Various
Blackwood's Edinburgh Magazine, Volume 69, No. 423, January 1851
Mr M'Culloch observes in his Commercial Dictionary– "Should eight or ten millions yearly, in addition to the present supply, be obtained from any other source, it will produce a gradual alteration of prices, similar to that which took place three centuries ago on the discovery of the mines of Mexico and Peru." No one can doubt that this observation is well founded; but if the effect of eight or ten millions annually added to the treasures of the world would be so considerable, what must the effect of the addition of sixteen or eighteen millions? Yet this addition is just now going on. In the month of August last, the gold shipped at San Francisco alone was 2,984,000 dollars, or about £800,000; and supposing a half more was raised, of which no account is kept, this is £1,200,000 in a single month! In five weeks from September 1, the quantity shipped was 5,000,000 dollars, or above £1,200,000; which implies at least £1,800,000 altogether obtained. This is from the labour of 40,000 or 50,000 persons only, who are at present engaged in the diggings; but it is known that from 80,000 to 90,000 will be engaged in them next year, so that the supply raised may be expected to be nearly doubled. There is great inequality in the amount obtained by individual persons employed in that laborious occupation; but taking the average, it is about four and a half dollars a day. Call it four only, and suppose they work 250 days in the year, each person at this rate will raise 1000 dollars' worth of gold, or nearly £250. At that rate, 50,000 persons would raise £12,500,000 in a year; and 75,000, £18,750,000; – which coincides very nearly with the result derived as above from other sources of information.
The bullionists, struck with terror at so prodigious an addition annually to their darling gold, and consequent diminution in its exchangeable value, are beginning to exert themselves to decry it. They say that there is a "Currency Restriction Act of Nature;" that the supply of gold from the alluvial washings will soon be exhausted; and that when the excavation comes to be made from the rocks and mountains in which the veins are embedded, it will cease to be profitable, from the hardness of the strata of rock in which the veins are found.4 The plea in abatement of the supply of gold thus likely to be obtained is very remarkable. The fact of its appearing in the highly respectable journal where it first was ushered to the world, and from the pen of the eminent geologist from whom it is said to have proceeded, are alike ominous. It shows at once how marvellously strong has been the hold which the mania for raising the value of gold and cheapening that of everything else prevailing during the last thirty years, from the influence of the holders of realised wealth, has got of the most influential classes in this country; and how deep is their alarm at the prospect of all their measures being at once blown into the air by the augmented supply of this very gold from the shores of California! A "Currency Restriction Act of Nature!" What a commentary on the measures of Sir R. Peel, so vehemently lauded and strenuously supported by all the capitalists whose fortunes, from the Currency Restriction Act of the right hon. baronet, were every day increasing in value! They would fain enlist Nature in the same crusade against labour and in favour of riches; but they may save themselves the trouble. There is no Currency Restriction Act of Nature: her beneficence, unlike that of man, is equally distributed over all her children. The Currency Extension Act of Nature will only stand forth in brighter relief from having been immediately preceded by the Currency Restriction Act of Man.
To show how chimerical are the hopes of a Currency Restriction Act of Nature, which is to limit and interrupt the blessings with which an increased supply of the precious metals for the general service of the world cannot fail to be attended, it is sufficient to observe that the auriferous region where the gold is found in alluvial deposit, is said to be a tract of country between three and four hundred miles long and from thirty to forty miles broad. It is therefore as long as from London to Berwick, and as broad as the average breadth of the plains of Yorkshire. What is the scraping or excavations of sixty or eighty thousand men on so immense a surface? Conceive every one of these persons daily digging his own grave in this auriferous region: how long will it take them to go over the whole surface and exhaust its treasures? Only apply to it the test of the rudest calculation. A square mile contains above 3,000,000 square yards. Supposing each digging occupies two square yards, there will be 1,500,000 diggings in a square mile; and if each person excavates a digging a-day, which is probably as much as can be calculated upon at an average, as the operation is so much impeded by water, 100,000 persons will take fifteen days to turn up and exhaust one square mile. In the gold region, however, there are at least 9000 square miles. Supposing that the 100,000 persons work 300 days in the year, which is more than can be calculated upon, they will only turn over and thoroughly search twenty square miles in a year. At this rate, it would take above four hundred years for even that large army of labourers to exhaust the alluvial gold region. We are aware the diggings do not go on regularly as is now supposed; that one man tries his fortune here, and another there; and that the earth is perforated at the same time in a great variety of places, many of them at a considerable distance from each other. We know, too, that the real extent of the gold region is hitherto the object of speculation and hope, rather than actual survey or knowledge. It is quite probable, too, that our calculation, which is a mere rough guess, may be above the mark in some particulars, and below it in others. Still, enough, making allowance for all such errors, remains to show that, in the alluvial gold region alone, if the accounts of its extent and riches are at all to be relied on, there is ample room for a vast annual addition to the treasures of the earth for a great many generations to come. The circumstance which makes it all but certain that the gold region must be very extensive, is its being found in the alluvial deposits of the mountain rivers, such as the Sacramento, along their whole course. If you find granite or mica slate particles in the beds of rivers and the level fields they overflow near the sea, you are sure of finding the same deposits up to the mountain regions from which they are brought down.
