III.

ESSAY TOWARDS A SOLUTION OF THE

GOLD QUESTION.

INTERNATIONAL RESULTS.*

IN a former essay† it was attempted, from a review of the industrial history of Australia since the late discovery of gold, to make some general deductions respecting the character of that event, and of its influence upon national interests. Among other conclusions it was maintained that the tendency of the gold discoveries, or, to speak with more precision, the tendency of the increased production of gold, was rather to alter the distribution of real wealth in the world than to increase its amount; the benefit derived by some countries and classes from the event being for the most part obtained at the expense of others. It was shown, for example, that the gain to Australia and California from their gold-fields accrued to them exclusively through their foreign trade-their cheap gold enabling them to command on easier terms than formerly all foreign productions; while, on the other hand, the only result to foreign nations of the traffic * Fraser's Magazine, January 1860. + Essay I. of this Series.

thence arising was an increase in their stock of money -a result rendered necessary indeed by the new conditions of raising gold introduced by the gold discoveries, but in itself destitute of any real utility. It was shown, in short, that, as regards commercial nations, the effect of the gold discoveries was to place them under the necessity of enlarging their currencies, compelling them to pay for the requisite increase by an increased export of their productions.

To this conclusion I was led by direct inference from the facts presented in the gold countries. In the present paper it is proposed to follow up the inquiry, with a view to a more particular ascertainment of the consequences formerly described; the object being to discover in what manner the loss arising from the gold movement is likely to be distributed among commercial nations, and how far this loss may in particular cases be neutralized or compensated by other influences which the same movement may develop.

In the discussions which have hitherto taken place upon this question, the inquiry into the consequences of the gold discoveries has been confined almost exclusively to that aspect of the event in which it is regarded as affecting fixed contracts through a depreciation of the monetary standard.* As soon as the probability of depreciation is settled, and the effects of

* See Stirling's "Gold Discoveries and their probable Consequences;" Chevalier "On the probable Fall in the Value of Gold;" Levasseur's contributions to the Journal des Économistes, 1858; M'Culloch's article 'Precious Metals,' in the "Encyclopædia Britannica." In all these, and in many other minor productions on the same subject, almost the only consequences of the gold discoveries which are taken account of are those which occur in fixed contracts through a depreciation of the standard.

this upon the different classes of society, according as they happen to be debtors or creditors under fixed contracts, explained, the subject for the most part is considered as exhausted. I venture, however, to think that this mode of treatment is very far from exhausting the question. It seems to me that, independently altogether of the existence of fixed contracts, independently even of gold being a standard of value, the increased production of this metal which is now taking place will be attended-indeed has already been attended-with very important results. Let us observe for a moment the movement which is now in progress. Australia and California have during the last eight or ten years sent into general circulation some twe hundred millions sterling of gold. Of this vast sum portions have penetrated to the most remote quarters of the world; but the bulk of it has been received into the currencies of Europe and the United States, from which it has largely displaced the silver formerly circulating; the latter metal, as it has become free, flowing off into Asia, where it is permanently absorbed. Viewing the effect as it occurs in the mass of the two metals combined, it may be said that the stream which rises in the gold regions of Australia and California flows through the currencies of the United States and Europe, and, after saturating the trade of these countries, finally loses itself in the hoards of China and Hindostan. The tide which comes to light in the sands and rocks of the auriferous regions, disappears in the accumulations of the East. In conjunction, however, with this movement there has been a counter one. With every advance in the

metallic tide, a stream of commodities has set in in the opposite direction along the same course,— a stream which, issuing from the ports of Europe, America, and Asia, and depositing as it proceeds a portion of the wealth with which it is charged, finds its termination in the markets of the gold countries. Here, then, we find a vast disturbance in the conditions of national wealth,-a disturbance originating in the gold discoveries, and resulting in a transfer, on an enormous scale, of consumable goods-the means of well-being-from one side of the globe to the other. This disturbance, it is evident, is entirely independent of the accident that gold happens to be in some countries a standard of value, as well as of the existence of fixed money-contracts; for it includes within the range of its influence countries in which gold is not, no less than those in which it is, the monetary standard; and it affects alike persons whose bargains are made from day to day, and those who engage in contracts extending over centuries. The fact is, the movement in question is the result, not of gold's being a standard of value, but of its being a source of purchasing power; and the influence of the gold discoveries having been hitherto regarded almost exclusively with reference to the former function, the vast effects which they are producing through the action of the latter-that is to say, by altering the distribution of purchasing power in the world-have been almost wholly overlooked. It has indeed been perceived that a great influx of the precious metals is taking place, accompanied with certain quences on the trade of the world; but so far

conse

as I know, beyond some general phrases respecting the stimulus given to production by an increase of money, and the great development of commerce which it is causing, no attempt has yet been made to state the principles by which the movement is governed, or the effects which may flow from it. It is to these questions, then, that I would now solicit the reader's attention, and towards their solution the following remarks are offered as a contribution.

Those who have followed the course of this controversy are aware that, by most persons who have taken part in it, it has been assumed, almost as an axiom, that no depreciation of gold in consequence of the gold discoveries has, up to the present time, taken place.* As a matter of fact, however, we know that the gold prices of all commodities produced in Australia and California have risen in at least a twofold proportion; while we have seen that (so long as the conditions of producing gold remain as at present) this rise must be permanent. To express the same thing differently in the purchase of every commodity raised in the gold countries two sovereigns are now required, and (the above conditions being fulfilled) will continue to be required, where one was formerly sufficient; and if this does not amount to a fall in the

* The principal exceptions to this statement are M. Levasseur (who, in an article in the Journal des Économistes, March 1858, estimates the rise of prices in France since 1847 at 20 per cent. on all commodities), and Dr. Soetbeer of Hamburg, who, in his table of prices given in his "Contributions to the Statistics of Prices in Hamburg," arrives at a similar result (see Appendix). Many other writers, indeed, acknowledge that prices have risen, but the rise is always attributed to causes distinc from the increased production of gold.

+ See ante, p. 24.

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