It was in this way that the new supplies of gold operated to cause the advance of both prices and wages in the twenty years succeeding the great gold discoveries of California and Australia. The community was not made richer by using two dollars instead of one to transact a given amount of business, but an advantage was given, as Professor Cairnes showed at the time, to wage-earners over rentiers and others having fixed incomes. The former had steadier employment and better pay, and a fairer chance to rise in the world, while the latter were obliged to pay higher prices for consumable goods without any enlargement of their income.

Another fact shown by the foregoing statistical tables is that the production of gold in the second half of the century reached a minimum in the period 1881-1885, the average annual output being less than $100,000,000, and that soon afterwards an extraordinary increase took place. In the last decade, 1891-1900, the production was more than twice as great as that of the first decade, 1851-1860. Why has not the same effect on prices been noticed as was observed after the great output of California and Australia? There has been some advance in prices during recent years, which may be fairly attributed to the new supplies of gold. The counteracting forces of new inventions and facilities of production and transportation, and the bringing of new land under cultivation, have been very active and potent during this time. Yet it is difficult to escape the conviction that we are now confronted by another period of advancing prices, due to the great outpour of gold described above, which seems likely to continue and increase for some years.

Prospect of Continued Advance.

In a recent monograph1 Professor Kemmerer of Cornell

1 Money and Credit Instruments in their Relation to General Prices, by Edwin Walter Kemmerer, New York, 1907.

Theory.

University has sought to prove by the trade and labor statistics of the period 1879-1904 that general prices in the commercial world vary directly with the quantity of money in use. This is called the quantity theory The Quantity of money. It affirms that prices rise as the quantity of money increases, and vice versa, provided other things are equal. Thus stated, it is generally accepted by economists. But the other things assumed to be equal to-day may not be so to-morrow. Among them must be reckoned the rapidity of the circulation, the progress of invention, the vicissitudes of the crops, peace and war among nations, banking facilities, and the state of business confidence or depression. Professor Kemmerer reckons bank checks, and all other credit instruments which perform the office of money, as real money for the purposes of his argument. He attacks the problem with mathematical formula where few critics will have patience to follow him. One such (Professor Persons of Dartmouth College) has sought to do so, and his conclusion is that "whatever may be the fact, the statistics presented by Kemmerer do not demonstrate that general prices move in sympathy with relative circulation." In his opinion the statistics available are not adequate to answer the problem.1

The world's consumption of new gold in the arts in 1907 was estimated by the Bureau of the Mint at $135,000,000.

RECAPITULATION

The production of gold in the first half of the nineteenth century was little more than sufficient to supply the amount used in the arts and to make good the losses from abrasion and accident. About the middle of the century there was a great increase, due to discoveries of placer mines in 1 “The Quantity Theory, as tested by Dr. Kemmerer,” by Warren M. Persons, Quarterly Journal of Economics, February, 1908.

California and Australia. The annual production of the world was quadrupled. Ten years later the Comstock lode of Nevada began to yield large amounts of the precious metals, $350,000,000 having been taken from it in about twenty years, 40 per cent of which was gold.

In 1884 the greatest discovery of gold the world has ever known was made in the Transvaal republic of South Africa. These mines, although yet in their infancy, have yielded $78,000,000 in a single year. Discoveries only second in importance to those of South Africa were made in the last decade of the century in the Klondike region of Canada, in Alaska, in Cripple Creek, Colorado, and in West Australia.

The world's gold production in the second half of the century was nine times as great as during the first half. That of the whole century was nearly eight thousand millions of dollars.

The new supplies of the mid-century caused an average advance in the prices of commodities of about 20 per cent.

As gold is purchasing power, new supplies of it constitute new demand for goods. Prices rise in consequence; first, in the mining districts, then gradually throughout the civilized world. The new demand calls for more labor and leads to an increase of wages. The wage-earners are enabled to buy more goods, and this causes a further advance of prices. A redistribution of earnings takes place to the advantage of the producing classes and to the disadvantage of those having fixed incomes. Prices of commodities follow the law of supply and demand in this case as in others.

The new supplies of gold in the last decade of the nineteenth century and in the first decade of the twentieth appear to have caused an advance of prices.

AUTHORITIES FOR CHAPTERS IV AND V

Jacob's The Precious Metals.

Cairnes' Essays in Political Economy (“ The Gold Question ”). Jevons' "On the Variation of Prices and the Valuation of the Currency since 1787,” in the Journal of the Statistical Society of London, June, 1865.

Tooke and Newmarch's History of Prices, Vol. VI.
Lock's Gold, Its Occurrence and Extraction.

Percy's Metallurgy, Silver and Gold.

Phillips and Louis' On Ore Deposits.

Rothwell's Mineral Industry (annual).

CHAPTER VI

THE GOLD STANDARD

SPEAKING broadly, it may be said that the ancient world had the double standard of silver and gold; that the single silver standard prevailed during the Middle Ages, from the seventh century to the thirteenth; that the double standard was then reintroduced and prevailed in Europe and America till the beginning of the nineteenth century, and that it has now been superseded by the single gold standard

The gold florin, first coined by the city of Florence about the year 1252, was introduced to meet the needs of the growing commerce of the Italian republics. The convenience of gold in making large payments had been observed by the crusaders at Byzantium. The idea of a gold currency was brought back in this way to Western Europe, from which it had disappeared long before in the penury of the dark ages. Gold thus became an addition to, not a substitute for, silver money, and thus the double standard was reëstablished.

The market values of the two metals, gold and silver, are subject to the law of supply and demand like other commodities; they are liable to change of value with reference to each other. Sixteen pounds of silver may be worth more than one pound of gold today, and less at another day. One of them may be in greater demand in India than in

Market Values of the Precious Metals.

England, and so on. There are persons in every community (bankers, brokers, and bullion dealers) who seek to