it was read a second time by a majority of 266 to 210. As originally proposed the bill was intended to throw open the coasting trade as well as the foreign trade, but the government of the United States having notified their refusal to reciprocate this concession, and some objection having been raised by the department of customs because of the difficulty of enforcing effectual regulations to guard the revenue from danger, the clauses relating to the coasting trade were withdrawn, and the bill passed into law. But even the restriction of the coasting trade was ultimately relinquished, and both the navigation on the coast of the United Kingdom and the manning of British ships were left entirely free.2

1 12 and 13 Vict. c. 29.

2 16 and 17 Vict. c. 107, and 17 and 18 Vict. c. 120.

16

X.

THE NEW GOLD.

FROM CAIRNES' ESSAYS IN POLITICAL ECONOMY.1

ESSAY II.-THE COURSE OF DEPRECIATION.

O one, I think, who has attended to the discussions

N° sau

occasioned by the recent gold discoveries, can have failed to observe, on the part of a large number of those who engage in them, a strange unwillingness to recognize, among the inevitable consequences of those events, a fall in the value of money. I say, a strange unwillingness, because we do not find similar doubts to exist in any corresponding case. With respect to all other commodities, it is not denied that whatever facilitates production promotes cheapness; that less will be given for objects when they can be attained with less trouble and sacrifice. It is not denied, for example, that the steam-engine, the spinning-jenny, and the mule have lowered the value of our manufactures; that railways and steamships have lessened the expense of travelling, or that the superior agricultural resources of foreign countries, made available through free trade, keep down the price of our agricultural products. It is only in the case of the precious metals that it is supposed that a diminution of cost has no tendency to lower value, and that, however rapidly supply may be increased, a given quantity will continue to command the same quantity of other things as before.

Among persons unacquainted with economic science, the prevalence of this opinion is doubtless principally due to those ambiguities of language, and consequent confusion of ideas, with which our monetary phraseology, unfortunately,

1 London: McMillan and Co., 1873.

abounds, many of which tend to encourage the notion of some peculiar and constant stability in the value of the precious metals. Thus, the expression "a fixed price of gold" has led some people to imagine that the possibility of a depreciation of this metal is precluded by our mint regulations. The double sense, again, of the phrase, "value of money," has countenanced the same error; for people, perceiving the rate of interest (which is the measure of the value of money, in one sense of the phrase) remaining high, while the supply of gold was rapidly increasing, — perceiving money still scarce according to this criterion, notwithstanding the increase in its production, have asked whether this did not afford a presumption that its value would be permanently preserved from depreciation, a bank rate of discount at 6, 8, or 10 per cent, as they remarked, affording small indication of money becoming too abundant.

It appears to me, however, that misconceptions respecting. the influence of an increased supply of gold upon its value, and upon general prices, are by no means confined to the class who could be misled by such fallacies, but that even among economists (at least among economists in this country) we may observe the same indisposition to believe in an actual and progressive depreciation of this metal. It is not, indeed, denied - at least, I presume it is not denied by any one pretending to economic knowledge, that the enlarged production of gold now taking place has a tendency to lower its value; but it seems to be very generally supposed that the same cause the increased gold production has the effect, through its influence on trade, of calling into operation so many tendencies of a contrary nature that, on the whole, the depreciation must proceed with extreme slowness, the results being dispersed over a period so great as to take from them any practical importance, and that, at all events, up to the present time no sensible effect upon prices proceeding from this cause has become perceptible.

The existence of this opinion among economists is, I apprehend, to be attributed in some degree to the circumstance that so few have taken the pains to compare the actual prices of

the present time with those of the period previous to the gold discoveries, but much more to the fact that the character of the new agency and the mode of its operation are not, in general, correctly conceived. I believe the most general opinion with reference to the action of an increased supply of money upon its value is, that it is uniform, takes place, that is to say, in the same degree in relation to all commodities and services, and that therefore prices, so far as they are influenced by an increase of money, must exhibit a uniform advance; and, no such uniformity being observed in the actual movement of prices, the inference has not unnaturally been drawn that such enhancement as has taken place is not due to this cause; that it is not money which has fallen, but commodities which have risen in value.

Now I am quite prepared to admit that an increase of money tends ultimately, where the conditions of production remain in other respects the same, to affect the prices of all commodities and services in an equal degree; but before this result is attained a period of time, longer or shorter according to the amount of the augmentation and the general circumstances of commerce, must elapse. In the present instance the additions which are being made to the monetary systems of the world are upon an enormous scale, and the disturbance effected in the relation of prices is proportionally great. Under such circumstances it is very possible that the inequalities resulting may not find their correction throughout the whole period of progressive depreciation, a period which, even with our present facilities of production and distribution, may easily extend over some thirty or forty years. During this transitionary term the action of the new gold will not be uniform, but partial. Certain classes of commodities and services will be affected much more powerfully than others. Prices generally will rise, but with unequal steps. Neverthe

"In relation to the influence of the gold discoveries on the prices of agricultural produce, it is plain that it could be only the same upon them as upon those of any other class of commodities. If it has caused a rise of 20 per cent in their favor, it must have caused a rise of 20 per cent in everything else." ("Times," City article, August 6, 1852) And the same assumption, either expressed or implied, runs through most of the reasoning which I have seen on this question.

less there will be in these apparent irregularities nothing either capricious or abnormal. The movement will be governed throughout its course by economic laws; and it is the purpose of the present inquiry to ascertain the nature of these laws and the mode of their operation.

The process by which an increased production of gold operates in depreciating the value of the metal and raising general prices appears to be twofold: it acts, first, directly through the medium of an enlarged money demand, and secondly, indirectly through a contraction of supply.1

When an increased amount of money comes into existence, there is, of course, an increased expenditure on the part of those into whose possession it comes, the immediate effect of which is to raise the prices of all commodities which fall under its influence. It is obvious, however, that the advance in price which thus occurs will be, in its full extent, temporary only; since it is immediately followed by an extension of production to meet the increased demand, and this must again lead to a fall in price. Some writers who have treated this question, observing this effect, have somewhat hastily concluded that under the operation of this principle the level of prices would never permanently be altered, since, as they have urged, each addition to the circulating medium forming the basis of a corresponding increase of demand, gives a corresponding impetus to production; every increase of money thus calls into existence an equivalent augmentation. in the quantity of things to be circulated; and the proportion between the two not being ultimately disturbed, prices, it may be presumed, will return to their original level.2 The least

1 According to Mr. Newmarch ("History of Prices," vol. iv., pp. 224–225), the depreciation of money may occur by a process which is neither of these, when money operates upon prices neither through demand nor yet through supply, but "by reason of augmented quantity." I must confess myself wholly unable to conceive the process here indicated.

2 [It may be worth while to preserve a specimen of the sort of Political Economy that was talked and written on this subject some fifteen years ago. A leading article in the Examiner (December 13, 1856) contains the following: "The additional supply of the precious metals has stimulated the industry of the world, and in fact produced an amount of wealth in representing which they have been themselves, as it were, absorbed. . . . But the produce of