moersttt) of 
 4 v (California 
 
THE INCREASING 
 GOLD SUPPLY 
 
 And Its Effect on SECURITY VALUES; 
 
 INTEREST RATES; COMMODITY 
 
 PRICES, Etc. 
 
 Compiled from 
 
 THOMAS GIBSON'S 
 SPECIAL MARKET LETTERS 
 
 1908 
 
 WITH AN APPENDIX 
 
 TM 
 
 NIVERSITY 
 
 or 
 
 Published by 
 THE GIBSON PUBLISHING COMPANY 
 
 15 William Street, New York 
 

 Copyright, 1908, by 
 
 THE GIBSON PUBLISHING COMPANY, 
 All rights reserved. 
 
Contents. 
 
 Page 
 
 Gold Depreciation and Security Values - 3 
 By Byron W. Holt 
 
 Increasing Gold Supply and Stock Prices 20 
 By Maurice L. Muhleman 
 
 Gold Supply Not Too Great 32 
 
 By Maurice L. Muhleman 
 
 Review of the World's Gold Supply - - 37 
 By Arthur Selwyn-Brown 
 
 Gold Depreciation Means Rising Commod- 
 ity Prices -- 59 
 
 By W. G. Nicholas 
 
 Gold Inflation and Interest Rates - - - 67 
 By Professor J. Pease Norton 
 
 The Gold Supply -- 73 
 
 By Thomas Gibson 
 
 Appendix. 
 
 Page 
 
 The History of Prices 97 
 
 By Arthur Selwyn-Brown 
 
 Gold Production and Prices - - - - 115 
 By Charles A. Conant 
 
 An Answer to the History of Prices - - 118 
 By Alonzo E. Cottier 
 
 Gold Depreciation (A Rejoinder) - - - 126 
 By Byron W. Holt 
 
 189705 
 
FOREWORD. 
 
 Interest in the letters bearing on the gold 
 supply and its effects on security prices which 
 have been issued from this office recently has 
 been so great that I have decided to combine 
 the views of several authorities in a single 
 volume. 
 
 A correct understanding of this matter is of 
 vital importance to every business man and 
 particularly to the investor or speculator in 
 bonds, stocks or commodities. Mr. Maurice L. 
 Muhleman, Mr. Byron W. Holt, Mr. Arthur 
 Selwyn-Brown, Professor J. Pease Norton and 
 Mr. W. G. Nicholas, who are the contributors 
 to this brief symposium, are all eminently ca- 
 pable of passing competent opinions on the 
 subject. 
 
 As my personal study of the subject has 
 been directed particularly to the speculative 
 phase of the matter, I have produced a chapter 
 on gold from a recent work. 
 
 THOMAS GIBSON 
 
THI 
 UNIVERSITY 
 
 Of 
 
 Gold Depreciation and Security Values. 
 
 By BYRON W. HOLT. 
 
 The big investors, speculators and property 
 owners of the world are, as a rule, men of 
 unusual intelligence and keenness. Besides be- 
 ing practical men of affairs they are usually 
 somewhat close students of conditions and 
 markets. They have learned how to solve all 
 of the ordinary industrial and financial prob- 
 lems in a way to add to their property 
 holdings. 
 
 In recent years, however that is, since 
 about 1896 a new factor has appeared in 
 money-making problems that is so insidious 
 and disturbing that it is confusing and con- 
 founding our wealth-getters, both great and 
 small. Because of the influence of this very 
 important new factor in upsetting many of the 
 calculations of our actuaries, treasurers and 
 auditors, not a few of the old lessons, rules 
 and maxims for acquiring wealth will have 
 to be unlearned or reversed. 
 
 For example, there is no more certain road 
 
 This article was specially prepared for the market letter 
 service. 
 
to wealth to-day than to go into debt intelli- 
 gently. Neither is there any more certain way 
 to lose wealth than to become an ordinary 
 creditor that is, to own first-class bonds from 
 year to year. To-day, the conservative who 
 puts his money into government or other high- 
 grade bonds will see his fortune vanish, while 
 the reckless speculator who puis his money 
 into heavily mortgaged real estate or the stocks 
 of heavily-bonded industrial corporations may 
 see his wealth multiply rapidly. If he buys 
 these stocks on a safe margin, his wealth 
 will multiply even faster. 
 
 To those who do not see, or do not under- 
 stand, the new and great fundamental cause 
 that is silently but surely and rapidly chang- 
 ing the ownership of wealth and overturning 
 the conclusions of the past experience of 
 wealth-getters, success or failure appears to be 
 uncertain and a matter of blind chance. To 
 some extent this may be true. Some investors 
 and speculators may happen, ignorantly, to buy 
 and hold the same classes of securities that 
 they would buy and hold if they were acting 
 intelligently; but this is unlikely. Those who 
 know the good things from the poor things 
 will almost certainly succeed in trading off the 
 poor things for the good ones. 
 
 For example, ordinary investors are, per- 
 haps, now selling more stocks than they are 
 buying. They cannot understand why stocks 
 
should continue to advance and to show such 
 remarkable strength, in the face of existing 
 facts or of any coming industrial improve- 
 ment that appears probable to their ordinary 
 minds. They think somebody is making a 
 great mistake in buying stocks so confidently. 
 
 But, suppose the big somebodies who are 
 now buying the stocks that the public is sell- 
 ing have their eyes open to some new facts and 
 conditions that make it reasonably certain 
 that business will revive so rapidly that stocks 
 will be in great demand at high prices six 
 months hence; who, then, is mistaken? 
 
 There are rumors that the effect of gold 
 supply and depreciation upon security values 
 has been a subject of discussion in recent con- 
 ferences held in the offices of some of our 
 greatest financiers. It is said that the conclu- 
 sions there reached, at least in the minds of 
 some of the participants, are likely to have 
 far-reaching effects upon security prices. Mr. 
 Howard S. Mott, the financial editor of 
 Harper's Weekly, says, in the issue of 
 August 29: 
 
 "There is no real 'new dogma' in this theory 
 of the effects of gold depreciation. But the 
 acuteness of some of the effects recently wit- 
 nessed has led to earnest consideration of the 
 problem it presents by many students of 
 finance. It is quite conceivable that our cap- 
 tains of industry may be actuated in the 'wis- 
 
dom' they are displaying at the present time 
 by a good understanding of this problem." 
 
 In considering this gold problem several 
 important questions were presented: 
 
 1. Will the gold supply continue to increase 
 rapidly for years to come? 
 
 2. Does the purchasing power of gold de- 
 crease as the quantity of gold increases? 
 
 3. Assuming that gold will continue to de- 
 preciate in value (that is, that prices will rise), 
 what will be the effect upon interest rates, bond 
 values, earnings, stock prices, etc.? 
 
 The first question has been well answered 
 by Mr. Arthur Selwyn-Brown in Thomas Gib- 
 son's Special Market Letter of July 28, 1908. 
 As a mining engineer and expert, he reaches 
 the conclusion, after considering the world's 
 sources of gold supply, present mining methods 
 and capital employed, and future probabilities 
 as to new sources of supply and methods of 
 production, that "We may confidently antici- 
 pate progressive yearly increases in production." 
 
 While there are some mining engineers who 
 are less confident of the future than is Mr. 
 Selwyn-Brown, there is good reason for think- 
 ing that his conclusion is entirely conservative. 
 Gold production, in recent years, has been es- 
 tablished on a very different and much more 
 certain basis than that of 20 or 30 years ago. 
 To-day the output is less dependent upon the 
 uncertain output from placer mines and more 
 
dependent upon the almost certain output from 
 the inexhaustible supplies of low-grade ores 
 in rock, sand and clay. Apparently, the only 
 thing that can materially lessen the output of 
 gold will be the increased cost of obtaining it, 
 due to the depreciation of gold itself. If im- 
 provements in mining and metallurgical proc- 
 esses do not keep pace with the decreasing 
 purchasing power of gold, there must, and will, 
 come a time when, because of rising wages and 
 rising prices of machinery and supplies, the 
 cost of mining will so nearly equal the value 
 of the gold produced that production will 
 diminish. 
 
 The Wall Street Journal of June 5, 1908, 
 expressed the opinion that "already, it may 
 be said that the gold production is apexing," 
 and that, "in the opinion of the leading mining 
 authorities of the world," the output will begin 
 to fall off in from three to five years. Unfor- 
 tunately, the Wall Street Journal did not men- 
 tion its authorities or give us their arguments. 
 Had it done so, it might be possible to show 
 that these same authorities have been advanc- 
 ing these same arguments for ten or twenty 
 years arguments that have been already dis- 
 proved by facts. One of these authorities may 
 be the writer in the Engineering and Mining 
 Journal of June 27, 1908,, who said: 
 
 "It has been shown by many authorities that, 
 taking into consideration all outlay, gold has, 
 
8 
 
 in late years, been produced at a loss. While 
 the mines that pay dividends are exceptional, 
 those that produce gold at a loss are plentiful." 
 
 It may be true that the average cost of pro- 
 ducing gold exceeds the value of the gold out- 
 put. The production of gold does not neces- 
 sarily stop when the cost exceeds its value. 
 Men do not stop speculating in Wall Street 
 because the average speculator loses money. 
 Only 15 or 20 per cent, win, and yet the supply 
 of speculators does not diminish. The oppor- 
 tunities for big winnings attract both specula- 
 tors and miners. 
 
 As, however, the production of gold becomes 
 less and less dependent upon chance finds and 
 more dependent upon the use of "stamp mills," 
 cyanide mills, dredging machines and other 
 gold-extracting apparatus, employed mainly by 
 large corporations and working on inexhaust- 
 ible supplies, the profits of production will, in 
 future, be more calculable and certain and the 
 amount of gold produced at a net loss will 
 diminish. 
 
 The one thing certain is that the output of 
 gold has doubled twice in about 24 years and 
 is continuing to increase rapidly this year. 
 The payment, in London, a few days ago, of 
 $25,000,000 in dividends on South African min- 
 ing stocks and the fact that these stocks have, 
 within three weeks, added $100,000,000 to their 
 former values, does not indicate that gold is 
 
produced at a loss in the world's greatest 
 mines, or that "gold production is apexing." 
 If the output of gold continued to increase at 
 an average rate of about 8% from 1901 to 
 1907, when times were good and the cost of 
 mining was rising rapidly, will it not be likely 
 to increase even more rapidly this and next 
 year, when times are bad, when labor is cheap 
 and efficient and when prices of commodities 
 are considerably lower than in 1901 and 1907? 
 Is it not the rule that a boom in the mining 
 of gold and silver follows an industrial depres- 
 sion? Is not a decline in prices and wages 
 equivalent to an advance in the price of gold? 
 The profits of production being greater, why 
 should not the output of gold increase rapidly 
 at such times? 
 
 WILL GOLD DEPRECIATE AS THE 
 QUANTITY INCREASES? 
 
 Space will not permit even the mention 
 here of the various theories held by economic 
 authorities in regard to the "quantity theory 
 of money.'* We believe, however, that the 
 best thought of the best economists is reaching 
 the conclusion that the cost of producing gold 
 determines, or tends to determine, the exchange 
 value of gold with other commodities, just as 
 the cost of producing other commodities deter- 
 mines their exchange value with each other. 
 This being true, it naturally follows that when 
 
10 
 
 the cost of producing gold, measured by other 
 commodities, is low, both the production of 
 gold and the supply of gold will increase. As 
 the quantity increases the quantities of other 
 products for which it exchanges will gradually 
 decrease. That is, the prices of commodities 
 will rise. 
 
 It is not necessary that there should be an 
 exact ratio between the quantity of gold and 
 of other commodities. Thus no one, perhaps, 
 will pretend to say that prices should exactly 
 double every time the quantity of gold doubles, 
 or that a 25% increase in the supply of gold 
 will be followed by a 25% increase in the aver- 
 age of prices. It is probably true, however, 
 that the ratio between gold and other things 
 is more nearly direct than is the exchange 
 value (price) between the changing quantities 
 of other commodities. That is, a 100% in- 
 crease in the world's supply of gold will more 
 nearly depreciate the value of gold 50% than 
 will a 100% increase in the quantity of wheat, 
 or copper, or peaches, or maple sugar depre- 
 ciate the price of either, or all, of these com- 
 modities by 50%. Doubling the quantity of 
 some commodities would more, and of others 
 less, than halve their prices. Doubling the 
 quantity of gold will, perhaps, after allowing 
 for the growth in the world's supply of goods 
 and for the natural decline in the price of 
 commodities (especially manufactured ones). 
 
11 
 
 be about equivalent to doubling the prices of 
 commodities that is, to depreciating the pur- 
 chasing power of gold 50%. 
 
 Thus, since 1896, the world's visible supply 
 of gold has increased from $4,359,600,000 to 
 about $7,250,000,000, in 1908, or 66%. From 
 1896 to March, 1907, average prices rose about 
 60% in this country, and 40% in England. 
 From March, 1907, to June, 1908, prices de- 
 clined about 15% both in this country and 
 in England. From June to August prices rose 
 about 3% in this country. At present, there- 
 fore, average prices are about 45% higher in? 
 this country and 25% higher in England than 
 they were ten or twelve years ago. 
 
 Assuming that monopolies are largely re- 
 sponsible for the greater advance in prices in 
 this country than in England, it appears that 
 average prices are now about 30% higher than 
 they were in 1896 and 1897. Average prices, 
 then, have risen about 30%, while the quan- 
 tity of gold has risen 60%. It would appear 
 from these statistics that a yearly increase of 
 about 2^% in the world's gold supply is nec- 
 essary to offset the natural decline in prices, 
 and the increased quantity of goods and that 
 all above this 2%% tells directly on prices. This 
 statement is, of course, only an approximation. 
 It may be far from true in the next decade. 
 It is probable that, during the next two years, 
 prices will advance much faster than the gold 
 
12 
 
 supply will increase. Possibly, and even prob- 
 ably, the rise in prices, during the next five 
 years, will fully keep pace with the rise in the 
 quantity of golcj. 
 
 If then, as now seems probable, the world's 
 visible supply of gold increases 25% by 1913, 
 it is more than likely that the price level will 
 then be fully 25% higher than it now is. By 
 1918 we may confidently expect to see prices 
 50% higher than they now are. 
 
 EFFECTS UPON INTEREST RATES AND 
 SECURITY VALUES. 
 
 The preceding brief discussion of gold out- 
 put and depreciation is necessary because it is 
 fundamental. 
 
 If the gold supply is not to continue to in- 
 crease or if an increase in the world's gold 
 supply does not mean higher prices for com- 
 modities, then there is no need to waste time 
 discussing the effects of the gold supply upon 
 security values. 
 
 It is reasonably certain, however, that our 
 gold supply will continue to increase rapidly 
 and that prices of commodities will continue 
 the rapid rise of the last eleven years, broken 
 only in 1903 and 1907. 
 
 One of the most certain results of depreciat- 
 ing gold and rising prices is rising or high 
 interest rates. This anomalous fact is not 
 understood by many investors and speculators. 
 
13 
 
 nearly all of whom naturally suppose that 
 more money means cheaper money that is, 
 lower interest rates. The explanation is not 
 difficult. 
 
 When prices are rising rapidly, from year to 
 year, there is a great demand for money to 
 invest in property which is appreciating in 
 value and in the production of the things that 
 the people are willing to buy at higher and 
 higher prices. Nearly everybody wants to 
 speculate in commodities and opportunities to 
 production. Those who are without capital 
 are willing to pay high rates of interest to 
 obtain it. 
 
 When prices are rising, the owners of prop- 
 erty that is increasing in value are getting 
 richer and feeling richer ; hence they are spend- 
 ing freely. Because prices are rising, mer- 
 chants are buying more goods, farmers more 
 land and real estate speculators more lots and 
 houses than they need. Everybody is trying to 
 get ahead of everybody else. The monopoly 
 and forestalling game goes on at accelerating 
 speed, until something happens to cause a halt. 
 Then, suddenly, everybody wants to sell and 
 get out. Prices tumble, possible a panic oc- 
 curs and then follow one, two or three years 
 of depression and recuperation. 
 
 Human nature,, remaining unchanged, rap- 
 idly rising prices will always mean extrava- 
 gance, recklessness, over-speculation, inflation, 
 
14 
 
 collapse, remorse. Periods of great industrial 
 activity and of stagnation and depression will 
 follow each other in rapid succession. The 
 masses of the people will become discontented 
 and rebellious. 
 
 Viewed from the standpoint of the lender 
 of capital, we can see another reason why in- 
 terest rates should be high when money is 
 depreciating in value. If the depreciation is 5% 
 a year the principal of a debt is losing 5% of 
 its purchasing power each year. At such a 
 time a rate of 4% would yield 1% less than 
 nothing to the lender of capital. It is evident 
 that the rate of money interest should be suffi- 
 cient not only to make good the shrinkage in 
 the principals of debt, but to return something 
 more to lenders. 
 
