Listen, with equanimity if you can, any housekeepers that may be present, to this price-list of provisions for the two years 1449-1450:—

This list indicates, on the average, prices less than one-twelfth of those now ruling.

When Henry VI. was held a prisoner by Edward IV. in 1470 it was only thought necessary to allow him, for the subsistence of himself and his suite of ten persons, the apparently meagre sum of £3 10s. per week. Many other such incidents must have astonished us in our early reading of history, the biblical penny in particular appearing to have a somewhat miraculous purchasing-power.

Evidently, then, the value, or purchasing-power, of money is nothing innate in the metals or coins which constitute the currency, but may vary considerably, and, as we shall see presently, sometimes rapidly. Some of these variations in modern times have been carefully estimated. Between 1570 and 1640 there was a remarkably sudden and extensive decline in the purchasing-power of money; this will be considered again later on. Coming to more recent times, the value of gold, according to the estimate of Professor Jevons, fell 46 per cent between the years 1789 and 1809; and from 1809 to 1849 it rose again no less than 145 per cent., while between 1849 and 1874 it fell again at least 20 per cent.

Prices, then, may not only fluctuate from day to day, week to week, and year to year through changes in the conditions of business, fluctuations with which we are all familiar, but may in the course of years reach altogether different levels. And this is true not only of the prices of any one commodity, but of the prices of commodities in general, or the average level of prices. For instance, it may be noticed that in the list of provisions given above the relative differences in prices of the various articles as compared with those of the present day are very small compared with the differences in the prices of any one article then and now. It would appear, then, that the extraordinarily small prices in the list were due not to a

America was discovered in 1492, but it was not until the invasion of Mexico by Cortes in 1519 that the yield of precious metals in America became greatly increased. Hum-boldt estimates the annual production from 1521 to 1545 at £630,000, and Mr. Jacob estimated that for the following fifty-four years, 1546-99, at an average of £2,100,000, whilst simultaneously the production of the mines of Europe was greatly increased. Economic effects were not transmitted as rapidly from country to country in those days as now, and it was not until the latter portion of the sixteenth and the earlier portion of the seventeenth centuries that the effects of the greatly increased supply of the metals appear to have been realised in the prices of commodities in Europe. But when the effects were once noticeable they became very marked—e.g., corn rose from about 2 oz. of silver the quarter to 6 oz. or 8 oz., and generally money in Europe sank to about one-fifth of its former value, prices rising to about five times their former level.

Take, again, the recent period, 1850-70. Through the discovery of the Californian and Australian goldfields the supply of gold throughout this period was largely in excess of all known previous epochs, and was largest in the decade 1851-60. A study of the general prices of commodities by means of index numbers establishes for the period 1850-70 a considerable rise. Comparing the depressed year 1850 with the depressed year 1869 we get, by means of Mr. Sauerbeck's figures, a rise in prices of about 27 per cent., whilst other estimates (those of Dr. Giffen, Professor Soetbeer, Mr. Palgrave, and the Economist) give very similar results, though the exact proportion is differently estimated, and this in a period when improvements in methods of production and transport and the exploitation of new countries might have been expected to cause a general fall in prices. Further, a general rise in money wages between 1850 and 1870 has been clearly established. Thus, the fact of a fall in the standard of value between 1850 and 1870 seems proved, and 20 per cent is the most moderate estimate that is accepted.

Between 1870 and 1893, on the other hand, although the production of gold was still very great, it was less than in the previous twenty years. Great new demands on the stock of gold for currency were made by Germany, the United States, Italy, and Austria-Hungary. The consumption of gold for the arts increased, and has been very roughly estimated by Professor Soetbeer at £11,500,000 sterling, nearly one-half of the total annual production. The hoards of gold for war treasure by the great Continental nations grew. The demand for gold in India (a new demand, specially important in the decade 1860-70) con-,

Again, average prices depend not only on the supply of gold, but also, amongst other things, on the demand for gold. Now, simultaneously with the increased output of gold of fifty years ago there took place a great extension of railways and improvement in transit facilities, with a rapid development of new countries, that caused generally an extraordinary expansion of industry—e.g., the exports of England increased from £60,000,000 in 1848 to £165,000,000 in 1860; and the increased trade and prosperity required an increased coinage even to keep prices at the same level. No correspondingly great development of trade, &c, can be expected in the near future.