But what is the alluvial gold region to the mountain region from which the precious metals with which it abounds have been torn down by the storms and wintry torrents of thousands of years! If you find a detritus of a certain description in the mixed sand and gravel of a plain, you may predicate with perfect certainty the existence of mountains and rocks of the same formation in the higher regions from which it has been brought down. Granite or mica-slate debris in the beds of rivers or the level fields which they occasionally overflow, imply granite or mica-slate in the hilly region from which they take their rise. Whence has all the gold come which in the alluvial plains of California is producing such treasures, and changing prices over the whole world? It has come down from the mountains. And what must be the metallic riches with which they are charged, when the washed-down gravel at their feet is so prolific of mineral wealth! The bullionists, influenced by dread of a general rise of prices, and depreciation of the exchangeable value of their realised fortunes from this rise, say there is a "Currency Restriction Act of Nature;" that gold at any depth is unworkable at a profit; that Providence is niggardly of its bounty; and they in secret indulge the hope that it will continue permanently that contraction of the currency which they have contrived to force upon mankind, and which, while it lasted, has proved so eminently profitable to themselves. But a little consideration must show that their hopes in this respect are entirely fallacious. Granting that the veins of gold, when they go deep, are embedded in very hard rock, what is to be said to the cropping out of the veins over the vast extent of the auriferous Rocky Mountains? If the wasting away of wintry storms on the tops and sides of these mountains brings down such quantities of gold with the streams which furrow their sides, must not the laborious hand of industry prove equally efficacious in removing it? If the expansive force of a rapid thaw, following severe frost, can rend the rocks in which the gold is embedded, is not the power of gunpowder or steam equally great? Already a company, composed of English capitalists, has been formed to explore the mountain treasures; and without supposing that they are to find an El Dorado in every hill, and admitting that there may be several failures before the right one is hit on, it is morally certain that in the end the mountain reserves of treasure must be discovered.
The additions to the currency of the earth, hitherto considered, have been those coming from these auriferous regions of North America, now for the first time brought into view only; but this is by no means the whole of the provision made by nature for the extended wants of mankind in this age of transition, vehement excitement, extended transactions, and rapidly-increasing numbers. The Ural and Altai Mountains have brought forth their treasures at the same time, and provided as amply for the wants of the Sclavonic race in the Old, as the Californian hills have done for the growth of the Anglo-Saxon in the New World. Gradually, for twenty years past, the Russian treasures have been brought to light; and their progressive increase has done more to alleviate the distress and sustain the industry of western Europe than all the wisdom of man in her aged monarchies has been to effect. Grievous as have been the calamities which the contraction of the currency of the world by the reduction of paper in Great Britain, simultaneously with the ruin of the South American mines by the revolutions of its vast regions, which we laboured so assiduously to promote, have produced, they would have been doubly severe if the Ural and Altai Mountains had not provided treasures at the very time when the other supplies were failing, which in part at least supplied their place. Their influence was long felt in Europe before their amount was suspected, and even now the wisdom or terrors of the Russian Government have prevented it from being accurately known; but it is generally understood to have now reached five or six millions sterling annually; and, like the Californian gold, it is susceptible of an indefinite increase, in the event of the influx of that metal from America not lowering its value so as to render it unworkable in Asia at a profit.