 This somewhat new theory of money rates 
 is fully discussed in Professor Irving Fisher's 
 recent work on "The Rate of Interest." It is 
 now fully accepted by John B. Clark, J. Pease 
 Norton and other professors and economists. 
 It is the only theory that fits the facts at all 
 times and in all places. It explains why inter- 
 est rates have been high, during periods of 
 great gold production, and low during periods 
 of low production. It explains why interest 
 rates were, previous to 1896, higher in silver 
 than in gold-using countries. 
 
 It is certain that interest rates have averaged 
 very high during the last six or eight years. 
 
15 
 
 It is almost as certain that they will average 
 high (say, from 5 to 7% for time money) dur- 
 ing the next five or ten years. The present 
 low rates may last a few months longer, but 
 are reasonably certain to be followed by con- 
 siderably higher rates within a year if not 
 within six months. 
 
 HIGH INTEREST RATES MEAN LOWER 
 PRICES FOR BONDS. 
 
 Men with surplus money are always on the 
 lookout to get as big a yield as possible from 
 it. They will not long hold bonds that yield 
 only 4 or 5% when they can loan money out- 
 right at si or 6%. Beyond question, the prices 
 of bonds depend mainly upon the rate of 
 interest. 
 
 Because interest rates were high and rising, 
 from 1904 to 1907, the prices of bonds declined 
 during this period. Because the rate of in- 
 terest is temporarily low the prices of bonds 
 are now rising. Both because the rate of in- 
 terest will soon begin to rise again and because 
 there is a tremendous supply of unsold bonds 
 (many of them carried over from 1906 and 
 1907), the present rise in the prices of high- 
 grade bonds is likely to be short lived and 
 very disappointing to the many bond dealers 
 who are confidently expecting several years 
 of rising bond prices and prosperity. 
 
 Already we see signs of a turn in the prices 
 
16 
 
 of the highest grade bonds. British consols, 
 although they rose only 5 or 6 points from 
 their lowest prices (from about 82 to 8yi) are 
 now slowly declining again. They are now 
 about 20 points below their high prices of a 
 few years ago. 
 
 It is doubtful if our municipal and state 
 bonds will sell higher, at any time, than they 
 are now selling. A 4% basis will probably be 
 about the minimum for the next few years. 
 Within two years we are likely again to be on 
 a 4.4% basis for cities and a 5 to 6% basis 
 for the best railroad bonds. This means that 
 our municipalities, railroads and other corpora- 
 tions will soon have to pay higher rates for 
 loans. This, in turn, means higher fixed 
 charges and increased expenditures. 
 
 RISING PRICES MEAN HIGHER OPERATING 
 
 COSTS. 
 
 Rising prices and high interest rates mean 
 high cost of operation and production on rail- 
 roads and other public-service corporations, 
 and in mills and mines. By increasing the 
 cost of living they necessitate high wages and 
 thus, again, necessitate increased cost of pro- 
 duction. As wages rise more slowly than 
 prices and the cost of living, labor becomes 
 dissatisfied, inefficient and often turbulent, dur- 
 ing periods of rising prices. This fact increases 
 the burdens and troubles of corporation offi- 
 cials and other producers and employers. 
 
17 
 
 Some industries are free to recoup losses 
 from increasing cost of operation; others are 
 not. In the fortunate class are most manufac- 
 turers, merchants and professional men. If, in 
 addition, they own mines, forests, land and 
 buildings, they are doubly fortunate, for these 
 will rise in nominal value as gold depreciates. 
 If, besides, these owners of productive forces 
 have their properties mortgaged at low rates 
 of interest, they are trebly fortunate. Their 
 debts will depreciate as the purchasing power 
 of gold declines. 
 
 Railroads cannot, as a rule, increase rates 
 except with the consent of commissions or 
 legislative bodies. This practically means that 
 they cannot recoup their losses from increasing 
 cost of operation, until their situation becomes 
 desperate. They suffered much from this dis- 
 ability in 1906 and 1907. They are likely to 
 suffer far more in the next five years. The 
 effects will be felt most by the great trunk 
 line roads with their expensive terminals and 
 heavy capitalization. They will be felt least 
 by the roads in undeveloped territory. Roads 
 that own mines or large tracts of land will 
 benefit materially by their appreciation. 
 
 Street railways will fare even worse than 
 will the steam roads by gold depreciation. 
 Relatively, the street railways expend more for 
 labor than do the steam roads. They are, 
 therefore, hit much harder by rising wages 
 
18 
 
 than are the steam roads. Besides, the oppor- 
 tunities for economies are not so great as with 
 the steam roads. The difficulties of raising fares 
 are also even more difficult than in the case of 
 steam roads. The future for the stocks of 
 most street railways, and especially for the 
 over-capitalized ones, is not bright. They may 
 hold up well for a year or two longer. After 
 that, the slow but sure process of increasing 
 cost of operation is likely to tell adversely 
 on the value of their stocks. 
 
 The stocks of other public-service corpora- 
 tions gas, water, electric light, telephone, etc., 
 companies will behave much as will those of 
 street railways. The prices of the products 
 or services of all of these corporations are 
 fixed by law or custom. They can be raised 
 only with great difficulty. Unless invention 
 and cheaper cost of service can keep pace with 
 gold depreciation the net earnings of these 
 corporations will diminish towards, if not to, 
 the vanishing point. 
 
 The growth of some cities will, of course, be 
 sufficient, for several years, to overcome the 
 increasing cost of operation. As a rule, how- 
 ever, the stocks of public-service corporations 
 may be expected to decline from year to year. 
 
 I will not attempt to discuss here the effects 
 of gold depreciation upon debtors and creditors 
 and upon the distribution of wealth. Generally 
 speaking, debtors are benefited, and creditors 
 
19 
 
 injured, by a depreciating standard of value. 
 Wealth is distributed quite differently from 
 what it would be under a stable standard of 
 value. This different and unjust distribution 
 causes great dissatisfaction and unrest, which 
 shows itself in politics, religion and industry. 
 The indirect effects of this discontent upon 
 security values is likely to be very great in 
 the next five years. 
 
^Increasing Gold Supply and Stock 
 Prices. 
 
 By MAURICE L. MUHLEMAN, ex-Deputy Assistant Treas- 
 urer of the United States. 
 
 The enormous increase in the world's pro- 
 duction of gold and its influence upon 
 economic conditions, particularly with refer- 
 ence to the future of investments and specu- 
 lation have been quite extensively discussed in 
 recent years. It may seem to those who have 
 followed the discussion that the subject has 
 been fully covered; but the factor of reserves, 
 to which I merely referred in my paper in- 
 cluded in the "gold symposium" conducted by 
 the editor of Moody's Magazine in December, 
 1905, has not, in my opinion, received adequate 
 attention. 
 
 The function performed by the yellow 
 metal, of furnishing a medium of exchange, 
 important as this is, must be regarded of far 
 less potency in economic influence than the 
 function of serving as a reserve basis for 
 credits, which has almost universally de- 
 
 This article was specially prepared for the market letter 
 service. 
 
 20 
 
21 
 
 volved upon it exclusively. A review of the 
 data bearing upon this point may prove useful 
 in determining the probable course of events. 
 As introductory thereto, the statistics of pro- 
 duction and distribution of gold should be 
 presented. 
 
 It will be recalled that during the decade 
 from 1878 to 1887 the average annual product 
 was about 105 millions; thus the addition to 
 the monetary stock was practically negligible 
 in amount, after making allowances for indus- 
 trial consumption, losses and hoarding in the 
 Orient (Egypt, India, China, etc.). It was 
 hence natural that a substantial part of the 
 world's population should turn to silver to 
 supply the growing monetary needs. Inade- 
 quate reserves tended to retard development. 
 
 In the following decade (1888 to 1897) tne 
 average production was 161 millions, the 
 greater part of the increase occurring in the 
 latter half of the period. The movement toward 
 silver ceased; a number of nations adopted 
 the gold standard in place of the silver or 
 bimetallic; and they were enabled to acquire 
 the necessary yellow metal owing to the coin- 
 cident falling off in ordinary demand due to 
 the slow recovery from the general depression 
 following the financial crisis of 1893. 
 
 In the decade closing with the last year (1898 
 to 1907) the average annual output more 
 than doubled, reaching the unprecedented fig- 
 
22 
 
 ure of 325 millions; and this notwithstanding 
 the interruption of production in 1899 to 1901, 
 due to the Boer War, which prevented the 
 disemboweling from the earth of probably 200 
 millions. It is to the economic developments 
 of this decade that attention should be directed ; 
 the depression referred to above reached its 
 end in 1897, the period of low ebb in prices and 
 in enterprise. 
 
 The available statistics indicate that of the 
 3,250 millions of gold produced in the decade, 
 approximately 2,300 millions were made avail- 
 able for monetary purposes; 950 millions were 
 diverted to the arts and into hoards. Of the 
 monetary gold thus added 1,100 millions may 
 be assigned to Europe, 850 millions to the 
 United States, 350 millions to the rest of the 
 world. Estimating the world's monetary stock 
 at the end of 1907 at 7,000 millions, the in- 
 crease has been nearly 49%. Europe's supply 
 increased nearly 37^%, that of the United 
 States about 112%; the rest of the world 
 gained nearly 46%. Europe and the United 
 States together have over 84% of the total; 
 they have a little less than one-third of the 
 population, but control fully So% of the im- 
 port trade of the world. 
 
 Our purpose requires the consideration of 
 the manner in which the added gold was used, 
 to facilitate credit and capital supplies to the 
 renascent enterprise of the civilized world, 
 
23 
 
 emerging from its semi-paralysis after 1897. 
 It was necessarily made available to industrial 
 and commercial development through bank 
 reserves. The absence of correlative demand 
 for money-means prior to 1898 caused the ab- 
 normally low discount rates which prevailed 
 for several years in all the financial centers of 
 the world. When the stimulus of the "renais- 
 sance" was felt rates rose, reaching a maximum 
 in 1899-1900, when, owing to the check upon 
 South Africa's production, demands had tem- 
 porarily outrun supplies. Thereafter rates 
 adjusted themselves generally to a higher level. 
 
 It is to be noted here that commodity prices 
 advanced and prices of securities having fixed 
 income values declined; indicating a cheapen- 
 ing of money notwithstanding the higher 
 current rates recorded; upon the other hand, 
 securities having an indeterminate income rate 
 rose materially in the markets, in a certain 
 degree speculatively. This was the general 
 trend, although violent fluctuations took place ; 
 and some noteworthy abberations are observed 
 which are referable to the manner in which the 
 reserve gold was employed. 
 
 It is essential to have continuously in mind 
 that money-means include bank-credits, the 
 instrumentality by which liquid capital is pro- 
 vided; the supply of actual money, in the com- 
 mon use of the term, except so far as it relates 
 to reserves, is of subordinate importance; de- 
 
24 
 
 posits and credit-notes, and the basis upon 
 which they rest, constitute the factors of para- 
 mount influence. Of the 1,100 millions of gold 
 gained by the countries of Europe not more 
 than one-half went into reserves; of the great 
 gain recorded for the United States reserves 
 took about 500 millions. The gold which went 
 into general circulation was obviously deprived 
 of its full efficiency. 
 
 It is the degree of efficiency with which gold 
 is utilized that tends to regulate the provision 
 of money-means and their cost; the salient 
 elements in financial operations. We are with- 
 out accurate or complete data whereby this can 
 be measured; yet as regards Europe and the 
 United States we have sufficient to enable us 
 to approximate. From these it is safe to con- 
 clude that the gold reserves in Europe are 
 about twice as large in ratio as are those of 
 the United States, and that the expansion of 
 credits in the decade has been very much less, 
 both actually and relatively. The statistics of 
 note issues in Europe are particularly inter- 
 esting ; the increase in the decade has been 800 
 millions, with an increase of the gold reserves 
 of 250 millions ; the ratio of gold has been main- 
 tained at very nearly 50%. 
 
 The available data for the United States 
 show an expansion of credits of banks other 
 than savings institutions of over 200%, an in- 
 crease of gold reserves of only 100%. The 
 
25 
 
 ratio of gold held against our credit currency 
 was in 1907 only 21.8%; less than half the 
 ratio in all Europe. 
 
 The operations of the systems of the four 
 leading nations in the financial world will 
 throw further and more satisfactory light upon 
 the events. Widely varying in constitution as 
 they are, the inter-action and inter-dependence 
 are nevertheless marked. Great Britain, be- 
 cause of the vast aggregation of capital, is the 
 chief source of supply; the United States, with 
 almost boundless natural resources and energy 
 stands first in the line of demand. British 
 operations are carried on most largely by 
 checks upon bank credits ; in the United States 
 this is so in less degree; Germany and France 
 use coin and bank-notes much more extensive- 
 ly. This importance of the reserve is the same 
 whether it stands against check-money or 
 notes. 
 
 France conducts her operations through a 
 central bank under Government supervision; 
 it is essentially a currency bank, its deposits 
 (other than public moneys) being less than 
 one-tenth of its note-issues. Respecting re- 
 serves the restriction is that the bank must 
 hold sufficient coin so that it shall not fail to 
 pay its notes and deposits on demand; the 
 remaining assets are chiefly short-time com- 
 mercial paper re-discounted for other banks; 
 it may use large silver coin in payments (the 
 
26 
 
 bimetallic law prevails), yet in fact its gold 
 holdings are considerably more than 50% of its 
 demand liabilities. In the past decade the gold 
 increased to 160 millions, note-issues less than 
 200 millions. The margin of expansion is con- 
 sequently very considerable. 
 
 Other French banks carry much larger de- 
 posits than the central bank, but with relatively 
 small reserves, and part of these are held in 
 the great bank; the ratio of "cash in hand 
 and in the bank" is probably not in excess of 
 10% ; but with the right to rediscount paper 
 immediately the other banks have the means 
 to restore reserves quickly from the central 
 bank's stock. The mechanism has operated so 
 that the discount rate in Paris was for a period 
 of nearly seven years from 1900 maintained 
 without change at 3%, an inestimable boon to 
 all interests. Such expansion as was neces- 
 sary having been accompanied by a corre- 
 sponding growth of gold, the conditions re- 
 mained stable, until our panic caused disturb- 
 ance; yet this brought about a rise in discount 
 rates to only 4%. 
 
 Germany has also a Government-supervised 
 central bank, chiefly a currency bank; yet its 
 deposits are relatively larger than in the case 
 of the French bank. It may issue additional 
 notes to meet demands subject to a 5% tax, 
 without reference to its reserves. The gold 
 ratio is hence usually lower than in France, 
 
. 27 
 
 3 to 35% being the recent average. Here also 
 the other banks, with very extensive deposit 
 accounts, carry much of their reserve in the 
 central institution, having cash on hand only 5 
 to 6%. The margin of expansion except sub- 
 ject to the tax is narrow; hence discount rates 
 fluctuate very considerably, the record for the 
 period of absolute stability in France referred to, 
 showing a range from 3 to 7%, with 21 
 changes; the panic pressure of 1907, causing 
 a net loss of 28 millions of gold, brought the 
 rate to 7%%. 
 
 The German mechanism in theory provides 
 for automatic expansions and contractions of 
 notes and credits by means of the tax; this 
 doubtless serves to restrain inordinate specu- 
 lation. Yet it does not obviate a fierce struggle 
 to maintain gold reserves which manifestly 
 operates to tax all business interests. How- 
 ever satisfactory the system may have worked 
 in aiding the development of the Empire,, there ^ 
 are evident defects: the supply of gold in actual 
 circulation is much larger than need be, and 
 the strain upon reserves causes undesirable 
 instability. 
 
 In England a privately-controlled central 
 bank regulates a system in which numerous 
 powerful institutions are dominant factors. 
 The note-issues, covered partly by coin and 
 partly by bonds, are not large; deposits of the 
 central bank, while ordinarily less than twice 
 
28 
 
 the note-issues in amount, are only a fraction 
 of those of the other banks. Yet the latter hold 
 relatively small cash reserves, probably 
 5%, depending upon the great bank there- 
 for; the bulk of its deposits consists 
 of these reserves; it endeavors to main- 
 tain a 40% ratio against these liabilities, 
 but the margin is frequently narrow. Hence 
 discount rates ranged between 2^ and 6% dur- 
 ing the seven years from 1900, and reached 7% 
 under the panic pressure of 1907. 
 
 Expansion appears in the deposits of the 
 other banks, undeterred by reserve require- 
 ments. Thus the liabilities grew in the past 
 decade fully 600 millions for the United King- 
 dom, yet the entire stock of gold increased 
 only 100 millions, and not all of this accrued 
 to reserves. A struggle for gold manifests 
 itself first in the British center; the mechan- 
 ism enables its bank to shift demands upon 
 other points, but this is done at largely in- 
 creased charges for money, taxed upon busi- 
 ness. 
 
 The effect of the panic upon the three great 
 banks is treated in great detail, showing the 
 changes week by week, in pages 189-197 of 
 my work "Monetary and Banking Systems," 
 just published. 
 