Further, the existence of an effective bimetallic area of considerable extent tends to minimise the effects of an increase in the total gold currency. For, if gold tends to depreciate, the bimetallic countries will import and coin gold to replace the silver, which they will export. And so we find France in 1850-65 taking gold and exporting silver, and during the years 1853-60 actually coining £155,000,000 sterling in gold, or some six years' product of the mines. But at the present time, in all the principal countries and commercial centres of the civilised world, gold is the sole standard of value. The demand for gold and silver is no longer alternative as currency.

As an international measure of value gold has been becoming more and more isolated, while silver is now more of a mere commodity; any increase of supply of gold, or any diminution of supply, acts with full force upon the standard of value. There is no longer a question of the proportion of any new demand or supply to the total stock of gold and silver, but of its proportion to the total stock of gold alone.

I see, then, no reasonable escape from the conclusion that in the near future prices must rise, and rise considerably. Prices have already risen.

Mr. Sauerbeck's index numbers representing the average prices of forty-five commodities, compared with the prices of the same articles in 1867-77, are as follows:—

This table is illustrated graphically in Plate XI. of Art. VIII. It gives an increase in prices from 1896 to 1900 in the ratio of 61 to 75, or an increase of nearly 23 per cent.

Index numbers are compiled by different investigators in different ways and from different data, but they agree to a very considerable extent. The most numerous set of observations is that which Dr. Falkner, has compiled in the inquiry on wholesale prices from 1890 to 1899, recently published in the “Bulletin of the Department of Labour,” U.S.A. In these observations the index number for all articles shows a decline from about 102 in 1890 to about 81-5 in 1897, but then, again, a rise to about 92 in the first two months of 1899.

A similar conclusion is reached by Dr. Conrad, who combines Soetbeer's observations of Hamburg prices, and various other independent indications concur in placing the turn of the tide in prices beyond doubt. This increase of prices has been generally recognised, but in the Press and by popular opinion the war seems to have been the favourite attributed cause, and almost all conceivable hypotheses but the true one have been brought forward; and this cause is likely to be of comparative permanence and have an increasing force.

It is true that a fall in prices again set in towards the end of 1900, but a rise in prices due even to a permanent increase in the gold-supply can scarcely be expected to be continuous. One year may see an enormous output of gold, and the next year may see prices smaller than those previously ruling. A collapse in credit may temporarily counteract or more than counteract the influence of the expanding currency. And this may happen frequently, and perhaps the more frequently because the general tendency of prices to rise gives an impulse to business and encourages speculation. But the low prices when credit is small and the higher prices when credit is good will fluctuate about a mean which is continually rising, just as in the case of the ocean the depth at a given point may vary according to whether we have there the crest of a wave or the bottom of the trough between the waves, although the tide may be rising at the time and the average depth continually increasing. And two observers on the sea-beach may form very different estimates of how far the tide has risen while watching the ebb and flow of the breakers, though they may agree, and there may be no doubt, that the tide has risen.

An instance of this irregularity in the rise of prices is thus described by Professor Marshall: “An expansion of credit coincided with the influx of precious metals consequent on the discovery of the Californian and Australian mines, and increased the upward tendency of prices. But in 1857 there

was a crisis—i.e., many trading firms were unable to pay their debts, credit was violently contracted, and prices fell, although the store of precious metals in the country was growing as rapidly as ever. After a time credit began to expand again, and prices rose till 1866, when there was another crisis, and prices fell. Again credit expanded, and prices rose till 1873, when, though there was no crisis, a gradual contraction of credit set in which has continued till 1879.” But “the lowest point which prices reached between 1857 and 1866 was much higher than the level of 1850; and the lowest point between 1866 and 1873 was higher still.”

And just as it matters little that the rise in prices has not been continuous, so it will not do to object that all prices have not risen—that, e.g., wool was lower in price recently than for many years past. If prices on the average remained the same, we should still have some rising and some falling according to the circumstances of the demand and supply of each particular article. And when prices on the average are rising or falling through an increase or diminution in the currency, the price of any particular article will also be affected by these same circumstances, which may aid or hinder the influence of the currency, and may completely counteract it in the case of some particular commodity or commodities. On this point Professor Flux writes, “A frequent objection made to the statement of the dependence of the average level of prices on the quantity of money in circulation is that the variations of different prices are by no means of equal amount, and that some prices have not fallen at all during the last quarter of a century when on the average wholesale prices have fallen 35 to 40 per cent. As well allege that the rise and fall of the tide on our coasts is not due to the tidal waves which are produced by the attractions of the moon and of the sun. Neighbouring places have tides of vastly different heights, but all would vanish were their original cause destroyed. We have spring tides and neap tides according to the relative position of the crests of the lunar and solar tidal waves, and clearly due to these influences, though in some places the variation is less, in others enormously more, than in the centre of the ocean. The formation of coast-lines and the location of land-masses modify infinitely the observable results of one common cause, while the wind may, again, interfere to reduce or increase the actual movement at a given place. So also with prices: they show indefinite variety of variation, due to the common influence—changes in the amount of the monetary circulation—but that they do respond to that influence can be as well denied as that the tide at London Bridge is a result of the same funda-