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 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.
It is impossible to give a better picture of what this great Currency Extension Act of Nature will do for industry in all countries, and especially the commercial, than by saying that it will as nearly as possible reverse the effects which Mr Cobden, the great advocate for the cheapening system, said, in his evidence before the Committee on Bank Issues in 1840, he had experienced in the preceding years in his own business from the contraction of the currency consequent on the great importation of grain in 1838 and 1839: —
"I could adduce a fact derived from my own experience that would illustrate the heavy losses to which manufacturers were exposed in their operations, by those fluctuations (in 1837) in the value of money. I am a calico printer. I purchase the cloth, which is my raw material, in the market; and have usually in warehouse three or four months' supply of material. I must necessarily proceed in my operations, whatever change there may be – whether a rise or a fall in the market. I employ six hundred hands; and those hands must be employed. I have fixed machinery and capital which must also be kept going; and, therefore, whatever the prospects of a rise or fall in price may be, I am constantly obliged to be purchasing the material, and contracting for the material on which I operate. In 1837 I lost by my stock in hand L.20,000, as compared with the stock-taking in 1835, 1836, and 1838; the average of those three years, when compared with 1837, shows that I lost L.20,000 by my business in 1837; and what I wish to add is, that the whole of this loss arose from the depreciation in the value of my stock.
"My business was as prosperous; we stood as high as printers as we did previously; our business since that has been as good, and there was no other cause for the losses I then sustained, but the depreciation of the value of the articles in warehouse in my hands. What I wish particularly to show, is the defenceless condition in which we manufacturers are placed, and how completely we are at the mercy of these unnatural fluctuations. Although I was aware that the losses were coming, it was impossible I could do otherwise than proceed onward – with the certainty of suffering a loss on the stock; to stop the work of six hundred hands, and to fail to supply our customers, would have been altogether ruinous; that is a fact drawn from my own experience. I wish to point to another example of a most striking kind, showing the effect of these fluctuations on merchants. I hold in my hand a list of thirty-six articles which were imported in 1837, by the house of Butterworth and Brookes of Manchester, a house very well known; Mr Brookes is now borough-reeve of Manchester. Here is a list of thirty-six articles imported in the year 1837, in the regular way of business, and opposite to each article there is the rate of loss upon it as it arrived, and as it was sold. The average loss is 37½ per cent on those thirty-six articles, and they were imported from Canton, Trieste, Bombay, Bahia, Alexandria, Lima, and, in fact, all the intermediate places almost. This, I presume, is a fair guide to show the losses which other merchants incurred on similar articles."
It was these disastrous losses which made Mr Cobden a Free-trader. He wished to cheapen everything as his own produce had been cheapened. The contraction of the currency, and its being made dependent on the retention of gold, was the origin and root of the whole evil and all the disasters the nation has since undergone.
Such a change, however, the reverse of all this, like all those produced by nature, is so gradual as to the vast majority of men to be imperceptible. Like the gradual extension of the day in spring, or the change of temperature, the change is so slight from day to day that it eludes even the closest observation. From one month to another, however, the alteration is great and striking. The addition, first, of six or eight millions of gold, annually raised, rising by degrees to sixteen or eighteen millions – which doubles the annual supply of the precious metals for the use of the globe – being diffused over an immense surface, and finding its way more or less into the coffers of all nations, may not produce a great or even visible start of prices at any one time. But the change will be incessant; and before many years have elapsed, the result, if the increased supply continues, will be great and apparent. In the first instance, the effect will appear in arresting the fall of prices which has so long been going on, and which our legislative measures have all been calculated to increase. But after arresting the fall, it will speedily induce a rise; and this rise will for a long period be so steady and considerable as to produce a very great increase in the remuneration of the labouring classes, and immensely to benefit them. There is no speculation in this: it is only supposing that the increase of gold is to produce the same effect as the increase of silver, from the discovery of the South American mines, did three centuries ago.