 In the United States the monetary affairs 
 are conducted by about 20,000 individual 
 banks under indifferently effective govern- 
 
29 
 
 mental supervision; they create credits under 
 very lax reserve restrictions, excepting only 
 the few national banks in central reserve 
 cities (New York, Chicago and St. Louis). 
 Those in the chief center undertake regulation 
 in a measure, but the results are not satisfac- 
 tory. The great mass of the institutions are in- 
 adequately provided with cash reserves, be- 
 cause of the permitted inordinate expansion of ^ 
 credits. The greater part of the nominal re- 
 serves is loaned to banks in the centers; much 
 of the cash reserve consists of Government and 
 bank notes; hence the credits are in a large 
 measure supported by credits, instead of by 
 gold. Even this conglomerate cash reserve de- 
 clined in relation to deposit liabilities from 
 18.8% to 11.3% in the past decade. 
 
 Conditions of demand require the provision 
 of greater supplies cf cash as well as credit 
 means, in the latter half of each year; but the 
 practice causes the major part of each year's 
 added supply to continue in use; the excess is 
 concentrated in the center, causing congestion 
 there during the period of slackened demand; 
 when the needs recur the imperative recall of 
 the funds causes stringency; sometimes creat- 
 ing panic. We have thus a record cf instability 
 of money-rates not found elsewhere in the 
 world, manifested principally in the rates for 
 "call-loans" annually for considerable periods 
 below 2%, and at other periods rising frequent- 
 
 
30 
 
 ly to 1 00% and more; ordinary loans show fluc- 
 tuations equally vicious although not so vio- 
 lent; and rates at interior points, while fluc- 
 tuating less, are at materially higher figures 
 than they should be, because of the artificially 
 created dearth of means there. 
 
 The alternating "feast and famine" in the 
 supply of money means as indicated by the 
 rates are obviously due to the almost unre- 
 strained expansion attributable partly to the 
 wretched currency system, partly to the irra- 
 tional reserve requirements. The excessive 
 means existing in the first half of each year are 
 employable only in the speculative field; the 
 absurdly low rates incite inordinate specula- 
 tion; the violent fluctuations in money rates 
 cause violent fluctuations in the security mar- 
 kets; inflation of prices, reactions, periodical 
 crises, scrambles for gold ; these conditions are 
 not only pernicious to the security markets, 
 but detrimental to all interests. It is clear that 
 approximately stable money rates are impera- 
 tively needed; that changes in our currency 
 and reserve laws would bring this about. 
 
 France alone of the four great nations shows 
 a rational observance of the principles of re- 
 serves; and there alone money rates are fairly 
 stable; in the United States conditions are by 
 far the worst, the credit-structure being com- 
 parable to an inverted pyramid, that topples 
 with very little pushing. Obviously there has 
 
31 
 
 been for some time past and is now a need for a 
 broadening of the yellow metal base for 
 credits; most countries of the world require it 
 unless a violent contraction of credits and a 
 suspension of development are to take place. 
 Had the world's banking institutions operated 
 under adequate reserve regulations, the in- 
 creased output of gold would have caused far 
 less disturbance. 
 
 There are indications that the question is 
 about to receive serious attention; corrective 
 measures are under discussion here, in London, 
 and in Berlin ; if carried out these will naturally 
 bring about an added demand for gold that will 
 absorb the growing supply for some time to 
 come. This will tend to neutralize, at least in 
 part, the tendency to decline in its purchasing 
 power; but a far greater benefit will accrue to 
 the world through the greater stability in 
 money rates that more rational gold reserves 
 will bring about. Not only will ordinary busi- 
 ness interests reap a distinct advantage, but 
 security markets will be influenced in a much 
 greater degree by value, actual or prospective. 
 Much of the detrimental character of specula- 
 tion will be eliminated. 
 
 NOTE. In order to make Mr. Muhleman's article thor- 
 oughly comprehensive, his former article referred to in the first 
 paragraph above is reproduced, by permission, and appears on 
 the next page. T. G. 
 
Gold Supply Not Too Great. 
 
 Reserve Demands Will or Should Absorb It 
 $3*500,000,000 of "Uncovered Paper Money" 
 Should Be Protected Bank De- 
 posits Inadequately Secured. 
 
 By MAURICE L. MUHLEMAN.* 
 
 Before proceeding to the consideration of the 
 question of the influence of the rapidly increas- 
 ing gold supply, it is proper to say that the 
 table submitted, presenting the volume of 
 monetary gold for the purpose of comparison 
 with the fluctuation of prices, wages and inter- 
 est rates, is unsatisfactory for the reason that 
 it limits the statement of the supply of money 
 to gold, whereas silver, certainly for the period 
 prior to 1873, and in a diminishing degree only 
 since that date, was endowed with full money 
 functions ; hence if the volume of money is an 
 important factor, the deductions from the table 
 will in all probability be erroneous. The same 
 may be said respecting the omission to include 
 paper representatives of money, the use of 
 
 * Reproduced (by permission) from Moody's Magazine for 
 December. 1905, and uged as a supplement to Thomas Gibson's 
 Special Letter of June 18, 1908, in which Mr. Muhleman dis- 
 cusses the effect of the increasing gold supply upon stock prices. 
 
 32 
 
33 
 
 which unquestionably potentially influences 
 the conditions that cause price fluctuations. 
 Moreover the volume of gold of the entire 
 world, is compared with prices, wages and in- 
 terest rates for the United States alone; it is 
 not only conceivable, but demonstrable, that 
 circumstances influencing only the United 
 States, have been potential in causing fluctua- 
 tions there, in very large measure irrespective 
 of the supply of gold in the rest of the 
 world. 
 
 Coming now to the specific topic for discus- 
 sion, it is obvious that, as gold has been made 
 the chief, and in the most important states the 
 sole, medium of exchange and measure of 
 values, a very marked change in prices, wages 
 and interest may be looked for within a decade, 
 unless the additional supply is offset by new 
 demands. Other channels for the employment 
 of the surplus of gold have been or will be sug- 
 gested as likely to avert a radical disturbance 
 in the markets; I confine myself to the one of 
 reserves. 
 
 Regarding the adaptation and adjustment of 
 our artificial or conventional methods to the 
 changing natural conditions as a primary obli- 
 gation of the civilized state, no utilization of 
 the added gold supply to the promotion of the 
 well-being of the race would be more rational 
 than its employment in fortifying the reserves 
 of financial institutions. No one who has given 
 
34 
 
 the subject more than merely superficial con- 
 sideration will question the assertion that such 
 strengthening is necessary if we would protect 
 the credit structure adequately against the 
 periodic dangers to which it is exposed; dan- 
 gers which so frequently bring about disasters, 
 the effects of which are felt for a decade, during 
 which a very substantial portion of the race 
 is subjected to misery, inevitably retarding 
 the progress of civilization. 
 
 We are informed by statisticians that the 
 volume of "uncovered paper money" is approx- 
 imately $3,500,000,000; we know that a consid- 
 erable number of states are struggling with a 
 depreciated paper standard. Moreover, it is 
 well known that in estimating the uncovered 
 paper volume the specie in bank is all used to 
 offset note liabilities, leaving nothing against 
 deposit or other credit liabilities; and a sub- 
 stantial part of the covering specie consists of 
 silver. Here, then, is a broad field for the em- 
 ployment of the increasing gold product, suffi- 
 cient to absorb the available output for a 
 decade or more, which governments should 
 recognize. 
 
 To illustrate concretely: In the United 
 States we should have some 200 millions more 
 of gold in place of our "greenbacks," 150 
 millions as a reserve against our silver issues; 
 our banks should actually hold their prescribed 
 reserves instead of being permitted to loan 
 
35 
 
 them out in part, which would require a further 
 provision of, say, 200 millions; our trust com- 
 panies are notoriously deficient in this respect 
 and should be called upon to fortify themselves, 
 which would give room for a further 200 
 millions. In London the joint stock banks ac- 
 tually carry such insignificant cash reserves 
 against their 2,300 millions of deposits, that 
 there is an almost continuous protest against 
 the dangerous practice: there a very large 
 amount of gold could and should be gathered 
 to assure stability which to-day exists largely 
 only in the imagination, and only fortuitous 
 circumstances avert trouble. At the moment 
 there comes to hand another protest from the 
 London Statist against this disregard of 
 conservative regulations, instancing the pres- 
 ent stringency there as a result of the prac- 
 tice. 
 
 It is not necessary to furnish a complete 
 catalogue of the illy-fortified financial institu- 
 tions; those cited above prove the need and 
 this is sufficiently important to merit the per- 
 sistent attention of the best thought of the day 
 in governmental and financial circles. It may 
 have been excusable in the period of slender 
 gold output to permit reserves to shrink; that 
 excuse is now no longer permissible; and 
 while there are no doubt other channels in 
 which the extraordinary supply of yellow 
 metal can be used, none would so readily pre- 
 
36 
 
 vent inordinate market flucutations, at the same 
 time tending to avert the disasters following 
 inadequate reserves, which so frequently in- 
 terfere with the steady progress in our 
 economic evolution. 
 
Review of the World's Gold Supply. 
 
 By ARTHUR SELWYN-BROWN, E.M.; M.A.; B.Sc., Con- 
 sulting Mining Engineer. 
 
 Mankind has been interested in gold and 
 gold mining since the dawn of history. Man 
 had scarcely emerged from the Neolithic, or 
 Stone Age, before being attracted to gold. 
 With his remains, found in various parts of 
 Europe in caves and earth mounds, crude 
 gold ornaments are not infrequently dis- 
 covered. By charting on paper the va- 
 rious sites on which such gold orna- 
 ments have been found, and noting the 
 other articles found accompanying them, it is 
 possible to locate the primitive gold-mining 
 centers of Europe, and learn the extent and 
 nature of the barter carried on between the 
 tribes dwelling near the gold area and tribes 
 living at remote places. Thus we learn of 
 the introduction of gold into commercial 
 transactions. 
 
 The earliest written accounts of gold are 
 
 This article was specially prepared for the market letter 
 ervice. 
 
 37 
 
38 
 
 in the Vedas of Brahmins of India which 
 were composed about 5000 B. C. 
 
 The Egyptians and Phoenicians coined 
 gold, and the Romans learned by experience 
 the economic changes induced by the abund- 
 ance or scarcity of gold when that metal plays 
 an important part in a national currency. The 
 history of no other metal possesses more 
 human interest than that of gold. Through- 
 out the ages what terrible tragedies have been 
 enacted in the world's remote corners in the 
 exploiting of new gold fields! What ghastly 
 crimes have been committed through the lust 
 for gold! It was the greed for gold that 
 spurred the Spanish Conquistadores to their 
 wonderful deeds in developing Mexico and 
 South America. It was the same incentive 
 that led to the development of California and 
 the West. 
 
 * When the tremendous influence gold has 
 exerted on society, is still exerting on society, 
 and is destined to exert in even more numer- 
 ous ways than hitherto, is appreciated, it is 
 not surprising that some thinkers are moved 
 to believe in an early exhaustion of the 
 world's sources of supply. Scarcity of gold 
 scares have been raised at various intervals 
 since the earliest times. They have not been 
 uncommon in recent years, and lately there 
 has been a tendency in some quarters to un- 
 duly emphasize the imminent dangers threat- 
 
39 
 
 tned by an overproduction of gold. It is 
 proposed in this article to cursorily review the 
 gold production of the past and present, and 
 to indicate the probable course of production 
 in the near future. 
 
 EARLY GOLD SUPPLIES. 
 
 The world's gold supplies from the earliest 
 times down to the discovery of America were 
 intimately connected with the cheapness of 
 human life. Gold mining was carried on by 
 slave labor. The value of gold, consequently, 
 varied with the condition of the slave markets. 
 It became abundant when slaves were nu- 
 merous. The Roman historians tell us of the 
 great wealth in gold of great historical char- 
 acters; but it should be remembered that the 
 quantity of gold possessed by the peoples of 
 ancient times was insignificant when com- 
 pared with the stocks of gold in the world 
 to-day. But the value of gold in ancient times 
 was much greater than it is to-day. The high 
 ratio of value to quantity appears to have 
 fluctuated only within comparatively narrow 
 limits down to the beginning of the sixteenth 
 century. It is estimated that the stocks of 
 gold in Europe at the time of the discovery of 
 America did not exceed $225,000,000. Asia 
 possessed gold valued at $1,500,000,000 in 
 1492-1500. 
 
 The Spanish Conquistadores flooded Europe 
 
40 
 
 with gold taken from the Peruvians and 
 Aztecs. The world's gold producing indus- 
 tries passed to Anglo-Saxon hands when 
 Spain withdrew from America. Since that 
 time, it may be said that the gold production 
 has increased proportionately to the demand 
 for it; or, in other words, it has increased, 
 comparatively speaking, with the populations 
 of the great commercial nations. The sphere 
 of its usefulness has also been greatly ex- 
 tended. 
 
 GOLD PRODUCTION IN RECENT TIMES. 
 
 As gold is the standard of value of the prin- 
 cipal nations to-day, its abundance or scarcity 
 is of vital importance. The stability of the 
 world's money depends upon the augmenta- 
 tion of the gold supply in proportion to the 
 commercial demand for the metal. A scar- 
 city of gold or too great an abundance would 
 seriously interfere with the welfare of a large 
 part of the human race. Few statistics, con- 
 sequently, are more valuable and afford more 
 interesting studies than those recording the 
 accumulation, annual production and circula- 
 tion of gold. 
 
 In Table I. the production of gold from the 
 discovery of America to the end of 1907 is 
 given. The first three lines give the aggre- 
 gate yearly production for periods of 28, 24 
 and 1 6 years respectively. For the period 1561- 
 
41 
 
 i8oo the value of the gold mined is given for 
 intervals embracing 20 years. From 1801 to 
 
 1850 the figures are for lo-year periods. From 
 
 1851 to 1880 the annual production is given. 
 These figures were prepared chiefly by Dr. A. 
 Soetbeer. From 1881 to the end of 1907 the 
 figures are taken from the "Mineral Industry." 
 
 TABLE I. PRODUCTION OF GOLD FROM THE DIS- 
 COVERY OF AMERICA TO 1850. 
 
 No. 
 
 Period. Value. Years. 
 
 1493-1520 .. .. $107,836,848 28 
 
 1521-1544 114,102,912 24 
 
 1545-1560 87,305,536 16 
 
 1561-1580 90,835,080 20 
 
 1581-1600 96,870,400 20 
 
 1601-1620 113,149,960 20 
 
 1621-1640 110,227,320 20 
 
 1641-1660 116,467,680 20 
 
 1661-1680 122,974,600 20 
 
 1681-1700 142,961,844 20 
 
 1701-1720 167,875,680 20 
 
 1721-1740 253,389,080 20 
 
 1741-1760 326,831,120 20 
 
 1761-1780 275,970,920 20 
 
 1781-1800 236,257,840 20 
 
 1801-1810 118,048,000 10 
 
 1811-1820 75,998,160 10 
 
 1821-1830 94,397,940 10 
 
 1831-1840 135,722,280 10 
 
 1841-1850 363,609,260 10 
 
 TABLE II. GOLD PRODUCTION 1851-1907. 
 
 1851 $67,600,000 1880 $106,600,000 
 
 1852 132,800,000 1881 103,102,000 
 
 1853 155,500,000 1882 102,000,000 
 
 1854 127,500,000 1883 95,400,000 
 
 1855 135,100,000 1884 101,700,000 
 
 1856 147,600,000 1885 108,400,000 
 
 1857 133,300,000 1886 106,000,000 
 
 1858 124,700,000 1887 105,775,000 
 
 1859- 124,900,000 1888 110,197,000 
 
42 
 
 Table II. (Continued). 
 
 1860 119,300,000 1889 123,489,000 
 
 1861 113,800,000 1890 118,848,700 
 
 1862 107,800,000 1891 130,650,000 
 
 1863 107,000,000 1892 146,292,600 
 
 1864 111,000,000 1893 158,437,551 
 
 1865 120,000,000 1894 182,509,283 
 
 1866 121,000,000 1895 198,995,741 
 
 1867 104,000,000 1896 211,242,081 
 
 1868 109,700,000 1897 237,833,904 
 
 1869 106,200,000 1898 287,327,033 
 
 1870 106,900,000 1899 311,505,947 
 
 1871 107,000,000 1900 258,829,703 
 
 1872 99,600,000 1901 260,877,429 
 
 1873 96,200,000 1902 298,812,493 
 
 1874 90,800,000 1903 329,475,401 
 
 1875 97,500,000 1904 350,088,253 
 
 1876 . . . . . . 103,700,000 1905 379,635,413 
 
 1877 114,000,000 1906 405,060,249 
 
 1878 119,000,000 1907 412,622,136 
 
 1879 109,000,000 
 
 It will be noticed that the average annual 
 production in the period 1493-1520 was a little 
 over $3,800,000. There was then a steady in- 
 crease right through to the present time. 
 
