Various - Blackwood's Edinburgh Magazine, Volume 69, No. 423, January 1851

Assuming it, then, as certain that for a very long period, and for many successive generations, a vast addition is to be made to the annual supply of the metallic treasures of the earth, it becomes of the highest importance to the interests of industry in all its branches, agricultural, commercial, and manufacturing, to consider what the effects of the change thus induced must be – what benefits it will confer upon mankind – what dangers, if any, it will remove, especially in the great commercial community in which we are placed. And a little consideration must be sufficient to demonstrate to every impartial and disinterested mind what these effects will be – and to prevent, on the one hand, chimerical or unfounded hopes being formed, and, on the other, undue or unmanly depression from the effects of recent calamities being felt. Fortunately we are not driven to theory or speculation to ascertain what these effects will be – experience, the only sure guide in political science, points to them with unerring certainty: the great monetary revolution of the sixteenth century is the precursor and the monitor of that of the nineteenth.

The first effect of a great addition being made to the annual supply of a particular metal in general use and high estimation all over the world, is that the exchangeable value of that metal , in comparison with other metals or articles of consumption, will undergo an immediate alteration, which will prove lasting and considerable if the increased supply turns out to be great and permanent. This is no more than takes place every day with all the articles of commerce. According as the crop of wheat, or oats, or barley, or cotton proves abundant, so surely does the price of these articles rise or fall in the market. If gold is produced in much greater quantities than heretofore, its price, as compared with everything else, and in particular with the precious metal in common use, next to it in value, silver, must ere long change. If the increased supply proves very great, it may in time come to reduce the price of gold, as compared with silver, fifty, eighty, or even a hundred per cent. Gold is more valuable than silver, only because it is more scarce: if it becomes equally plentiful, its value will gradually sink; and if the quantity afloat in the earth should ever come to be as great as that of silver, it would come to be of no greater value. This effect may appear either in the fall of the value of gold as compared with silver, or notes exchangeable into gold, or in the rise in the value of silver as compared with that of gold, or notes exchangeable into that metal. This effect has already taken place. Silver is 3 per cent dearer as compared with gold than it was a year ago: and this change will doubtless continue. This is the first and obvious effect of a great addition to the gold treasures of the earth; and even this is a considerable benefit; because, as it has been produced by the augmentation of the amount of the circulating medium of mankind, it must facilitate the acquisition of it for the purposes of commerce, or for sustaining the undertakings of industry.

But though this is the first, it is by no means either the only or the most important effect of a great addition to the gold treasures of the earth. By far the most important and beneficial effect is to be found in the gradual but certain rise of prices , whether measured in gold, silver, or paper, which inevitably results from any considerable addition to the circulating medium of mankind. This effect is precisely analogous to the great rise of prices which took place during the war, in consequence of the extended issue of paper which was made after 1797 to sustain its expenses. It is well known that it more than doubled the cost of every article of consumption: it raised the price of wheat, in fifteen years, from 55s. to 110s. 5 5 Average Prices of Wheat: — This effect resulted from the extension of the issues of the Bank of England from twelve to twenty-eight millions a-year. A result precisely the same must take place over the whole world from a lasting and considerable addition to the metallic treasures by which its exchanges are conducted. If the gold in circulation, or which may be put into circulation, is greatly augmented, the price of everything must rise, whether it is paid in gold or silver , just as the price of everything rose during the war, whether paid in specie or in paper. Gold then bore such a monopoly price, from its being so much in request for the necessities of war, that the guinea at last came to be worth twenty-eight shillings. That was the enhanced price of gold, as compared with silver; it had risen thirty per cent in consequence of the absorption of gold specie in the Peninsular, German, and Russian campaigns. But the change of prices resulting from the extended issue of paper was much more considerable; it had increased not thirty, but a hundred per cent, and that equally, whether the price was paid in gold, silver, paper, or copper.

This change will be universal. It is a mistake to suppose that it will be limited to the countries, such as England, in which gold is the established standard of value. It will affect equally, certainly, though perhaps somewhat more indirectly, the nations, such as France, where silver is the standard and great medium of exchange. The reason is, that by adding considerably to the general circulating medium of the globe, it brings a larger quantity to be balanced against every article which forms the subject of commerce, and consequently raises its price when measured by any part of that circulating medium. This effect may be seen every day in ordinary life. A plentiful crop of wheat, especially if it continues for several years in succession, lowers the price not only of wheat, but of every other grain crop in the country , and consequently raises the price of every article of commerce when measured by the amount given for it in any of these grain crops. And the same effect took place on a great scale, over the whole world, for centuries together, when the mines of Mexico and Peru were discovered, which, although chiefly productive of silver only, yet, by the large quantity of that metal which they yielded, raised prices to a very great degree universally, and that equally whether those prices were paid in gold, silver, or copper.

The effects hitherto considered are those on the value of the precious metals themselves from a considerable and continued increase in their supply in any part of the world. But in a commercial and opulent community such as Great Britain, where the greater part of its undertakings are carried on by means of money advanced by banks in their own notes or those of the Bank of England, on the security of bills or other obligations, the effect of a considerable increase in the supply of gold or silver is far more extensive. Such an increase diminishes the great weakness of a paper circulation, that of being dependent on the supply of the precious metals, and liable to be contracted when they are withdrawn. An inconvertible paper, issued in reasonable and not excessive quantities, and adequately guaranteed, would answer the purpose just as well in a particular country, and effectually secure it against the terrible disasters consequent on the alternate expansion and contraction of the currency; the former inducing the commencement of undertakings of which the latter disabled the performance. But the world is not wise enough yet to perceive how easy and effectual a remedy this simple expedient would provide against the greatest and most extensive calamities which now afflict humanity; and so great is the power of vested capital which such calamities benefit, that it is probable several generations must descend to their graves, or become insolvent, before it is generally adopted. But the extension of the metallic currency of the globe, though it cannot altogether remove, materially lessens this dreadful danger. It inspires confidence among moneyed men. It diminishes the terror of the withdrawal of the precious metals, which, when it once seizes them, is productive of such unbounded calamities; and thus renders the granting of accommodation on their part both more abundant and more regular. Paper becomes more plentiful, because gold, on which it is based, has flowed into the coffers of the banks in larger quantities, and thus at once augmented their own treasures, and diminished the risk of their being drained away by the necessities of other men. The effect of this change in a commercial and manufacturing community is incalculable. We can form a clear idea from woeful experience, of what it is. It is precisely the converse of Sir R. Peel's measure.