Principles of Political Economy, Vol. 1

by Wilhelm Roscher

The question, whether in this second half of the nineteenth century, we are to have a revolution in prices similar to that which took place in the sixteenth century can be answered only hypothetically. The gold diggings now most productive will, probably, as we may judge from analogous cases in the past, be soon exhausted.[863] But it is entirely possible that, for [pg 423] a long series of years, other diggings will be found equally rich. It is almost certain that the restless activity of the English and of North Americans will not cease until they have exhausted the favors of nature.[864] Every improvement in agriculture, in the means of communication, and in the public security of the gold lands, makes the cost of production smaller. There are doubtless in other countries a great many placers which need only to be touched with the finger of European civilization to produce gold in abundance.[865] It would, indeed, be necessary that this same civilization should make these same countries better markets for the precious metals by increasing their demand.

So far as silver is concerned, there can be no question that America possesses mines unlimited in extent, and, as yet, almost untouched. “The time will come,” says Duport,[866] “a century sooner or later, when the production of silver will have no other limits than those put to it by the continual decline in the price of silver.” There seems, also, to be no lack of quicksilver, especially in California; and the cost of its production hitherto may be lessened very much by the labor of better workmen, machines and means of transportation.[867] All this supposes great progress of the mining countries in civilization in general; and yet, thus far, Mexico's republican independence etc., as compared with the later years of the Spanish colonial system there, is a great retrogression. The conquest of Spanish America by the United States would give a vast impetus to economic improvement; and here, [pg 425] again, the increase of production would be attended by an increased demand.

But especially must the demand for the precious metals, which naturally increases with the wealth, commerce and luxury of nations, constitute a decisive element in answering our question. Nothing, for instance, were a reduction in prices impending, would promote it so much as a series of devastating wars or revolutions in Europe. Moreover, it should not be forgotten, that the money market is now almost commensurable with the world, and will soon embrace it within its limits; and that market embraces not only the precious metals but the numberless representatives of money and media of credit. The basin, therefore, to which the gold and silver streams of the world are tributary is immeasurably greater than it was in the sixteenth century; its level cannot be changed as readily, and an equal addition made every year to its previous contents can increase it only by a small amount.[868] Nor could a considerable decline of the value of the precious metals be readily produced without making the circulation of money slower, and the employment of means of credit relatively less frequent, in consequence of which, the further decline would, to a certain extent, be arrested.[869] In the case of other commodities a decline of prices leads only probably to an absolutely greater demand; in the case of money, it leads to a demand necessarily greater. That the money market in our days can stand pretty rude shocks is evident from the fact, among others, that the price of gold is so high as compared with that of silver.[870][871]

Section CXL.

Revolution In Prices.—Its Influence On The National Resources.

The ulterior consequences of such a revolution in prices would contribute to the real wealth of a people only in the sense that they would place such a people in a way, with less sacrifice, to employ the precious metals on a large scale in ministering [pg 427] to the luxuries of life. This small advantage itself would be counterbalanced by the depreciation of the metallic stock, and especially by the necessity of henceforth devoting a larger quantity of gold and silver to the purposes of circulation.[872] But such a revolution would produce a sudden reverse in the distribution of a nation's wealth among its constituent members. All those who, by virtue of contracts antecedently made, have payments to effect, are benefited to the extent of the difference between the old and the actual price, while those who are to receive such payments lose to the same extent.[873] Therefore, those engaged in industrial enterprises improve their condition, because they immediately increase[874] the prices [pg 428] of their own productions; and, for a time at least, continue the use of capital borrowed from others, of land leased or rented etc. at the old prices.[875]

Besides, at the beginning, and before a corresponding depreciation of its value has taken place, an increase of money produces as a rule a low rate of interest (§ 185), and an itch to buy on the part of the public. All this may serve as a powerful stimulant to production on a large scale.[876] Those most certain to suffer loss are officials[877] with a fixed salary, and so-called annuitants, creditors of the nation and of individuals. Even bankers, too, have no means to fix the value of their wares which they see disappearing, so to speak under their eyes.[878] Of land owners, those who are in debt gain, that is especially the poorer, and the more speculative among them.[879] On the [pg 429] other hand, owners of large estates who have alienated their tithe-rights, or right to vassal-service etc. for capital, or for fixed sums to be paid at regular intervals, that is, in a great many places the great mass of the nobility, undergo a not insignificant social fall.

The condition of those who earned a living by manual labor no doubt deteriorated in the sixteenth century, as may be inferred from the extraordinary activity of public charity in that period.

Between 1500 and 1550, silver purchased, in Orleans, from 4.1 to 4.5 times as much common labor as it does now, while silver, as compared with the average price of twenty-seven commodities, has grown cheaper in the ratio of only from 2.6 to 2.7:1. (Mantellier.) It was impossible for this class to raise the price of their wares as rapidly as that of the medium of circulation declined, because they could not wait, nor hold back their commodity even for a moment. (§ 164.)[880] This would, indeed, be very different in our day. Wages, because of the facilities, both physical and moral, which have everywhere been placed in the way of emigration, were necessarily one of these articles which rose soonest in price, as compared with money.[881] Lastly, the state itself profits by the diminished [pg 430] thing-value, that is, real value of its public debt;[882] but it loses, at the same time, on all taxes, duties etc., which are not estimated at a certain percentage of the value of the articles taxed.[883] As a rule, therefore, it would need to impose new taxes. Now, the parliamentary right to impose taxes, however extensive it may juridically be, is, ordinarily, of great importance in practice only when there is question of increasing the existing burthen. Hence, this right, wherever it exists, is brought into the utmost activity by a revolution in prices.[884][885]