 In studying the figures it is well to bear in 
 mind that the amount of gold produced in any 
 given period largely depends: (i) On the 
 amount of capital invested in mining; (2) the 
 richness of the developed mines at that period ; 
 (3) on the comparative profits derived from 
 gold production. Periods of extraordinary 
 production may be noticed in several parts of 
 of the tables here given. In each case they 
 may be explained by the activity of miners 
 in developing newly found alluvial gold fields 
 or the mining of a great bonanza at one or 
 more of the leading producing centers, f he 
 
43 
 
 large expansion between 1601 and 1810 was 
 mainly due to operations in South America 
 and Mexico. The increase shown between 
 1841 and 1850 was caused by the working of 
 the California placers. About 1889 the results 
 of the development of the Indian, South Afri- 
 can and certain Australian and American min- 
 ing fields commenced to increase the gold 
 production. A progressive increase is thence 
 noticeable right up to the present time. 
 
 With the view of indicating the relative im- 
 portance of the principal gold mining countries 
 in adding to the world's gold supplies Table 
 III. has been compiled. 
 
 TABLE III. GOLD PRODUCTION OF LEADING COUN- 
 TRIES IN MODERN TIMES. 
 
 United States 1792-1907 $3,044,426,511 
 
 Australasia 1851-1907 2,697,324,556 
 
 Russia and Siberia 1814-1907 1,483,725,685 
 
 Africa 1887-1907 997,413,738 
 
 Colombia 1537-1907 899,710,000 
 
 Brazil 1691-1907 726,424,326 
 
 Mexico 1521-1907 341,620,350 
 
 Canada 1858-1907 257,672,488 
 
 Peru 1533-1907 200,041,395 
 
 Bolivia 1545-1907 199,658,000 
 
 British India 1884-1907 137,004,359 
 
 Austro-Hungary 1493-1907 75,226,680 
 
 Chile 1545-1907 34,601,000 
 
 Total $11,094,849,088 
 
 Table III. gives the gold production of those 
 countries where reliable mining statistics have 
 been kept since 1493. It will be noted that in 
 modern times the United States has produced 
 the greatest quantity of gold. Australasia fol- 
 
44 
 
 lows close with the enormous production since 
 1851 of $2,697,324,556 worth of gold. 
 
 The importance of Russia as a producer of 
 gold is not generally recognized. It will be 
 seen by Table III. that Russia has produced 
 since 1814 nearly half as much gold as the 
 United States has produced since 1792. The 
 positions of Colombia, Brazil, Peru and Bo- 
 livia should arrest attention. Mining is car- 
 ried on in those countries at present under 
 severe restrictions owing to the dearth of 
 labor and supplies, lack of capital and enter- 
 prise. Their past production of gold, however, 
 should, in a measure, indicate their value as 
 future sources of gold when the demand for 
 gold and industrial conditions warrant the 
 thorough exploitation of their gold deposits. 
 
 GOLD PRODUCTION TO-DAY. 
 The gold production of the continents is 
 given in Table IV. for the years 1903-7. It 
 will be noticed that there is a steady total 
 increase each year. 
 
 TABLE IV. THE GOLD PRODUCTION 1903-7. 
 1903. 1904. 1905. 
 
 North America. $105,106,409 $111,192,642 $118,176,774 
 
 Africa 68,036,433 86,249,936 113,226,971 
 
 Australasia . . 89,206,739 87,241,662 85,970,779 
 Europe .... 29,132,342 29,808,900 27,668,111 
 
 Asia 25,134,755 24,839,368 24,446,336 
 
 South America. 11,348,805 9,255,745 10,069,942 
 Other countries. 1,500,000 1,500,000 76,500 
 
 Totals . . .$329,465,483 $350,088,253 $379,635,413 
 
45 
 
 Table IV. (Continued). 1906. 1907. 
 
 North America . . $124,335,082 $116,682,667 
 
 Africa 
 Australasia 
 
 . 134,804,114 151,363,624 
 82,358,207 75,849,349 
 
 Europe 
 
 28,085,462 33,296,415 
 
 Asia 
 
 23,933,670 23,706,026 
 
 South America .... 
 
 10,043,714 10,224,055 
 
 Other countries . . . 
 
 1,500,000 1,500,000 
 
 
 
 Totals $405,060,249 $412,622,136 
 
 The production is increasing in North Am- 
 erica, Africa and Europe. Decreases are 
 noticeable in the records of the other conti- 
 nents. The increase credited to Europe is due 
 chiefly to the successful treatment of Aus- 
 tralian and South American refractory ores and 
 to the recovery of gold from copper, lead, zinc 
 and other metals in the electrolytic establish- 
 ments in England, France and Germany. It is 
 not due to any. increase in mining operations 
 in Europe. Very little gold is mined at present 
 in Europe. The decrease in the gold yield in 
 Australasia is due entirely to economic factors 
 and not in any way to the exhaustion of the 
 gold fields. Notwithstanding the immense 
 amount of gold Australian mines have yielded 
 in the past fifty years,, mining in Australia, 
 Tasmania, New Guinea, New Zealand and the 
 surrounding islands may be said to be in its 
 infancy. The gold yields of those countries 
 could be stimulated to almost any degree by 
 the introduction of adequate capital and by 
 skillful mining methods. 
 
46 
 
 The gold production in Asia is due mainly to 
 the operation of the Indian mines. The lead- 
 ing gold mining district in India is at Kolar, 
 in the province of "Mysore. The Chinese fields 
 yield about $7,000,000 worth of gold annually. 
 Korea, Formosa, Japan and the East Indies 
 also contribute to the Asiatic production. 
 
 The world's gold output last year amounted 
 to 19,958,764 oz., valued at $412,556,136. About 
 78 per cent, of this was contributed by the 
 Transvaal, United States, Australasia and 
 Russia. There was an increase in production 
 in 1907 in two of the great producing countries 
 and a decrease in the other two. The produc- 
 tion in the Transvaal advanced from $119,609,- 
 373 in 1906 to $133,352,381 in 1907; and that 
 of Russia from $22,469,432 in 1906 to $26,- 
 518,253 last year; gains of 11.5 and 18 per 
 cent., respectively. On the other hand, the 
 output of the United States fell from $94,373,- 
 800 in 1906 to $89^198,711 in 1907, and that of 
 Australasia from $82,358,207 in 1906 to 
 $75,849,348 in 1907 ; B the losses, respectively, 
 being 5.5 and 7.9 per cent. 
 
 GOLD MOVEMENTS IN GREAT BRITAIN IN 
 1907. 
 
 Although the industrial consumption of gold 
 is increasing with increasing wealth, the 
 annual output of gold is chiefly coined and used 
 as a basis for new commercial credits. The 
 
47 
 
 world's gold market is in London. It will be 
 interesting to study in conjunction with Table 
 IV., giving the gold production in 1907, the 
 fluctuations in the stocks and prices of gold 
 in Great Britain in that year. According to 
 the annual report of Messrs. Pixley & Abell, 
 of London: 
 
 "The year 1907 will be memorable for the 
 financial crisis in the United States, which, 
 after threatening for many months, became 
 dangerous during the last two months of the 
 year, and caused great disturbance in the 
 money markets of the world. The bank rate, 
 which stood at 6 per cent, at the beginning of 
 the year, was reduced to 5 per cent, on Jan. 
 17, to 4-J per cent, on April n, and to 4 per 
 cent, on April 25. It stood at this level until 
 Aug. 15, when the rate was raised to 4^ per 
 cent. On Oct. 31, on the commencement of 
 the panic in New York, the rate advanced to 
 5^ per cent., and on the following Monday, 
 Nov. 4, to 6 per cent. A further rise took 
 place on Nov. 7 to 7 per cent., a rate that had 
 not been touched since the year 1870, and at 
 this it remained until the close of the year. 
 The average for the year was 4.927 per cent., 
 as compared with 4.274 per cent, in 1906. 
 
 "The arrivals of gold from all quarters 
 amounted to 55,600,000, against 46,000,000 
 in 1906 and 38,567,000 in 1905; while the 
 total exports were 50,000,000, as compared 
 
48 
 
 with 43,000,000 in 1906 and 30,829,000 in 
 1905. The imports from South Africa amount- 
 ed to 29,389,000,, against 25,713,000 the 
 previous year, an increase of over 14 per cent. 
 
 "The Indian demand for small gold bars was 
 again large, and amounted to 5,700,000. 
 Shipments were especially heavy during the 
 first nine months of the. year, but the inquiry 
 slackened later on when the trade conditions 
 became unfavorable owing to the great drop 
 in the exchange. 
 
 "The price of gold remained at 775. gd. until 
 the middle of March, when it was raised to 775. 
 lojd. to prevent the arrivals from being taken 
 by New York. When this demand had been 
 arrested the price fell once more, and re- 
 mained at the minimum until the middle of 
 May, when the inquiry for Paris in repayment 
 of loans made to England at the close of 1906 
 caused an advance to 775. ioid. There were 
 no important demands then until August, 
 when France again became a buyer, and this 
 continued with intervals until October. On 
 Oct. 28 the American demand began, and the 
 price of gold rose to 783. and from then on 
 there was no reduction of importance until the 
 end of the year, when the rate fell to 775. g%d. 
 on the cessation of American purchases. 
 
 "The amount of gold bought by the United 
 States in England was about 15,500,000, and 
 in addition they bought supplies from other 
 
49 
 
 countries, so that the total shipments during 
 November and December from this country 
 were nearly 18,000,000. The high bank rate 
 proved most effective in attracting gold to 
 England to fill the vacancy caused by the 
 withdrawals on American account, and in ad- 
 dition to 3,000,000 received from France 
 under similar conditions to those made at the 
 end of 1906, the bank received from Germany 
 nearly 8,000,000, besides large amounts of 
 Scandinavian coin. 
 
 "The exports to Argentina were again large, 
 and amounted to just under 7,000,000. 
 Egyptian requirements were also heavy, and,, 
 in addition to gold which was shipped from 
 India, also took nearly 4,500,000 from Eng- 
 land. Turkey also took 750,000. 
 
 "Early in January the India Council added 
 to their holding in London 1,000,000, but 
 released 1,500,000 later in the year against 
 silver purchases. In November and December 
 they released further 2,500,000 in conse- 
 quence of the falling off in the demand for India 
 Council bills, and the gold reserve in London 
 now stood 3,650,000 at the close of the 
 year." 
 
 This account of the movements in gold dur- 
 ing a year that will always be prominent in the 
 world's financial history serves to excellently 
 illustrate two factors that are very influential 
 in promoting the search for gold. The reader 
 
50 
 
 will first notice the universality of the demand 
 for a share of the latest gold production. Then 
 he will observe how dependent the world is 
 upon the Anglo-Saxon peoples for their share 
 of the newly mined gold. 
 
 There was a great absorption of gold for 
 currency purposes in the early part of 1908. 
 This will be seen by referring to Table VI., 
 which gives the estimated gold production for 
 the first three months of 1908, together with 
 the gold held by bankers, in comparison with 
 the figures for the corresponding period in 
 1907. 
 
 TABLE VI. 
 
 1907. 1908. 
 
 Gold production $100,683,000 $104,367,000 
 
 Bank holdings U. S. and 
 
 Europe, Jan. 1 $3,351,300,000 $3,567,000,000 
 
 Holdings, April 1 3,400,000,000 3,655,500,000 
 
 Increase.. $48,700,000 $89,500,000 
 
 Gold not going to banks $51,983,000 $14,867,000 
 
 The "Engineering and Mining Journal" in 
 editorially commenting on these figures stated 
 that, "In the first quarter of 1908, 85.8 per cent, 
 of the approximate gold production of the world 
 was added to bank reserves and currency; 
 while 14.2 per cent, was absorbed in the arts 
 or served to increase private stocks. In 1907, 
 the bank gains were only 48.4 per cent, of the 
 gold production, 51.6 per cent, going elsewhere. 
 
51 
 
 If we go a year further back, to 1906, we find 
 the proportion showing in bank reserves to 
 have been only 23.1 per cent., 76.9 per cent, 
 going elsewhere. And yet the first quarters 
 of 1906 and 1907 were periods of extremely 
 active trade, when money was in general de- 
 mand. 
 
 "The general conclusions to be drawn from 
 these statements are that a period of great 
 financial stringency may coincide with one of 
 large gold production; the crisis being the re- 
 sult of other causes than the gold supply. Fur- 
 ther, that such a period of stress, with conse- 
 quent high interest rates, will draw out gold 
 reserves which have been hidden, or at least 
 have not been apparent or directly available. 
 Finally, it is only a repetition of former experi- 
 ence that a time of financial trouble is followed 
 by a period of decided monetary ease. This, 
 however, is not the result of the gold supply, 
 but rather of the general withdrawal of money 
 from active and speculative use." 
 
 CAPITAL INVESTED IN MINING. 
 The gold annually won from the mines 
 necessitates the expenditure of a large amount 
 of capital and labor. The capital invested in 
 gold mining is enormous. But, unfortunately, 
 there are no means at present of adequately 
 estimating it. A good idea, however, regard- 
 ing the amount of capital employed by British 
 
52 
 
 investors, may be obtained by studying Table 
 V., which gives the number of mining com- 
 panies registered in the United Kingdom dur- 
 ing the 25 years ending 1904, and the amounts 
 of their nominal capital. This table was com- 
 piled for the "Mining Journal," July 4, 1908, by 
 Edward Ashmead, F. C. A. 
 
 TABLE V. CAPITAL IN BRITISH MINES. 
 
 1880 
 1881 
 1882 
 1883 
 1884 
 1885 
 1886 
 1887 
 1888 
 1889 
 1890 
 1891 
 1892 
 1893 
 1894 
 1895 
 1896 
 1897 
 1898 
 1899 
 1900 
 1901 
 1902 
 1903 
 1904 
 
 Number of 
 Registrations. 
 
 .. 157 
 
 .. 217 
 
 .. 169 
 
 .. 151 
 
 .. 148 
 
 .. 138 
 
 .. 237 
 
 .. 269 
 
 .. 365 
 
 .. 378 
 
 .. 236 
 
 .. 298 
 
 .. 206 
 
 .. 210 
 
 .. 331 
 
 .. 961 
 
 .. 857 
 
 .. 606 
 
 .. 509 
 
 .. 559 
 
 .. 525 
 
 .. 519 
 
 .. 417 
 
 .. 430 
 328 
 
 Nominal 
 Capital. 
 11,940,270 
 20,848,450 
 12,560,800 
 14,712,398 
 14,952,207 
 24,448,951 
 29,439,728 
 34,002,041 
 52,663,400 
 41,015,425 
 19,796,546 
 35,187,125 
 19,807,280 
 14,725,427 
 23,296,361 
 107,387,241 
 94,419,194 
 64,457,583 
 55,396,288 
 71,687,366 
 64,025,292 
 46,376,237 
 43,144,460 
 41,376,052 
 26,948,130 
 
 Total twenty-five years. 9,221 984,614,252 
 
 In referring to Table V., Mr. Ashmead states 
 that: 
 
 "Prior to 1880 I found from the 'Stock Ex- 
 
S3 
 
 change Year Book' that in that year only 97 
 limited companies, registered in Great Britain 
 for foreign and colonial mining, were recorded 
 there as then in existence. Of these the larger 
 part are now non-existent. The same book 
 also notifies the fact that in 1880 157 British 
 limited mining companies (including coal) were 
 in operation. It will thus be seen that the 
 great stride made in mining enterprise takes 
 its rapid rise in the last twenty-five years 
 that is, from 1880. Gold mining in the Madras 
 Presidency of India began in 1880; diamond 
 mining (as regards English registered com- 
 panies) in South Africa, the same year. The 
 Transvaal gold discovery first took a firm hold 
 on public attention in 1888, and about the same 
 time other goldfields opened up their wealth: 
 Queensland in 1886, Rhodesia in 1893, Western 
 Australia in 1894, and Klondyke and Yukon 
 in 1900. A revival took place in the Gold Coast 
 mines also in 1900, and the Egyptian Sudan in 
 1903 went to work to rediscover and open up 
 ancient abandoned mines. This activity also 
 brought other mining districts abroad into 
 greater prominence. Mines in Europe, and in 
 the United States and Mexico, especially, 
 gained in public interest in England in late 
 years. 
 
 "Table V. has taken much time to compile, 
 and should prove useful for permanent refer- 
 ence. It gives the number of mining and mine 
 
54 
 
 exploration companies registered in each year 
 1880 to 1904 and the total nominal capital of 
 the same. 
 
 "This gives an average of 369 companies and 
 39,384,570 of nominal capital per annum, and 
 one company and more than one hundred thou- 
 sand pounds for each day embraced in the 
 twenty-five years under review. 
 
 "The record year was 1895, when 961 com- 
 panies registered with over one hundred and 
 seven million capital. The following year (1906) 
 was also a great year for new mining com- 
 panies; Western Australia and South Africa 
 were both well to the front in these two years. 
 
