased production will continue to be extended to both metals, and consequently, if the surplus of gold this year should be, as has been estimated, £25,000,000, its influence upon prices could be but 6 or 7 per cent. But the period must rapidly approach when the displacement of silver will have ended, and when the changes brought about will be upon gold alone. In France the existing amount of silver is still, doubtless, very large; but this is not the case in the United States, and the proposed law by which the coins below a dollar are to be deteriorated 6.91 per cent will prevent for the present any action upon that portion of the stock. In Germany the debased state of the silver coinage will likewise for a long time preserve it from displacement. In Holland, silver has been already established as the standard, and cannot therefore be driven out. With regard to Eastern nations, it is difficult to form any estimate. On the whole, however, we may infer the possibility of the displacement process still occupying three or four years, and that during that time, therefore, the effects to be produced will be spread, as they have thus far been, over both metals.

“At the end of that period, the consequences will be felt by gold alone, and the relations of property measured by a gold standard will proportionably exhibit a more rapid disturbance. At the same time, it must not be overlooked that the increase of gold each year will have meanwhile diminished the per-centage of alteration which would otherwise take place. For instance, the total amount of gold in the world, which is now assumed at £150,000,000, would then possibly be £250,000,000; and a production which, operating upon the first sum, would cause a rise in prices of 10 per cent, would, under those circumstances, cause only an additional rise of 6 per cent. This is a feature of great importance in the whole question, because it will constantly tend to counteract that increasing ratio of disturbance which might be anticipated if the supply of each succeeding year should prove larger and larger. It is likewise to be borne in mind that, with a diminution in the purchasing power of gold, there will be a proportionate diminution in the inducement to seek it. If the quantity of gold were doubled to-morrow, a man who is at present content to work for one ounce a-week would then not be satisfied with less than two ounces.

“In the face, however, of these qualifying circumstances, and of the uncertainty of all the assumed totals that have been dealt with, it will be plain to most persons that there is enough to suggest some very decided ideas as to the main results that are coming on. A mistake of a hundred millions in the figures one way or the other would only make a difference of three or four years (where the annual supply is at the rate of £30,000,000) in the date of fulfilment. Even if we were to take the whole £400,000,000 of assumed money as liable to be acted upon, it would require little more than fifteen years of the existing production to cause an alteration in the relations of property of 50 per cent.”—Times, June 20, 1852.

These are abundantly curious statements to come from the leading journal in the monied interest, which has so long supported Sir Robert Peel’s monetary policy, which went to make money dear and everything else cheap, and boasted, with smiling complacency, that he had succeeded in making the sovereign worth two sovereigns, and of course doubling the weight of every tax and shilling of debt, public and private, throughout the realm. So great a change makes us despair of nothing; and we even look forward with some confidence to the advent of a period when The Times, as a “State necessity” which can no longer be avoided, will be the first to advocate a return to protection on every species of industry within the realm.

We should greatly err if we measured the effects of this vast addition to the metallic treasures of the globe merely by its effect in raising prices, great and important as that effect undoubtedly is. That it will raise prices, gradually, indeed, but certainly, so that in twenty years they will have reached the level they had attained during the extensive demand and plentiful paper circulation of the war, may be considered certain. No human power can arrest the change any more than it can the rays of summer or the rains of autumn; and, therefore, all concerned—money-lenders, money-borrowers, capitalists, landlords, farmers, and manufacturers—had just as well make up their minds to it as un fait accompli, and regulate their measures and calculations accordingly. But a still more important effect, in reference to our laws and social condition in the mean time, is to be found in its tendency to keep the paper circulation out, and allay the apprehensions of bankers and money-lenders as to the risks of extending their issues, from a dread of an approaching monetary crisis, and a run upon their establishments for a conversion of their notes into gold.

These monetary crises, which have occurred so often, and been attended with such devastation, during the last thirty years, were all of artificial creation. They were never known before the fatal system was introduced of considering paper not as a substitute for, but as a representative of gold, and of course entirely dependent for its extension or contraction upon the retention of, or a drain upon, the reserves of the precious metals. It is to the Bullion Committee of 1810, and the adoption of its doctrines by Sir Robert Peel by the Bill of 1819, that we owe that fatal change which not only deprived us of the chief advantages of credit, but converted it into the source of the most unmeasured evil, by stimulating industry in the most unbounded way at one time, and as suddenly and violently contracting it at another. The true use of a paper circulation, properly based, judiciously issued, and founded upon credit, is just the reverse: it is to supply the circulation, and keep it at the level which the wants of the community require in those periods of necessary periodical recurrence to every mercantile state, when the precious metals are drained away in large quantities by the necessities of war or the demands of a fluctuating commerce; and when, unless its place is supplied by the enlarged issue of paper, nothing but ruin and misery to all persons engaged in industrial occupations can ensue. Supplied by such a succedaneum, the most entire departure of the precious metals is attended, as was proved in 1810, by no sort of distress, either to the nation or the individuals of which it is composed. Without such a reserve to fall back upon—or, what is worse, with the reserve itself rendered dependent on the retention of the precious metals—any considerable drain upon them is the certain forerunner, as was proved in 1825 and 1847, of the most unbounded public and private calamities.

The gold of California and Australia has not entirely obviated these dangers, but it has greatly diminished the chance of their recurrence. It is still true that a sudden drain of gold for exportation, either for the purposes of commerce or the necessities of war, might, as in times past, occasion such a demand for gold on the Bank of England as would render defensive measures on the part of the Bank a matter of necessity. Till the Bank is authorised by law on such an emergence to issue an increased quantity of notes not convertible into gold, absolute security cannot be obtained against such a catastrophe. But when the supply of gold from California and Australia is so great that £1,250,000 is received from the latter, as it has lately been, in three weeks, and the bullion in the vaults of the Bank of England amounts to £22,220,000, nearly a million more than its whole notes in circulation, it is obvious that the chances of any such calamity are very much diminished. An ample supply has been provided by Providence for the necessities in currency, not merely of this country, but of the entire earth, and therefore the chances of any violent contraction being rendered necessary by the sudden and extensive exportation of the precious metals have been greatly diminished.

The people of Great Britain may await in patience the inevitable result of the vast increase in the supply of the precious metals upon the prices of every article of commerce. That effect is undoubtedly, at present, an arrest of the fall which has so long been felt as so distressing by producers and holders of commodities; and this will be followed by a gradual but uninterrupted, and, at length, very great rise of prices. Beyond all doubt, the war prices will be restored before ten years have elapsed; and if the supplies of gold shall go on as they have done for the last two years, before twenty years are over prices will be doubled. Interested parties may complain as they like of this change—the thing is inevitable, and must be submitted to. They might just as well complain of the extension of the day in spring, or its contraction in autumn; the certainty of death, or the liability to disease. It is of more importance to form a clear idea of what the effects of this rise of prices will really be, both upon the producing and consuming classes, and to show the people how they should be on their guard against the attempts which will to a certainty be made to deprive them of the benefits designed for them by Providence.