salaries, as the civil servant or professional man engaged at fixed salary, form another class to whom the depreciation of gold is injurious. For such salaries are slow to move, and as the cost of living increases the salary will purchase less and less. The loss which fell long since on the civil servants of India through the depreciation of silver seems now about to involve their brethren throughout the world. The earners of wages also may suffer a little; but at the present time, and in this colony when the increase of wages does not actually precede the increase in the cost of living it very soon follows, so that there need be no anxiety for the position of the labourer and artisan as directly affected by the depreciation of gold. Arbitration Courts are not indispensable to insure wages keeping pace with prices, as witness the general rise in wages that has taken place of recent years beyond. New Zealand as well as within it. The creditor, as such, also loses; as each year passes by the interest he receives is of less value to him than before, and when ultimately his principal is returned to him, though nominally of the same amount as when lent, it is of less use to him than it would then have been in the purchase of commodities.

So greatly did these influences operate after the discovery of America that Professor. Walker describes the consequences of the metallic inflation that followed in the following words: “So rapid was the fall, so great the disturbance of trade and industry that followed, so wholesale the reduction in the value of fixed incomes and permanent charges, that widespread distress and much permanent pauperism resulted…. Mr. Jacob attributes to the overwhelming changes in the purchasing-power of money at this period that sudden increase of pauperism which gave occasion for the establishment of the English poor-laws, and those financial embarrassments of Charles I. which led to the great rebellion. Instead of a slow and gradual diminution of the weight of indebtedness (that mortgage which the representatives of past production hold upon the produce of present labour), debts were in many cases almost confiscated by the rapid depreciation of the money in which they were to be paid. The creditor class was very generally impoverished, if not hopelessly ruined.” And, again, “Of those who had possessed barely enough for the support of old age or helpless infancy, great numbers were impoverished and brought into dire distress. The traces of the deep disturbances of that time long remained upon the face of English society. But it was not alone upon the upper classes that misfortune fell. Serving-men and domestics were discharged by reduced gentlemen faster than the existing industries or new enterprises

could take them up. Moreover, the wages of labour never, as we have seen, rise as soon as prices of commodities. In an advance of prices as rapid and furious as that we are speaking of wages fell far behind, and the labouring - classes found themselves continually poorer, in spite of the large amount of silver which was paid them weekly. Those heaviest loaded in the race—the men of large families, and such as had the misfortune to be sick or temporarily disabled—were compelled to resort to charity…. Such was the condition of things under which vagabondage and mendicancy rose to gigantic proportions, and in which originated the pauper system of England. Mr. Jacob and Professor Cairnes are agreed in attributing the poor-law of Elizabeth to the wholesale destruction of accumulated fortunes and the rapid overmastering changes of productive enterprise which followed the flood of new metal from the Spanish-American mines.”

Returning to the remark that creditors, as such, lose, this suggests that when gold is depreciating it is a bad investment to lend out money at interest, since a real loss in principal should be made good, and this would require an increased interest. If lenders knew when this influence was at work and generally acted on it interest would rise; the virtual loss of capital would thus be made good by the addition of a suitable sinking fund, and the lending of money would continue to compare favourably with other investments. But, as Walker remarks, the operations involved in mental discount are amongst the most difficult which ordinary men are called upon to perform, and in these most persons fail entirely; consequently we find that when gold is depreciating interest falls, owing to the greater fund which the increase of money provides for new enterprises and the extension of existing branches of production. This influence has its full effect, whilst the other, which should more than counteract it, is almost inoperative. Consequently it would appear that money had better be invested in real estate, or some equivalent form, which, while returning a fair annual remuneration, would also increase in money value in proportion at least to the general increase of prices. This, of course, would only be a general rule; in any particular locality the removal of the sources of prosperity may take away a great portion of the value in the real estate of the neighbourhood.