 "The capital, as near as I can dissect it, was 
 registered to be applied as under: 
 
 Nominal 
 
 Companies. Capital. 
 For British home mining, in- 
 cluding coal and iron 2,200 120,737,077 
 
 For the British Colonies and De- 
 pendencies, including the 
 
 Transvaal 4,716 558,992,988 
 
 For foreign parts, including the 
 
 United States 2,305 304,884,187 
 
 Total, 25 years 9,221 984,614,252 
 
 "American mining investments during the 
 same period were much more extensive than 
 the British." 
 
 OTHER MEANS FOR PROMOTING THE 
 GOLD YIELD. 
 
 The annual investment of new capital in 
 developing new mines and mining districts is, 
 
55 
 
 probably, the most important factor in promot- 
 ing the production of gold. But there are many 
 other factors. In some districts severe 
 droughts promote mining by: (i) drying up 
 rivers and streams, thus enabling the gold in the 
 sand in their beds to be worked; and (2) by 
 forcing farm and pastoral workers to seek 
 mining work. 
 
 In Australasia and other countries the gov- 
 ernments offer bounties, and furnish mining 
 appliances, with the view of promoting the de- 
 velopment of new mining districts. 
 
 But the most important factor influencing 
 gold production, after the investment of new 
 capital in mines, is the improvement in metal- 
 lurgical processes and mining methods. This 
 may take various forms. The following will 
 be referred to: 
 
 Improvement in Old Processes. The early 
 mines in California and the Western States 
 were chiefly equipped with Mexican arrastras. 
 They were slow in operation and very ineffi- 
 cient in saving gold. To-day gold ores are 
 crushed and amalgamated in batteries of high- 
 speed stamps of great capacity at a cost of 
 about 5oc. per ton. Morison high-speed stamps 
 weighing 1,600 Ibs. per stamp crush 10 tons of 
 ore per day per stamp at the Meyer and Charl- 
 ton mine on the Transvaal field. 
 
 The efficiency of crushing mills is increased 
 by automatic screening and feeding appliances, 
 
56 
 
 and by following up the amalgamation treat- 
 ment by chemical or smelting processes. For 
 example, the method of treating the ore from 
 the Ivanhoe Mine, Kalgvorlie, West Australia, 
 is as follows: The ore is coarsely crushed in 
 rock breakers, sized in trommel screens and 
 automatically fed to heavy high-speed stamps. 
 The gold is amalgamated inside the mortar of 
 the battery and on outside copper tables. The 
 sulphides are concentrated after leaving the 
 amalgamating tables, roasted and cyanided. 
 The sand is treated by bromo-cyanide solu- 
 tions and the slime is treated in filter presses. 
 Most of the large mines on the field possess 
 mills employing similar complicated processes. 
 In such works very little gold is lost, whereas 
 in the early mining plants in the Western 
 States the loss of gold in treatment was often 
 very large. 
 
 Improvements in electrolytic processes have 
 enabled large quantities of gold to be extracted 
 from combination with other metals. 
 
 Smelting methods have, also, been greatly 
 improved. This enables almost all kinds of 
 copper, zinc, lead, antimony, nickel and other 
 ores containing gold to be profitably worked. 
 
 Invention of New Processes. The invention 
 of new processes, like the cyanide process, re- 
 duces the costs of gold production, and opens 
 up new sources of gold. 
 
 The cyanide process has enabled a great 
 
57 
 
 number of mines throughout the world, having 
 low-grade ores, to be profitably worked. The 
 invention of tube mills for fine-grinding, and 
 of decantation and filtering machinery for 
 slime treatment, and agitating and aeration 
 appliances, have recently greatly improved the 
 efficiency of the cyanide process and very con- 
 siderably reduced its cost. 
 
 New Mining Methods. Mining methods are 
 constantly being improved. Such methods as 
 those practiced in the open cuts at the Mount 
 Morgan mine in Queensland greatly reduce 
 mining costs. 
 
 The introduction of gold dredges has opened 
 up large areas of gold-bearing land to miners. 
 This method of mining is largely responsible 
 for the increase in gold production in recent 
 years in New Zealand, Siberia, California, 
 Alaska and elsewhere. The average cost of 
 dredging gold in California is 6c. per cubic yard 
 with a machine of 40,000 cubic yards capacity, 
 and 5c. per cubic yard with a dredge of 70,000 
 cubic yards monthly capacity. 
 
 Future Prospects of Gold Mining. Gold is 
 widely dispersed in nature. It is not only 
 found concentrated in rich veins; but occurs in 
 immense quantities in sand and sandstone de- 
 posits throughout the world. Many volcanic 
 rocks also contain gold. In some districts such 
 volcanic rocks are being worked for their gold 
 contents. It is estimated that the known gold 
 
58 
 
 fields are capable of supplying the world's gold 
 demands for several centuries. When they 
 are exhausted, putting aside any reference to 
 the probability of new fields being discovered 
 and developed, improvements in mining and 
 metallurgical processes will enable poorer and 
 poorer gold-bearing formations to be worked. 
 There is no possibility of a gold famine occur- 
 ring. Indications all point to a continued 
 steady increase in gold production. Deficien- 
 cies caused by the working out of rich bon- 
 anza deposits on certain fields will be balanced 
 by the finding of similar bonanzas on other 
 fields, or by the operation of low-grade deposits 
 on a large scale by means of improved and 
 cheapened processes. The annual gold yield is 
 now above $412,000,000. The demand for gold 
 is so keen that there is no probability of the 
 yield being permitted to fall below that amount. 
 We may confidently anticipate progressive 
 yearly increases in production. 
 
Gold Depreciation Means Rising Com- 
 modity Prices. 
 
 By W. G. NICHOLAS. 
 
 In the conduct of their campaign for the 
 education of the freight-paying public to the 
 virtue of an advance in rates the railroad men 
 might make their case stronger if they would 
 more urgently direct and firmly hold attention 
 to a great underlying equity in the proposition, 
 which has down to date been almost entirely 
 ignored. By so doing they might convincingly 
 prove that not only is there present occasion 
 and necessity for the raise, but they would be 
 showing why this is so, why in a reconstruction 
 of the rate schedules upward they are moving 
 in obedience to irresistible forces, and why 
 there are the best of reasons for anticipating a 
 long continuation of the basic causes which are 
 compelling action. 
 
 There is nothing in an elucidation of this 
 subject to excite emotional or dramatic thrill, 
 but in it there will be found more than the 
 germ of a great truth which can be studied 
 with profit by every man who has a dollar or 
 expects to get one studied understandingly 
 
 This article was specially prepared for the market letter 
 service. 
 
 59 
 
60 
 
 and its meaning, force and bearing as an ever- 
 present business and market factor grasped 
 with proper appreciation. 
 
 We do not need to be told that most things 
 purchasable with money have advanced heavily 
 in price during the last decade. It is of com- 
 mon knowledge why this is the case, yet the 
 philosophy of the subject is rarely adverted to 
 in conversation or discussion. It is sedulously 
 avoided as wearisome or abstruse, yet it is to- 
 day the very core and essence of our business 
 life, and incidentally the weightiest considera- 
 tion in the making of the stock market. It 
 bears specifically on every pocket-book. 
 
 The general rise in prices which has been 
 going on during the past ten or twelve years 
 has kept substantial pace with the increase 
 in the production of gold and the stock of gold 
 money. The enlarged yield of gold is proceed- 
 ing at about the maximum stage yet reached, 
 approximately $415,000,000 a year, of which it 
 is estimated that $60,000,000 to $75,000,000 
 goes into manufactures and arts and the re- 
 mainder into the money supply at least 
 $1,000,000 a day or $3,650,000,000 in another 
 decade. 
 
 APPROXIMATE STOCKS OF MONETARY GOLD IN THE 
 
 PRINCIPAL COUNTRIES OF THE WORLD, 
 
 DECEMBER 31, 1906. 
 
 Country. Stock of Gold. 
 
 United States $1,593,300,000 
 
 Austria-Hungary 306,400,000 
 
 Belgium 31,100,000 
 
61 
 
 British Empii 
 
 Australasia 125,000,000 
 
 Canada 62,400,000 
 
 United Kingdom 485,700,000 
 
 India 337,300,000 
 
 South Africa 61,400,000 
 
 Straits Settlements 600,000 
 
 Bulgaria 7,200,000 
 
 Cuba 38,200,000 
 
 Denmark 22,600,000 
 
 Egypt 140,000,000 
 
 Finland 5,100,000 
 
 France 926,400,000 
 
 Germany 1,030,300,000 
 
 Greece 5,600,000 
 
 Haiti 1,000,000 
 
 Italy 215,500,000 
 
 Japan 80,100,000 
 
 Mexico 40,000,000 
 
 Netherlands 45,900,000 
 
 Norway 8,300,000 
 
 Portugal 8,600,000 
 
 Roumania 20,700,000 
 
 Russia 939,400,000 
 
 Servia 2,200,000 
 
 South American States 
 
 Argentina 102,700,000 
 
 Bolivia 400,000 
 
 Brazil 21,200,000 
 
 Chile 2,000,000 
 
 Colombia 100,000 
 
 Ecuador 3,700,000 
 
 Guiana . . 
 
 British 100,000 
 
 Dutch 200,000 
 
 Paraguay 100,000 
 
 Peru 6,800,000 
 
 Uruguay 15,500,000 
 
 Venezuela 300,000 
 
 Spain 90,900,000 
 
 Sweden 22,600,000 
 
 Switzerland 29,000,000 
 
 Turkey 50,000,000 
 
 Central American States . . 2,000,000 
 
 Total $6,888,900,000 
 
62 
 
 The ranking authorities of Europe and 
 America hold out no hope of important reduc- 
 tion in the output for many years to come, 
 although some of them, notably Mr. George E. 
 Roberts, for many years director of the U. S. 
 Mint, and at present president of the 
 Commercial National Bank of Chicago, is 
 of opinion that we have reached the 
 limit and no great change either way may 
 be expected for perhaps a decade. The 
 world's gold production has increased at 
 an average rate of about $20,000,000 a year 
 since 1896 from $202,000,000 in 1896 to 
 $412,000,000 in 1907 and most recent com- 
 putations show that the average commodity 
 price is about 50 per cent, higher now than at 
 the earlier date named. 
 
 The conclusion is forced on us that the world 
 is in an era of extraordinary gold inflation, or 
 if that phrase jars, employ the softer word 
 expansion. The net result is depreciation in 
 the value of the dollar, of which measure and 
 reflection is found in higher average prices 
 not necessarily values, but prices. With gold 
 production going on at the present rate and 
 no indications of a let-down, who can judge 
 with certainty when the rise in prices will stop 
 or the buying value of the dollar find bottom? 
 The one certainty we all see and realize is that 
 the tide is still rising. It does not rise noisily 
 or stormily, and the people are not hourly 
 
63 
 
 thrown into convulsions by the spectacle, yet 
 the tide ceaselessly creeps up, up, up. The 
 level of the golden flood ever reaches higher, 
 without rest or wait. The movement is silent, 
 almost stealthy, yet resistless as death. And 
 every new high record in the volume of gold 
 money makes for higher average prices in the 
 markets of the whole civilized world. That has 
 been the visible effect of the gold inflation 
 force for the last ten years, and if there is any 
 change in the tendency or current it is not 
 yet perceptible. 
 
 The railroads stand out as practically the 
 only exception to the upward swing of prices 
 due primarily and chiefly to the gold inflation 
 not railroad stocks, but the only commodity 
 the railroads have to sell, namely, transporta- 
 tion. That single line of merchandise, the sole 
 product of the greatest of American industries, 
 remains practically where it was ten years ago. 
 The railroads have not participated appreciably 
 in the almost universal price uplift. Transpor- 
 tation as a merchantable commodity is sold at 
 about former quotations. It is entitled to its 
 day in court. It is entirely out of harmony 
 with the rest of the situation. 
 
 The raw materials the railroads use in the 
 manufacture of the single commodity they deal 
 in are away up in price (30 to 75 per cent.) 
 labor, iron, steel, ties and all forms of equip- 
 ment and supplies. The cost of operation is 15 
 
64 
 
 to 30 per cent, more than it was even so re- 
 cently as five years ago, and a better standard 
 of goods than formerly is demanded and exacted 
 greater efficiency, safety and convenience. 
 
 There might be valid ground for opposing 
 the contention of railroads for the privilege of 
 marking up the price of their goods, even in 
 the face of proved large increase in cost of 
 production, if it could be shown that the move 
 was being attempted to meet a temporary con- 
 dition. Unfortunately or fortunately (depend- 
 ing on the point of view) the conditions that 
 now confront the railroads, in common with 
 the rest of the world, hold out no such hope or 
 possibility. 
 
 With a continually depreciating dollar the 
 inexorable logic of the situation points to a still 
 higher rise in the register of commodity prices, 
 making escape from an advance in freight rates 
 daily and hourly more impossible. The facts, 
 figures and conclusions presented by Vice- 
 President Brown, of the New York Central, in 
 favor of higher rates were unanswerable as far 
 as they went, but failed to wholly satisfy. If 
 he had gone further and dug deeper into first 
 causes he would have made his contention 
 clearer and at the same time would have proved 
 the utter impossibility of a change for the beter 
 in the legitimate railroad position. 
 
 Logically there is only one course open. 
 For the reasons set forth in the foregoing it 
 
65 
 
 would be grossly unjust to the employees to 
 cut their wages, in the face of advancing 
 prices for the necessities of life a movement 
 that threatens to stretch out indefinitely, or 
 until the gold mines shut down or become 
 unprofitable. 
 
 In Thomas Gibson's Special Market Letter 
 of July 28, Mr. Arthur Selwyn-Brown presents 
 complete tables of the production of gold from 
 the date of discovery of America down to the 
 present time, besides other facts and data of a 
 most interesting character. Such statistics can- 
 not be pulished too often or distributed too 
 diffusely. They should be always before the 
 vision of a business man, as a map. They tell 
 in the most condensed possible form the story 
 of the revolutionizing development in the 
 world's most important industry a record 
 that commands the intelligent thought of the 
 country. 
 
 Statistics presented by Mr. Roberts tell us 
 that stocks of gold in the principal banks of 
 public issue and public treasuries of the world 
 at the close of 1906 showed an increase of 
 $1,625,487,000 during the eleven years last pre- 
 ceding, or 85 per cent. 
 
 During the twelve years ending with 1907 
 the production of gold closely approximated 
 $3,730,000,000; $2,960,000,000 went into the 
 form of money, according to a high authority. 
 
 With this astounding record of gold inflation 
 
66 
 
 already accomplished and the promise of still 
 greater future inflation, where, it may be asked 
 in passing, does the chronic bear on the stock 
 market stand? What hope is there for him? 
 
Gold Inflation and Interest Rates.* 
 
 By PROFESSOR J. PEASE NORTON, of Yale University. 
 
 Important Problems of the Monetary 
 Commission. 
 
 The present commission is facing the prob- 
 lems of inflation, a condition of affairs which 
 are the reverse of 1894. We are in the era of 
 a world inflation. How extensive had been 
 this inflation, by discovery of new processes 
 of mining gold, and new sources of supply, and, 
 more important yet, by new inventions in credit 
 in the way of economizing the use of gold, the 
 first two, at least, Mr. Arthur Selwyn-Brown 
 has exhaustively pointed out. 
 
 The whole subject of gold inflation has been 
 a source of much controversy, largely arising 
 from misconceptions. Some writers have main- 
 tained that increased supplies of gold cause 
 interest to rise. This is the long-time view 
 and applies to averages of interest covering 
 three and five-year periods. Bankers know that 
 
 * An extract from a market letter containing an article 
 on the "Outlook for the Next Six Months," specially written 
 by Prof. Norton for Thomas Gibson. 
 
 67 
 
68 
 
 increased gold reserves automatically reduce 
 interest. This is the short-time view and ap- 
 plies to periods of two months to a year. The 
 chain of events consists of: increased produc- 
 tion of gold, low interest as a result of large 
 reserves, general speculation resulting from 
 optimistic calculation of profits on the basis of 
 too low a cost for borrowed capital, pyramid- 
 ing, rising prices from this speculative demand, 
 higher wages arising from higher cost of living, 
 higher interest because the demand for capital 
 for productive purposes outruns the supply, 
 permanent depreciation of gold, permanent in- 
 crease in prices, excessive interest, producing a 
 collapse of the credit machinery, temporary 
 stagnation of business. This is the constantly 
 recurring cycle. The money then collects in 
 banks temporarily, and excessively low interest 
 results, as at present. 
 
 The interest rate during periods of gold de- 
 preciation fluctuates more violently and over a 
 wider range. Commodity prices rose 70% to 
 the beginning of the crisis. Since this high 
 point they have declined 15 to 20%. The low 
 interest, the large supplies of gold, returning 
 optimism, the elimination of political uncertain- 
 ties, all should result in a violent increase in 
 commodity prices, in railroad rates, in railroad 
 earnings, and long advance in the prices of 
 railroad stocks. The people will do well to 
 purchase the common stocks of honestly man- 
 
69 
 
 aged industrials and railroad corporations. 
 Great profits are ahead, and an era of great 
 activity. As stocks rise in price, bonds will fall 
 still further. In the 1904 depression, New 
 York 3-J% bonds sold at 104. In 1908 New 
 York City sJ's are less than 90, a decline of 14 
 points. If the gold depreciation theory is 
 correct, we may expect to see the prices of 
 stocks very much higher. The more heavily 
 bonded they are, the higher they will go; and 
 bonds will go very much lower. 
 