The effect of the same change, by diminishing the weight of debt and taxes, will be still more signal and beneficial. Among the many and appalling evils of which a rise in the value of the circulating medium, and consequent fall in that of everything else, is productive, there is perhaps none so widespread and calamitous in its effects, as the adding to the weight of debts and taxes, and thus weighing down the energies of the productive classes, upon whose efforts the whole prosperity of society depends. It is that which has been the great cause of the long-continued depression and agony, interrupted only by fleeting gleams of prosperity, of the last thirty years, as the sudden expansion and contraction of the currency consequent on its being made dependent on the presence or absence of the precious metals, has been of its frightful oscillations. The taxes now paid by the nation, as measured by the price of wheat – the true measure – are, after, five-and-thirty years of peace, twice as heavy as they were in 1815, after twenty years of a costly war. This is what renders it so difficult for any government to maintain armaments, either at sea or land, at all commensurate to the public necessities; which has weakened our national influence, and degraded our national character, and exposed us to the deplorable state of weakness against foreign aggression, to the dangers of which, the Duke of Wellington has said he has found it impossible to awaken any Administration for thirty years. The Government see the public dangers, but they are disabled from guarding against them, because Parliament, stimulated by suffering constituencies whom the fall of prices has involved in constant difficulties, will not vote the necessary supplies. It is the same with the weight of mortgages, jointures, family provisions, bonds, bills, and debts of every description. They have all been doubled in weight since the bill of 1819 contracted the currency; and hence the inextricable embarrassments into which nearly all classes of the community have been precipitated, except the moneyed, whose fortunes have every day been increasing in real amount, from the same cause which has spread ruin so generally around them.
When it is said that the effect of Californian gold will be to reverse all this – to reduce gradually, and probably before twenty years have elapsed, half the weight of debt and taxes now felt as so grievous a burden by the community – it is affirmed that it will confer, perhaps, the greatest blessing which a beneficent Providence could confer on a suffering world. In England it will gradually and to a certain extent, so far as average prices are concerned, undo all that the Bullionists and Free-traders have been doing for the last thirty years. It will remove a large part of the frightful evils consequent on the monetary measures of Sir Robert Peel; and if seconded by a revision of our import duties, and a moderate tax for fiscal purposes on all foreign articles brought into the country, it would go far to repair the devastation produced by the selfish legislation of the last thirty years. In France it will arrest that dreadful fall of wages which, ever since the peace, has been felt to be increasing, from the constant reduction of prices arising from the destruction of the South American mines, and the simultaneous measures adopted for the contraction of the currency in Great Britain. The unjust monopoly of realised capital will be arrested, at least for a long period. The unjust depression of industry, by the continued fall of prices, will be gradually terminated. But so gradual will be the change, and so unseen the operation of the vivifying element thus let into society, that even the classes most benefited by it will, for the most part, be ignorant of the cause to which their improved circumstances have been owing. They will be blessed by the hand of Nature, they know not how or by whom, as, under the former system, they were cursed by the hand of man, they knew not how or by whom.
Already the beneficial effects of Californian gold have been felt over the whole world, and nowhere more strongly than in this country. It is well known that prices of all articles of commerce, except corn and sugar, have risen twenty or thirty per cent within the last year; and the Free-traders consider that as being entirely owing to their measures. If so, it is singular how corn and sugar, on which the inundation of Free Trade has been chiefly let in since 1846, should be the only exceptions to the general rise. It is singular what contradictory effects they ascribe to their system: at one time it is lauded to the skies, because it tends to lower prices, and cheapen every article of consumption; at another, because it is said to raise prices, and encourage every branch of industry. Both effects cannot be owing to the same system: to ascribe them both to it is to say that a certain combination of gases produces alternately fire and water. At all events, if Free Trade brings about a rise of prices, what comes of all the arguments which went to recommend it on the score of reducing them? The truth is, however, Free Trade has nothing whatever to do with the recent rise of prices of manufactured articles, nor with the extension of the national exports which has taken place. These happy results, the passing gleam of sunshine, have been entirely owing to other causes, among which Californian gold bears a prominent place. Free Trade has tended only to continue and perpetuate the misery and depression which attended its first introduction.