But as the creditor loses the debtor gains. The annual charge becomes virtually smaller and smaller, as does the principal to be paid.

Now, the producing class are generally debtors, and as such feel the relief that this affords. But the producer is also

benefited in other ways. The cheaper money and greater credit which usually accompany an inflation of the currency enable him to obtain a greater profit, and perhaps to extend his business; and the profit is still further swollen in the case of the manufacturer of those commodities which are chiefly in demand by the fact that he gets prices for his products increased in a greater ratio than the wages he has to pay. This encourages enterprise and gives a fillip to general trade and industry. Thus, as David Hume wrote, “In every kingdom into which money begins to flow in greater abundance than formerly everything takes on a new face; labour and industry gain life, the merchant becomes more enterprising, the manufacturer more diligent and skilful, and even the farmer follows his plough with greater alacrity and attention.” It is true goods have to be exported to pay for the imported gold, or part of the national supply of labour has to be diverted to gold-mining; but this economic loss is more than made good by the encouragement given by the rising prices to general industry.

According to Professor Walker the increase of the money-supply after the discovery of America, in spite of the distress produced mainly by the extraordinary rapidity of the increase, contributed greatly to the rise and growth of the maritime power of Great Britain; and, in the language of an economist so careful as Professor Cairnes, it supplied and rendered possible the remarkable expansion of oriental trade which forms the most striking commercial fact of the age that followed.

“Among the more strictly political results of this great movement can be traced, in clear lines, the hastening decay of the feudal power, the increasing dependence of the sovereign upon his people for the supplies which his hereditary domains no longer furnished in sufficiency, and the rising spirit of self-assertion on the part of the commercial and mechanical classes.”

At the present time the increase of money might conceivably be so rapid as to bewilder the trader and producer and exalt the ordinary courage and enterprise of business to rashness, and in such a case the effects would be mostly prejudicial; but it is scarcely likely that we are on the eve of such a momentous discovery as would be required to effect this. It is more likely, though it is scarcely safe to prophesy, that the increase in prices, while necessarily injuring certain classes, will proceed at such a pace as will produce the better effects which a depreciation in the currency can cause, and promote the prosperity of the community as a whole.

It remains only to consider how the depreciation of gold will affect the Government, and the citizen in his relation to the same. Will the taxation of the average citizen increase? As most of our taxes are of the nature of ad valorem, and are determined by our expenditure, the majority of taxes will not

increase in proportion to expenditure. Of course, those who obtain large money incomes as a consequence of the depreciation of gold, and indulge in a correspondingly large expenditure, will pay taxes in proportion. The income and land taxes are, however, exceptional because of the exemptions; these exemptions will become virtually smaller and smaller, and more incomes and smaller holdings of land will become subject to direct taxation.

In the case of the revenue, Customs duties will increase with prices; land-tax and income-tax should increase rapidly; while railways, postal, and telegraph receipts, though made up of fixed nominal charges and so liable to virtual loss, may possibly show expansion due to the depreciation of gold and the consequent virtual reduction in the charges. On the whole, and on the average, expanding revenues are to be expected, though there may be at any time a temporary relapse, as there may be a check to the upward tendency of prices.

Expenditure, on the other hand, will not tend to increase nearly so rapidly, for the expenditure of the Government is to a very large degree made up of fixed charges, and salaries, which, though not fixed, respond but slowly to the general upward tendency. An era of big surpluses has already set in, and for the above reasons may be expected to continue, except in so far as temporary depression may interrupt them.

One item in the Government expenditure deserves further remark—that of interest and sinking fund. This amounted in 1901 to £1,745,616 out of a total expenditure of £6,514,049, or more than one-fourth of the total. However gold may depreciate, this charge will nominally be unaffected by such depreciation—i.e., there will be a virtual reduction in the charges. If the value of gold, e.g., were to depreciate by one-half, the burden of the present debt and the debt itself would be virtually reduced to one-half, and generally the virtual reduction in the present debt and in the charges it necessitates will be in proportion to the reduction in the value of gold. For nearly a generation the colonies, as debtor nations, have been hampered and their progress retarded by the appreciation of gold and the consequent virtual increase of debts. A change has set in and must continue for no little time; the colonies will feel the burden of old debts less and less, and this is already, and will be to a greater extent in the future, one of the most powerful influences towards prosperity. Creditor nations, on the other hand, must suffer; the interest they receive will represent a smaller and smaller portion of the world's goods.

Most that has been said with respect to the Government will also obviously apply to municipalities and other local bodies.