 STOCKS VS. BONDS. 
 
 If in a renewal of activity, interest shall 
 harden to 6% and 7% for long periods after a 
 period of speculation of eighteen months, 
 dating from the present time, the event could 
 hardly fail to depress the price of substantial 
 bonds, like New York City issues, ten to fifteen 
 points, and specialties to a considerably greater 
 extent. The reasoning underlying the prob- 
 ability is drawn not only from the effects of 
 gold depreciation which in the long run steadily 
 depresses the prices of bonds which have no 
 equities, but also from technical causes. 
 
 The supply of bonds is very large at present. 
 Banks hold considerable quantities bought at 
 higher prices. Substantial advances in price 
 will be met by heavy sales; there is an enor- 
 mous amount of bonds carried over the crisis 
 by syndicates. These bonds were underwritten 
 
70 
 
 at prices which show at present heavy losses 
 to the members. These bonds, when offered, 
 will carry high actual yields and will, therefore, 
 tend to compete with issues now held by banks 
 and investors, since these latter issues have 
 no more adequate security. 
 
 To increase the market for these securities, 
 doubtless, earnest efforts will be made in the 
 way of effecting legislation so that these bonds 
 may become security for public deposits and 
 bank circulation. This temporary solution for 
 the bond market will help to carry on at a 
 more rapid rate the great inflation. 
 
 It will mean in the end a redundant currency, 
 higher interest, higher prices for commodities, 
 higher prices for stocks, and ultimately, an- 
 other collapse in credit, more destructive than 
 that of 1908. But as long as interest stays low, 
 we may expect the glad effects of the merry 
 pyramid of inflation, which the markets build 
 so enthusiastically, and await with foresight 
 the toppling of the pyramid, the collapse of the 
 inflation, the Presidential campaign of 1912, and 
 perhaps the crisis of 1913-14, which has been 
 already foretold by the chronic chronologists, 
 as twenty years after the great panic of 1893, 
 forty years after the dark days of 1873. 
 
 REVIVAL OF PROSPERITY AT HAND. 
 But now, the indications are that the revival 
 of business is on in earnest, and that prosperity 
 
71 
 
 will soon be evident. To this date general 
 statistics are negative. But technical informa- 
 tion is quite encouraging. The recovery is due 
 to fundamental causes, economic in their 
 nature, great crops, a wonderful growing coun- 
 try, an inventive people, a sound technical 
 position in the industries and in the corpora- 
 tions, and, lastly, the realization .by a few 
 wealthy people of the important effects of gold 
 depreciation. That earnest attention has been 
 paid to the subject by certain important bank- 
 ing interests, and that this probability has fig- 
 ured in plans framed for many months ahead, 
 are facts which are doubtless within the knowl- 
 edge of a few. In this connection, the true 
 meaning of Mr. Arthur Selwyn-Brown's words 
 regarding the gold production of the future 
 should be emphasized again at least by repeti- 
 tion. "There is no possibility of a gold famine 
 occurring. We may confidently anticipate pro- 
 gressive yearly increases in production." In 
 other words, the inflation must proceed at an 
 increasing rate. 
 
 THE IMMEDIATE OUTLOOK. 
 The stock market has passed through the 
 panic more or less successfully. Few receiver- 
 ships have occurred. The damage has not been 
 excessive. The recovery to date has been very 
 rapid. For the 1907 disturbance was a credit 
 crisis, arising from inflation, and not an indus- 
 
72 
 
 trial crisis arising fom war or waste or great 
 shortage in the crops. 
 
 The immediate question is whether the rise 
 in prices has sufficiently discounted the future 
 conditions which we have reason to believe will 
 develop of a favorable nature within the next 
 six or eight months. This would appear quite 
 improbable. Much of the advance is a recoil 
 from two extreme declines, declines which 
 were beyond reason, when measured against 
 existing conditions. It is doubtful whether the 
 elimination of political uncertainty, the recov- 
 ery in earnings which will be evident during 
 the next six months, the easy monetary condi- 
 tions, the growing crops, the return of optim- 
 ism, the effects of gold depreciation, and the 
 rate of growth of our nation, partially checked, 
 have yet been adequately discounted. The 
 public is very timid. The stock market is still 
 among the foothills, and far from the peaks. 
 As long as the public hesitates, the days of 
 large reactions is comparatively insignificant. 
 
The Gold Supply 
 
 It may be stated without hesitation that the 
 effect of the increasing supply of gold upon 
 prices of all bonds, shares, or commodities 
 which may be classed as speculative, is more 
 decided and certain in its operation than any 
 other single factor. The process of readjust- 
 ment due to this cause would be slow and 
 regular if the principles at issue were uni- 
 versally and clearly understood. Not being 
 generally recognized, however, the changes 
 wrought by what is naturally an insidious fac- 
 tor are, at times, spasmodic and feverish. It 
 is a remarkable fact that whenever a revolu- 
 tion occurs in any economic or financial pro- 
 cess which is, by its nature, concealed or re- 
 condite^ its existence and influence are dis- 
 covered by a number of students simultane- 
 ously but independently. Important reversions 
 or modifications may be submerged for a long 
 period, and suddenly light is offered from all 
 parts of the thinking world. It is probable that 
 this intellectual phenomenon extends to, or is 
 
 Reprinted from "The Cycles of Speculation," by Thomas 
 Gibson. 
 
 73 
 
74 
 
 communicated to the financial world, and that 
 marked and drastic changes in the affected 
 quarters represent a belated recognition of 
 forces hitherto unknown, and the readjustment 
 of affairs by those who see first and furthest. 
 That the operations of this minority will be 
 important goes without saying. The faculty 
 to grasp fully and quickly anything salient 
 bearing on financial affairs is the ground-work 
 of riches and consequently the trained minds of 
 great holders of shares or commodities will re- 
 spond most readily to sound basic arguments, 
 and the greatest holders can often make of their 
 knowledge a two-edged sword. For example, 
 certain large holders of bonds, recognizing the 
 fact that increasing gold production means 
 higher interest rates, and consequently lower 
 prices for bonds, would be able to dispose of 
 bonds to advantage because of the apparent 
 general prosperity growing out of this same 
 production of gold. It may be assumed that in 
 pointing out in interviews, etc., this reign of 
 prosperity, the gentlemen in question would 
 modestly omit to mention that the same in- 
 fluences which were causing high prices and 
 much business in some quarters, were working 
 damage in others. 
 
 Something of this kind has been going on in 
 our bond and stock markets of late. The in- 
 evitable influence of gold on prices has made 
 
75 
 
 itself slowly felt for a long period, but it is only 
 in the last year that a considerable number of 
 individuals whose operations are of importance 
 in the financial world have come to recognize 
 how powerful this influence Is. Price changes 
 in divers securities and commodities hitherto 
 unaccounted for, or attributed to wrong in- 
 fluences, have suddenly been explained to a 
 number of important financiers, and a correct 
 understanding of the problem has undoubtedly 
 resulted in radical readjustments in some quar- 
 ters. With that pertinacity in error which 
 seems to distinguish the ordinary speculator, 
 he has, however, gone on attributing these pro- 
 cesses of equilibration to causes which have 
 only a limited bearing on the case. The recent 
 heavy decline in bonds and stocks, for exam- 
 ple, was popularly ascribed to political and 
 legislative action against railroads. Scarcity 
 of money was given second place in these de- 
 ductions, and gold production third place, or 
 no place at all. If we reverse this order of 
 importance and give gold production first 
 place, monetary affairs second place, and polit- 
 ical affairs third place, we are nearer the truth. 
 It looks a little ridiculous that the scope of 
 intelligent perspective should be blocked by 
 three thousand miles of water, and that the 
 unthinking majority who ascribe our decline 
 in bonds to local politics should have failed to 
 
76 
 
 recognize so potent a fact as that the decline 
 was world-wide; but such is the case. The 
 readjustment in bonds was due to excessive 
 over-production of gold, and it may be safely 
 assumed that so long as this over-production 
 continues to increase rapidly, bonds will con- 
 tinue low in price or, what amounts to the 
 same thing, interest rates will remain high. 
 
 As to the importance of a correct under- 
 standing on this subject of gold supply and its 
 influence on prices, I quote from Mr. Byron 
 W. Holt's book "The Gold Supply and Pros- 
 perity," which, I may add, is used as the text 
 book for this chapter. Mr. Holt says: 
 
 "This is the great problem that now confronts the 
 financial world and demands solution of every in- 
 vestor. Not to solve it may mean great loss and 
 possible failure. To solve it means success and 
 greatly enhanced wealth for all who now have either 
 a fair share of this world's goods or who have credit 
 and can intelligently go in debt for a large amount." 
 
 As speculation or investment-speculation, as 
 defined in the introduction to this book, are the 
 subjects under discussion it is the intention to 
 take up, in turn, such points as bear particu- 
 larly upon price changes of speculative shares 
 and commodities influenced by our increasing 
 supply of gold. The main points to be con- 
 sidered are as follows: 
 
 1 The effect upon bonds and preferred 
 stocks having a fixed rate of income. 
 
77 
 
 2 The effect upon common stocks of rail- 
 road corporations. 
 
 3 The effect upon stocks of industrial cor- 
 porations. 
 
 4 The effect upon speculative commodities 
 wheat, corn, oats, cotton, etc. 
 
 For the purpose of argument it will be as- 
 sumed in this discussion that our supply of 
 gold is rapidly increasing. We know that such 
 has been the case in recent years, and it is the 
 opinion of most students that this increase may 
 be confidently expected to continue. To quote 
 again from the work already mentioned: 
 
 "Both the output and supply of gold are likely to 
 increase for many years. 
 
 "While the future output of gold is, of necessity, 
 unknown and uncertain, there is great unanimity of 
 opinion, among mining experts, on this point. It 
 appears lo be generally recognized that, during the 
 last twenty years, the industry of gold mining, or 
 rather of gold production, has been established on a 
 very different and much more certain basis than any 
 previously existing. No longer is the output of gold 
 dependent mainly, or even largely, upon placer min- 
 ing and the chance finds of 'free" gold. The sup- 
 ply of gold, in rock, sand, clay, and water, being in T 
 exhaustible, it is now possible, by machinery and 
 metallurgical processes, to extract gold, in paying 
 quantities, from many forms of these vast store- 
 houses. To such an extent is this true that the 
 future supply of gold is even more secure than is 
 that of coal, iron, lumber, wheat or cotton. 
 ^"Even if prospecting were to stop and attention 
 
78 
 
 were to be devoted only to the gold mines and 
 bodies already discovered, and geologically in sight, 
 it is probable that the output of gold would continue 
 to increase for many years. As Mr. Selwyn-Brown, 
 a gold mining expert, tells us in his very interesting 
 article, 'as the rich surface deposits are being 
 worked out, improvements in mining and metallur- 
 gical processes are enabling poorer and poorer de- 
 posits to be worked.' That is, improvements in 
 'stamp mills/ cyanide mills, dredging machines and 
 other gold extracting apparatus and processes are 
 being made so rapidly that it is, every year, becom- 
 ing profitable to work lower and lower grades of 
 ore, sand and earth. As the grade declines the 
 quantity in sight increases rapidly. In fact there 
 are almost literally mountains of low grade gold ore 
 that can even now be worked profitably. Some of 
 the largest, most productive and most profitable 
 mines of today contain ore averaging less than $3 
 and, in some instances, only $2 of gold per ton. 
 
 "The supply of such ore being inexhaustible the 
 output depends upon the number and size of the 
 mills employed to extract the gold. It is reason- 
 ably certain that, for years to come, the improve- 
 ments in methods and processes of mining will 
 more than keep pace with both the decline in the 
 quality of the ore and the increase in the cost of 
 mining due to rising prices and wag^j, occasioned 
 by the depreciation of gold. 
 
 "In view of all the facts, Mr. Selwyn-Brown's 
 conclusion that 'a progressive increase each year 
 may confidently be expected' is conservative. This 
 conclusion, is almost a certainty. The uncertainty 
 lies in the possibility, if not probability, either of 
 discovering many important new mines in the prac- 
 tically unexplored parts of every continent, or of 
 
79 
 
 making improvements that will radically reduce the 
 cost of extracting gold. In either case the increase 
 in the output of gold might be not simply arithmet- 
 ically but geometrically progressive." 
 
 Admitting that the question of gold produc- 
 tion is debatable, it remains for the future to 
 develop any radical change, and it will be 
 necessary for the student to decide this point 
 for himself either by the light of facts as yet 
 not established, or by accepting theories as yet 
 not convincingly erected. If a change occurs, 
 or may reasonably be expected, an understand- 
 ing of the subject from the positive side of the 
 question loses none of its value. The prin- 
 ciples involved could be as successfully applied 
 in reading the probable future by modifying 
 or reversing effects, and reconciling them to a 
 modification or reversal in the cause. If, for 
 example, we accept the theory that increased 
 gold production means advancing commodity 
 prices, and find reason later to believe that gold 
 production will cease to maintain its ratio of 
 increase, we may alter our views accordingly 
 so far as this single influence is concerned. 
 
 1 The effect of the increasing gold produc- 
 tion on bonds and preferred stocks having a 
 fixed rate of income. 
 
 In this division of the question the crux of 
 the whole matter is interest on money. The 
 question might, in fact, be stated thus : "What 
 
 Of Tut 
 
 "NIVEHSITV 
 
 OF 
 
80 
 
 is the effect of increasing gold supply on 
 money interest rates?" and having solved that 
 problem, the original inquiry is answered. 
 
 To reach a reasonable solution we must first 
 examine the effect of an unduly increasing sup- 
 ply of gold on commodity prices. Over-pro- 
 duction in any quarter inevitably leads to lower 
 prices. Gold being a fixed standard cannot de- 
 cline in figures, but it does so in fact. That is 
 to say, the flexible prices of things which gold 
 will buy rise to fill the gap. Thus, since 1896, 
 prices of commodities have risen 50%. The 
 man who loaned money ten years ago finds its 
 purchasing power impaired 33 1-3%, when it is 
 returned to him today, for the reason that com- 
 modity prices having advanced 50% in the in- 
 terim, his dollar will now buy only 66 2-3% 
 of what it would buy in 1897. This impairment 
 of principal will be covered, in part at least, by 
 interest rates. This effect, if not recognized 
 and arbitrary would adjust itself automatically, 
 regardless of whether or not investors recog- 
 nize the influence of changing values of gold, 
 for money, finding higher returns in other quar- 
 ters, would speedily desert the long-term, 
 fixed-interest investment field, and prices of 
 such securities would decline through lack of 
 demand. 
 
 On the subject of interest rates Mr. Holt 
 says: 
 
81 
 
 "But there is another reason why interest rates 
 should be high when prices are rising. When 
 money is shrinking in value interest rates should be 
 high to make up, or partly make up, the losses on 
 the principals of loans. To illustrate: Suppose that 
 prices are rising 10% a year. This means that the 
 purchasing power of money is declining about 10% 
 a year. Suppose, then, that $100 were loaned for 
 one year at 5%. At the end of the year the lender 
 would have $105; but with this $105 he could buy 
 only about as much as he could have bought with 
 $95, at the beginning of the year. In reality, he has 
 received no interest at all but has, instead, paid $5 
 to the man for holding his $100. The man with 
 money to loan cannot afford to do business in this 
 way. He is usually as wise as are his neighbors, 
 and fully as able to protect his own interests and to 
 get all his money is worth, either by buying real 
 property, investing in bonds and stock or by loaning 
 on notes or on call." 
 
 In submitting the above contentions it must 
 be fairly stated that there is some diversity of 
 opinion as to the effects of gold on interest 
 rates. A few writers demur to the theory; 
 others hold that the effect is nil, and one or two 
 openly adopt the negative side of the discus- 
 sion, and state that more money means lower 
 rates of interest. The majority of recent in- 
 vestigators, however, appear to be accepting 
 the theory as given herein, and it may be 
 added that prices of the class of securities 
 considered have borne out the hypothesis faith- 
 fully, and that the minority have failed to offer 
 
82 
 
 convincing explanations of this readjustment. 
 It will not do to point to the fact that money 
 has been fully employed in constructive rather 
 than investment fields of late ; for while this is 
 true enough, it does not explain why gilt-edged 
 bonds such as British Consols have declined in 
 value, while stocks and shares which did not 
 bear the onus of circumscribed returns have 
 advanced. There are, of course, contributory 
 causes: the Labor-Socialistic Government in 
 England no doubt affects the prices of consols, 
 but this influence is specific, and loses most of 
 its force when we consider that not only these 
 particular securities, but practically all others 
 of their class the world over have suffered a 
 radical decline. In other words, interest rates 
 have grown comprehensively higher. The 
 theory appears sound, is borne out by events, 
 and mere denial does not weaken it. It 
 may well be accepted until its opponents suc- 
 ceed in giving us something more convincing 
 in its place. 
 
 In support of the theory, Mr. Holt repro- 
 duces the following table of British bonds from 
 Moody's Magazine for October, 1906. 
 
 PRICES OF BRITISH INVESTMENT BONDS. 
 
 % 1906 1905 1904 1896 
 British Consols... 2j 86} 89* 88* *ii3l 
 
 Met. Consols 3* * 4 104$ 128} 
 
 London County. .. 3 88* 94i 93 "8J 
 
83 
 
 % 1906 1905 if)O4 1896 
 
 Leeds 4 108 109 inj 130$ 
 
 Liverpool 3$ 107 109 109 144^ 
 
 Manchester 4 123 128^ 124! 159 
 
 New South Wales. 3$ ioo 100 96 112^ 
 
 Queensland 3$ 99^ 99 96 ui$ 
 
 Canada 3 98^ 100^ 97 107 
 
 Cape 3i 97 98 95 120 
 
 Lon. & N. Western 3 93 96 95 124^ 
 
 Midland 2$ 76 79 78 t^f 
 
 Great Western 4 123 127 123* 164 
 
 Average 3.3 100.2 101.8 100.9 128.4 
 
 i. fThenS^. 
 
 "Thus," comments the writer, "these 13 British 
 bonds, supposedly the safest and least speculative 
 of all securities, have declined an average of over 
 28 points in ten years. Considering incomes and 
 present prices, the unfortunate investors in these 
 bonds have not only received less than 1% on their 
 investments, during the last ten years, but, should 
 they sell their bonds, they would find that the pro- 
 ceeds have lost 30% of the purchasing pov/er of a 
 similar amount ten years ago. Altogether, they 
 have suffered a net loss, over incomes, of more than 
 20%, or over 2% a year." 
 
 There are other economic influences affect- 
 ing interest rates through gold supply, but the 
 one given appears to the writer the most di- 
 rect and forcible when applied to readjustment 
 of prices to income. 
 
 In weighing the influence of increasing gold 
 production and its effect upon interest rates 
 through the advancing prices of commodities, 
 the student is liable to fall into one grave error. 
 
84 
 
 He may perhaps jump to the conclusion that 
 gradually advancing prices of commodities 
 mean gradually advancing rates of interest. 
 This is not at all the case. A sustained ratio 
 of advance means sustained high rates of in- 
 terest nothing more. In order to make this 
 clear let us go back to the original principle. 
 
 Increasing prices for commodities mean an 
 impairment of the purchasing power of money. 
 If the purchasing power of money is impaired 
 2% per annum through increasing prices of 
 commodities, and the normal rate of interest is 
 4%, we can cover the deficiency by making the 
 interest rate 6% and leaving it there as long 
 as this ratio of impairment is maintained. 
 In other words the man who loans $1,000 at 
 6% loses $20.00 per annum in the impairment 
 of capital and receives normal interest of $40.00 
 per annum and $20 extra to cover his loss in 
 capital. Strictly speaking the extra 2% is not 
 interest at all, but an amortization payment. It 
 matters not how high prices ultimately go, he 
 receives each year a bonus sufficient to cover 
 his loss in capital, and the interest rate re- 
 mains 6%. 
 
 Therefore, if prices of commodities advanced 
 for ten years and then ceased to advance, but 
 were maintained at the highest figures reached, 
 interest rates would fall because there would 
 be no further impairment of capital, and what 
 
85 
 
 was formerly amortization, would become 
 usury. On the other hand, if a new ratio of 
 increase should occur in commodity prices 
 and they should advance 4% per annum, inter- 
 est rates would, if fully adjusted, reach 
 8% 4% for normal interest, and 4% for im- 
 pairment of capital. 
 
 2 The effect upon Common Stocks of Rail- 
 road Corporations. 
 
 Here the effect of high interest rates is, or 
 in time may be, offset by returns in the form 
 of dividends, undivided profits, improvement of 
 property, or the fact that income is not limited. 
 But there is another trouble, and a serious one, 
 for which the gold supply is responsible. 
 
 If the increasing supply of gold is responsible 
 for higher commodity prices it must be at once 
 apparent that the building, equipment and 
 maintenance of railway properties costs more 
 and more as all commodities, including labor, 
 advance in price. This would be all right if 
 the selling commodity, i. e. : transportation, also 
 advanced proportionately in price; but it is so 
 difficult to override popular prejudice and 
 widespread misunderstanding on this point, 
 that we find continued agitation and legislation 
 not only against advancing rates, but with a 
 view to reducing those which already obtain. 
 There must, of course, be a limit to this thing, 
 
86 
 
 and if the cost ofc production continues to in- 
 crease, the railroads must be permitted to de- 
 mand higher prices for transportation. Other- 
 wise a point would finally be reached where 
 every railroad in the country would be forced 
 into bankruptcy. The great danger lies in a 
 belated assimilation of this truth by the 
 masses, and too much demagoguery on the part 
 of politicians who do understand, but, being 
 politicians, prefer to reflect the views of a ma- 
 jority of constituents, rather than to enter a 
 campaign of proselyting. That evils have 
 been fostered and wrongs committed by emi- 
 nent railroad financiers is certain; but there is 
 considerable confusion of ideas on this head. 
 Over-capitalization, illegal combinations, man- 
 ipulation of funds for private gain, and the 
 swelling of dividends for stock- jobbing pur- 
 poses, when the funds so distributed should 
 have gone into improvements or surplus, have 
 all played their part in arousing the wrath and 
 indignation of the great majority, and they are, 
 as a class, prone to jump to the conclusion that 
 any and every railroad corporation is charging 
 unduly high rates for its services, and making 
 exorbitant returns on invested capital. This 
 has, no doubt, been more or less true in the 
 past in certain cases where extremely high 
 rates were made, and the apparent returns on 
 money attenuated by over-capitalization; but 
 
this evil is gradually decreasing, and the real 
 fight is, or should be, against these abuses. 
 The railroads are suffering for the sins of the 
 past, and may suffer still further ; but the time 
 is not far distant when, unless conditions 
 change radically, the railroads must be allowed 
 more latitude in the adjustment of rates. 
 
 The prevalent opinion, that needed reforms 
 which strike at the root of the evils mentioned 
 above is a bear argument, is another popular 
 fallacy. Such reforms intelligently conceived, 
 and unswervingly carried out, are all in favor 
 of the small shareholder. If laws can be en- 
 acted which will prevent individual interests 
 from plundering or misusing the funds of cor- 
 porations, and which will compel these corpo- 
 rations to issue reports and statements which 
 are not so involved and complex as to be be- 
 yond the ordinary comprehension, the small 
 holder or investor will have a better show. 
 But, having cured these evils, no laws can pos- 
 sibly endure which contemplate curtailing fair 
 returns on money, and fair profits through 
 natural enhancement in values. 
 
 But, however fair or cheering this view may 
 appear, the fact remains that it will be slow in 
 its acceptance and slower in its operation. We 
 may therefore summarize the situation thus. 
 Increasing production of gold brings about in- 
 creasing cost of operation, and so long as cost 
 
88 
 
 of operation is advanced with no corresponding 
 advance in selling price of transportation, the 
 ratio of profits will gradually decrease until a 
 vanishing point is reached. 
 
 In the last analysis, a probable tardy and re- 
 luctant recognition of the true status of the 
 case warrants the belief that for the near fu- 
 ture, the railroads have a hard time ahead of 
 them, and that so far as this single important 
 influence is concerned, it is decidedly a bearish 
 factor. 
 
 3 The effect upon stocks of industrial cor- 
 porations. 
 
 Here we have a different proposition. Rising 
 prices for commodities do not interfere with 
 the earning power of corporations which pro- 
 duce and sell commodities, the prices of which 
 are not limited by law. In fact these corpora- 
 tions are, in many cases, gainers by this in- 
 fluence which tends to advance prices, not only 
 of what they buy, but of what they sell. It 
 may be added, parenthetically, that railroad 
 companies which own valuable coal lands, etc., 
 find the bad influences already discussed par- 
 tially offset by the gain from such holdings. 
 The railroad company, however, may be con- 
 sidered as pre-eminently a seller of transpor- 
 tation and has been so regarded herein. 
 
 The industrial corporations whose products 
 
89 
 
 subject to regulation by law, such as gas 
 and electric lighting companies, are subject to 
 practically the same influences as those which 
 operate against the prices of railroad stocks. 
 Their cost of production advances easily and 
 inevitably, and the selling price remains fixed, 
 or advances with difficulty and under protest. 
 
 4 The effect on speculative commodities- 
 Wheat, Corn, Oats, Cotton, etc. 
 
 This phase of the subject will be dismissed 
 with a few words. If the contentions already 
 made are accepted, it is apparent that all such 
 commodities will gradually seek a higher level. 
 A brief examination of statistics will show 
 that this readjustment has been going on for 
 years. The gradually ascending pivotal point, 
 or average price, is particularly marked in the 
 cheaper cereals, corn and oats, and also in 
 cotton. This is probably due to the fact that 
 wages have not advanced as rapidly as have 
 prices of living. It is found that in periods of 
 hard times consumption of cheaper foodstuffs 
 and textile fabrics is increased, while the con- 
 sumption of higher priced commodities and 
 luxuries are curtailed. The wage-earner, there- 
 fore, has been in reality living in a regime of 
 hard times, although this fact is easily sub- 
 merged by steadier employment, by a fictitious 
 appearance of general prosperity, and the abil- 
 
90 
 
 ity to spend a larger number of dollars, without 
 realizing fully the loss of purchasing power i* 
 trie dollars. 
 
 It would be out of the question to attempt to 
 enter anything like a comprehensive study of 
 the question of gold production and its effects 
 in a single chapter, or even in a single volume ; 
 neither is it necessary to the purposes of this 
 work, for the student who desires a compre- 
 hensive education in this regard will find ample 
 means and material ready to his hand. From 
 the standpoint of investment and speculation 
 alone, it is submitted that increasing produc- 
 tion of gold is, to use the phraseology of the 
 street, bearish on long time bonds and other 
 securities yielding a limited rate of interest or 
 income, temporarily bearish on railroad stocks, 
 bullish on industrial shares, except as noted, 
 and bullish on speculative commodities. 
 
 At the risk of indulging in undue reitera- 
 tion, attention will again be called to the 
 fallacy of considering such subjects as the 
 one of gold production too remote in concrete 
 effects, or too sluggish in operation to be of im- 
 portance to the speculator. A thorough under- 
 standing of cause and effect bears upon the 
 operations of today, in that it anticipates the 
 results of tomorrow Through knowledge of 
 influences of this character, serious error may 
 be avoided. For example, one of the profound 
 
91 
 
 axioms of the speculative world is that bonds 
 advance first and stocks afterwards. If we 
 understand why bonds have been, and are at 
 present, declining we may be justified in modi- 
 fying this view and considering the axiom more 
 or less obsolete. He who operates an engine 
 without a clear understanding of its motive 
 power is likely to get into trouble, or perhaps 
 be blown up. 
 
 It may be pointed out also, that a too literal 
 acceptance of the suggested effects of this or 
 any other great price influence is highly dan- 
 gerous. Even while gold production continues 
 to increase rapidly, prices, not only of shares, 
 but of all things, will overleap themselves and 
 will also swing backwards to the other ex- 
 treme. The cycles are not completed, until 
 both zenith and nadir have been touched. 
 Changes in gold production will not prevent 
 declines in prices; they will, however, inter- 
 fere with the regularity of the cycles. 
 
 This chapter may be fittingly closed with the 
 following list of conclusions reached by Mr. 
 Holt, in the work already mentioned. These 
 conclusions cover all the points herein pre- 
 sented, and others which are of interest and 
 yalue : 
 
 "1 That both the output and supply of gold are 
 likely to increase rapidly for many years. 
 
92 
 
 "2 That, therefore, the value of gold will depre- 
 ciate as the quantity increases. 
 
 "3 That this depreciation will be measured by 
 the rise in the average price level. 
 
 "4 That a rising price level, if long continued, is 
 accompanied by rising or high interest rates. 
 
 "5 That high interest rates mean lower prices for 
 bonds and all other long-time obligations drawing 
 fixed rates of interest, dividends, or income. 
 
 "6 Rising prices increase the cost of materials 
 and of operation and tend to decrease the net profits 
 of all concerns, the prices of whose products or ser- 
 vices either cannot be advanced at all, or are not 
 free to advance rapidly. 
 
 "7 Rising prices tend to increase the net profits 
 of all concerns that own their own sources of mate- 
 rials and supplies. 
 
 "8 Rising prices of commodities tend to cause 
 the prices of all tangible property to rise. This in- 
 cludes lands, mines, forests, buildings and improve- 
 ments. 
 
 "9 Rising prices of commodities and property 
 tend to increase the value of the securities of corpo- 
 rations holding commodities or property. 
 
 "10 Rising prices and cost of living necessitate 
 higher money wages, though the rise of wages will 
 follow, at some distance, behind the rise of prices. 
 
 "11 As rising prices do not mean increased 
 profits to all concerns, many employers will not con- 
 cede higher wages without strikes. 
 
 "12 Rising prices and wages, therefore, mean 
 dwindling profits and troublous times in many in- 
 dustries, with complete ruin as the final goal. 
 
 "13 Because wages will not rise as fast or as 
 much as prices and the cost of living, there will be 
 
93 
 
 dissatisfaction and unrest among wage and salary 
 earners. 
 
 "14 Rising prices of commodities and property 
 encourage speculation in commodities, stocks and 
 real estate 'and discourage honest industry. 
 
 "15 Thus, rising prices, by diminishing the in- 
 comes of 'safe' investments in 'gilt-edged' bonds and 
 stocks and by increasing the profits of speculators 
 encourage extravagance, recklessness and thriftless- 
 ness. 
 
 "16 As rising prices decrease the purchasing 
 power of debts, and thus aid debtors at the expense 
 of creditors, they discourage saving and thrift. 
 
 "17 Rising prices, then, by promoting specula- 
 tion and extravagance, increase consumption, espe- 
 cially of luxuries, and, therefore, stimulate produc- 
 tion. 
 
 "18 Rising prices, then, result in what is real 
 prosperity for many industries; but what is for a 
 nation as a whole, artificial or sham prosperity the 
 result of marking up prices rather than of increasing 
 production. 
 
 "19 With prices, wages, rates and industries al- 
 ways imperfectly adjusted to the ever depreciating 
 value of gold, and with instability and uncertainty 
 throughout the financial world, there cannot but be 
 a great shifting around of values and of titles to 
 property. 
 
 "20 As this shifting is to the advantage of the 
 debtors the rich and to the disadvantage of the 
 creditors the great middle class it results in rap- 
 idly concentrating wealth in the hands of a compara- 
 tively few. 
 
 "21 For all of these reasons a prolonged period 
 of rapidly rising prices is reasonably certain to be- 
 
come a period of unrest, discontent, agitation, 
 strikes, riots, rebellions and wars. * 
 
 4 "22 A rapidly depreciating standard of Value 
 then, if long continued, not only produces most im- 
 portant results in the financial, industrial and com- 
 mercial world, but is likely to result in changes of 
 great consequence in the political, social, and relig- 
 ious world. 
 
 "In view of all the facts, results and possible con- 
 sequences connected with the increasing output and 
 supply of gold, The Wall Street Journal was right 
 when, on December 4, 1906, it said that 'No other 
 economic force is at present in operation in the 
 world of more stupendous power than that of gold 
 production.' " 
 
APPENDIX 
 
APPENDIX. 
 
 The foregoing letters were originally pub- 
 lished in pamphlet form as a portion of the 
 regular market letter service. After the pam- 
 phlet was distributed several students whose 
 views are entitled to respectful consideration 
 excepted to some of the contentions offered. 
 In order to give the dissenters a fair show, let- 
 ters received from Mr. Charles A. Conant, Mr. 
 A. Selwyn-Brown and Mr. A. E. Cottier are 
 added to the volume. Other letters of objec- 
 tion or modification were received but all the 
 points mentioned are covered by the three au- 
 thorities mentioned above. 
 
 Mr. Byron W. Holt replies to the non-ac- 
 quiescent writers. 
 
 T. G. 
 
The History of Prices* 
 
 By ARTHUR SELWYN-BROWN, E.M., M.A., B.Sc., Etc. 
 
 Speculation is based upon the science of 
 values. Values, like all scientific problems, can 
 only be reliably determined by "ample and 
 accurate information" regarding the present 
 and past. The future is only interpretable 
 through experience. The values of to-morrow 
 can only be gauged by a study of the values of 
 yesterday and to-day combined with a variable 
 factor joining the psychic factors of the mo- 
 ment of evaluation with the concomitant factors 
 of progressive evolution and socialization. 
 Prices, or values expressed in money, through 
 social evolution appear to progressively in- 
 crease when viewed over long periods of time. 
 It is proposed in this article to briefly review 
 the history of prices of a series of years with 
 the view of exhibiting the comparatively 
 
 * This article was specially prepared for Thomas Gibson's 
 Market Letter Service by Mr. Selwyn-Brown. 
 
 97 
 
98 
 
 gradual evolutionary processes of evaluation of 
 commodities as shown by tables of prices and 
 articles of general consumption and to indicate 
 the ability of the price-making processes to ade- 
 quately adjust themselves at all times to the 
 needs of progressive civilization. 
 
 It is only comparatively recently that econ- 
 omists have recognized the value of systemat- 
 ically investigating the history of prices. Some 
 excellent essays dealing with this subject have 
 been published during the last half century, 
 but a complete history of prices has never been 
 written. 
 
 The important position as a foodstuff held by 
 wheat makes it an excellent indicator of the 
 fluctuations of values. Better records, also, 
 have been kept of wheat prices throughout the 
 ages than of any other commodity. In Table I. 
 is shown the variations in wheat prices over a 
 period of 2,500 years. This table gives the aver- 
 age prices of wheat from the year 600 B. C. to 
 1908. The prices from 1401 to date are those 
 of the London markets. 
 
 The figures in Table I., it will be noticed, 
 show that the average price of wheat rose very 
 gradually between the years 600 B. C. and 
 1500 A. D. During this period the popu- 
 lation of the civilized world increased very 
 slowly. The processes of socialization, or the 
 civilizing influences, were not then very active. 
 
99 
 TABLE I. 
 
 AVERAGE PRICES OF WHEAT FOR 2508 YEARS. 
 
 Price 
 Period. per Ton. 
 
 B.C. 600 1.1.6 
 
 300 1.5.0 
 
 200 1.6.0 
 
 50 1.7-0 
 
 A. D. 50 300 1.7.6 
 
 301 500 1.8.0 
 
 501 800 1.8.6 
 
 801 1307 i.g.o 
 
 1401 1500 1.8.6 
 
 1501 1600 1.16.0 
 
 1601 1650 2.4.6 
 
 1651 1700 2.18.0 
 
 1701 1750 . 3.12.0 
 
 1751 1800 6.0.0 
 
 1801 1850 12.0.0 
 
 1851 1880 13.5.0 
 
 1881 1889 9.5.0 
 
 1890 1899 6.9.6 
 
 1900 1908 7.0.3 
 
 No great price movement took place until 
 the middle of the i6th century. The political 
 unrest in Eastern Europe culminating in the 
 conquest of Constantinople by the Turks insti- 
 gated political and commercial changes which 
 had far-reaching effects upon the political and 
 financial development of the world. 
 
100 
 
 Before the Turkish conquest of the "Gate to 
 the East,'* the Oriental trade was controlled 
 exclusively by the Venetians. Their monopoly 
 was, of course, exceedingly profitable, and was 
 envied by the other European nations. When 
 the Turks cut off the trade the princes of 
 Europe all endeavored to discover new routes 
 with the view of restoring it with profit to 
 themselves. Prince Henry of Portugal was one 
 of the most able of the princes of the time and 
 he strenuously advocated the searching for a 
 sea route south of Africa. The results of his 
 efforts were successful. In 1598, Vasco De 
 Gama, one of his assistants, sailed around the 
 Cape of Good Hope and visited the principal 
 towns on the Malabar coast of India. 
 
 This success of the Portuguese stimulated 
 the ambitions of the Spaniards, who were prom- 
 ised title by the Bull of Demarcation of Pope 
 Alexander VI., to all the discoveries they might 
 make to the westward of a line drawn north 
 and south through the Atlantic Ocean 100 
 leagues west of the Azores. This resulted in 
 the discovery of America. The Portuguese and 
 Spaniards not being very skillful in commerce, 
 the carrying and distributing trades in Europe 
 were developed by the Dutch. 
 
 The great commercial activities of the i6th 
 and i yth centuries are reflected in the increase 
 in wheat prices. Following the increase in 
 prices and the good times they indicate there 
 
101 
 
 was a considerable increase in the population 
 of the civilized world. The new trades which 
 were established in the new countries that were 
 being opened up by the Portuguese and Span- 
 iards necessitated improved commercial meth- 
 ods and credit facilities. These in turn required 
 corresponding increases in the metallic money 
 reserves which were met by importation from 
 America. In the period between 1500 and 1700 
 there was a very considerable increase in com- 
 modity prices. The successive increments in 
 prices indicated prosperity which in turn was 
 followed by an increased population and the 
 civilization of large numbers of previously un- 
 civilized people. These processes still continue 
 and profoundly influence the demand for goods 
 and their prices. 
 
 Demand usually controls supply, and supply 
 is usually adapted to demand. Demand and 
 value are so intimately related that changes in 
 one affect the other. Consequently the history 
 of prices should indicate changes in man's 
 wants as well as of his activities. In early his- 
 torical times man's wants were few and easily 
 satisfied. Each man usually raised his own food 
 and weaved the materials for his own apparel. 
 To-day, of course, our wants are manifold and 
 require the fullest resources of our complex 
 civilization to attend to them. Contrasts be- 
 tween the prices of articles in general use in 
 early times say, in Roman times with those 
 
102 
 
 of similar articles marketed to-day may be use- 
 fully employed to indicate our advancement in 
 socialization, or, as it may be broadly termed, 
 civilization. 
 
 One of the earliest lists of prices surviving 
 Roman times is that of the Emperor Diocletian, 
 issued in an imperial decree in A. D. 303 and 
 fixing prices of commodities for the whole 
 Roman Empire. Table II. is compiled from 
 that decree. 
 
 TABLE II. 
 
 DIOCLETIAN'S PRICES FOR ROMAN EMPIRE, A.D. 303.* 
 
 Wine. Per pint. 
 
 Falernian 3oc. 
 
 Ordinary 2oc. 
 
 Rustic 8c. 
 
 Vinegar 6c. 
 
 Beer 40. 
 
 Olive Oil 4c. 
 
 Meat. Per Ib. 
 
 Beef 8c. 
 
 Mutton 8c. 
 
 Lamb I2C. 
 
 Pork I2C. 
 
 Ham 2oc. 
 
 Fish . ... ice. 
 
103 
 
 Game. Each. 
 
 Ducks 6oc. 
 
 Hens goc. 
 
 Goose 1.50 
 
 Clothing. 
 
 Socks 6c. 
 
 Breeches 3oc. 
 
 Cloak 6oc. 
 
 Shoes 2.00 
 
 * Expressed in American equivalents. 
 
 According to the Dugdale MSS. in the Ash- 
 molean Museum, Oxford, the stock on a farm 
 in Warwickshire, England, was valued and 
 recorded on September 12, 1290. From this 
 record Table III. was compiled. 
 
 TABLE III. 
 
 FARM PRODUCTS IN WARWICKSHIRE, 1290. 
 
 Each 
 s. d. 
 
 ii Oxen 9.0.0 
 
 3 Riding horses 1.6.8 
 
 3 Carts 5.8 
 
 2 Tame deer 1.8 
 
 2 Boars 3.0 
 
 5 Sows 2.6 
 
 28 Hogs, not full grown 1.6 
 
 18 Weaned pigs .5 
 
 15 Sucking pigs 3 
 
104 
 
 TABLE III Continued 
 
 Each 
 s. d. 
 
 21 Ducks .1 
 
 20 Bacon hogs 3.4 
 
 18 Silver Spoons 10 
 
 The prices given in this table are representa- 
 tive of those ruling in the country districts in 
 England at that time. Those in London were 
 about 50 per cent, higher. It will be seen on 
 contrasting the prices in Table III. with 
 those in Table II. wherever possible, as, for 
 instance, those of poultry and meat, that little, 
 or no, advance was made during a period 
 of nearly 1,000 years. Table I. shows there 
 was also in that time practically no change 
 in the price of wheat. The world went very 
 slow during that period and there was little, 
 or no, material advancement in human wants. 
 It was essentially a period of contemplation. 
 Men watched the intellectual combats be- 
 tween the Philosophers of the Neo-Platonic 
 schools and the bishops of the church and 
 saw the church victorious. In the history of 
 philosophy this period is very important. It 
 embraces the whole of what is called the Re- 
 ligious Period and a part of the Middle Ages. 
 
 Forces were now gathering strength which 
 were to become active in advancing prices sev- 
 eral centuries later. While they were being 
 developed, however, men's attention was di- 
 
105 
 
 rected to intellectual and spiritual matters. 
 Pessimism was almost universally prevalent 
 and the worldly desires of the race remaining 
 unchanged, prices ran along in their old 
 grooves as is shown in the table. 
 
 The influences of population on prices are 
 suggested when it is recognized that desire 
 determines supply and supply is correlated to 
 value and price. In the process of socialization, 
 suggestion, invention and imitation are the 
 most active factors. An idea flashes into the 
 mind, or is invented. When novel and inter- 
 esting it is frequently communicated to others 
 and acts on them by suggestion. The action, 
 or desire, stimulated will vary according to the 
 class and number of people who adopt the sug- 
 gestion. If the desire is for a certain article of 
 commerce, the intensity of the desire, or the 
 number of calls for it, will be a measure of any 
 consequent fluctuation in price. The produc- 
 tion and distribution of commodities are con- 
 trolled by desires, which are themselves re- 
 sponsive to the alternative and successive fits 
 of optimism and pessimism experienced by 
 mankind, and by the other factors of social 
 progress. Just as socialization tends either 
 toward progress or decay, so desires corre- 
 spondingly advance or decline in rhythmic 
 sequence. 
 
106 
 
 TABLE IV. 
 
 POPULATION, 14 B. C. 
 
 Italy 6,000,000 
 
 Spain 6,000,000 
 
 Greece 3,000,000 
 
 Gaul 3,400,000 
 
 Other countries 4.600,000 
 
 Europe 23,000,000 
 
 Asia 19,500,000 
 
 Africa 11,500,000 
 
 World 54,000,000 
 
 Malthus, in 1803, was the first to demon- 
 strate the fact that population has at all times 
 tended to outgrow subsistence. When living 
 under perfectly happy and virtuous conditions 
 a community is naturally constrained to in- 
 crease. While the means of subsistence in- 
 creases in arithmetical progression, the popu- 
 lation tends to increase in geometrical ratio. 
 Self-restraint, emigration, starvation, vice and 
 other degenerative influences are the regulators 
 of population, and they all influence prices. 
 
 The writings of Malthus inspired Darwin's 
 biological researches which led him to the dis- 
 covery of the law of organic reproduction. Ex- 
 pressed in popular terms the law is as follows : 
 There is an innate tendency of all organic life 
 to increase until neighbors press upon the limit 
 of food supply or production causing starvation 
 and the consequent elimination of the weak and 
 less fit members. 
 
107 
 
 TABLE V. 
 
 POPULATION OF WORLD, 14801908. 
 
 1480. 
 
 1580. 
 
 1680. 
 
 England 3,700,000 4,600,000 5,532,000 
 
 France 12,600,000 14,300,000 18,800,000 
 
 Prussia 800,000 1,000,000 1,400,000 
 
 Russia 2,100,000 4,300,000 12,600,000 
 
 Austria 9,500,000 16,500,000 14,000,000 
 
 Italy 9,200,000 10,400,000 11,500,000 
 
 Spain 8,800,000 8,150,000 9,200,000 
 
 United States 
 
 Australasia 
 
 India 
 
 China 
 
 Japan 
 
 1780. 1880. 1908. 
 
 England 9,561,000 35,004,000 44,000,000 
 
 France 25,100,000 37,400,000 39,000,000 
 
 Prussia 5.460,000 45,260,000 61,000,000 
 
 Russia 26,800,000 84,440,000 120,000,000 
 
 Austria 20,200,000 37,830,000 50,000,000 
 
 Italy 12,800,000 28,900,000 34,000,000 
 
 Spain 9,960,000 16,290,000 21,000,000 
 
 United States .... 3,500,000 50,155,783 87,000,000 
 
 Australasia 6,600,000 
 
 India 300,000,000 
 
 China 410,000,000 
 
 Japan 52,000,000 
 
 Population statistics constitute not merely 
 biological studies showing the growth of the 
 race, but the continuation and development of 
 social institutions. They also, as was indicated 
 above, measure the degrees of happiness and 
 
108 
 
 prosperity of the people of different periods; 
 because in times of stress and turmoil few 
 marriages are consummated and births are re- 
 duced, whereas in times of general well-being 
 the contrary is true. Times when high prices 
 are universal are invariably times of happiness 
 and prosperity. 
 
 Comparisons of Tables IV. and V. with 
 Table I. will indicate the influence of popula- 
 tion on the prices of wheat, and incidentally 
 will plainly show the course of civilization. 
 
 The opening up of both North and South 
 America and Australasia to European emi- 
 grants has greatly influenced prices in re- 
 cent years. The emigrants are engaged in de- 
 veloping some of the richest portions of the 
 earth and are creating a stupendous commerce 
 which will not only greatly advance their own 
 new countries, but which will prove very bene- 
 ficial to Europe and powerfully influence prices 
 the world over. 
 
 An English statistician named Newmarch, 
 when writing for the "Economist," London, 
 devised a unique method of showing the varia- 
 tions in commodity prices. Adopting the aver- 
 age price of each important article sold in 
 London in any year taken as a basis of com- 
 parison, in the specific case referred to, the 
 prices of 22 articles sold in London in 1845- 
 ! 850 the prices in following years were re- 
 
109 
 
 duced, without loading to offset adverse factors 
 that were liable to influence simple averages. 
 The averages in 1845-1850 were taken as 100 
 and the prices of subsequent years were ex- 
 pressed as percentages of the initial prices. The 
 sum of such percentages in each year forms 
 the index number for that year. As 22 articles 
 were selected the basic index number for all 
 is 2,200. The value of such a method for popu- 
 larly demonstrating price variations was imme- 
 diately appreciated and this method, variously 
 modified, is now universally employed by 
 economists and statisticians. 
 
 Index numbers have been published at 
 frequent intervals by the "Economist" and 
 Sauerbeck for English prices; Laspeyres, 
 Paasche, Conrad, Krai, Soetbeer and Heinz, for 
 German prices; D'Avenel, Palgrave and Falk- 
 ner for French prices; Dun's Review, Brad- 
 street's Review and Falkner for American 
 prices, and by other authorities in other coun- 
 tries. Table VI., compiled from Mr. Sauer- 
 beck's valuable papers on English prices in the 
 proceedings of the Royal Statistical Society, 
 London, gives representative index numbers 
 covering the years 1846-1907. In view of the 
 equalizing effects of the electric telegraphs and 
 cables and modern commercial methods, as 
 well as the great extent of international com- 
 merce, Table VI. covering London market 
 
110 
 
 values may be taken as a typical barometer of 
 the world's price variations during the period 
 covered. 
 
 In this brief sketch of the history of prices 
 it has only been possible to lightly refer to a 
 few important epochs in such history, notwith- 
 standing that the accompanying tables contain 
 many extraordinary statistics calling for com- 
 ment. All references to the important influ- 
 ences the inventions of steam, electricity and 
 chemical and manufacturing processes on prices 
 have been suppressed. It is hoped, however, 
 that sufficient has been said to indicate that 
 prices are as variable as human desires and 
 reflect those desires. They are not constrained 
 by any hard and narrow economic law. 
 
 Regarding the future, it may be said there is 
 no possibility of a check to the general ad- 
 vancement of prices. The prices of specific 
 articles may vary spasmodically; but mankind 
 is destined to progress more rapidly in the 
 future than in the past, and the hordes of Asia 
 are likely to be soon civilized. Such progress 
 and advancement must in the future, as in the 
 past, become reflected in demand and prices 
 prices must continue to advance. 
 
 In the table on pages 111-114 tne first nine 
 columns represent the Sauerbeck Index num- 
 bers. The three remaining columns are com- 
 piled from London financial statistics. 
 
Ill 
 
 
 
 Avg. Bank of 
 England Rate. 
 
 
 CO 
 
 Avg. Price of 
 Consols. 
 
 
 
 
 
 
 H 
 
 
 
 to 
 
 
 
 H 
 
 Silver. 
 
 
 H 
 
 
 
 co 
 
 
 
 3 
 
 Grand Total. 
 
 
 
 
 
 
 2 
 
 Total 
 
 
 2 
 
 Materials. 
 
 
 fe 
 
 
 
 2 
 
 Sundry 
 
 
 
 
 Materials. 
 
 . 
 
 Q 
 
 
 t 1 
 
 
 
 Textiles. 
 
 w 
 
 H) 
 
 
 
 
 
 
 Minerals. 
 
 H 
 
 CO 
 
 
 
 
 
 W 
 
 
 
 PQ 
 
 Total Food. 
 
 
 
 
 
 
 2 
 
 Sugar, Coffee, 
 
 
 X 
 
 and Tea. 
 
 
 Q 
 
 
 
 2 
 
 Animal Food 
 
 
 HH 
 
 (Meat, etc.) 
 
 
 CO 
 
 
 
 
 
 w 
 n 
 
 Vegetable Food 
 (Corn, etc.) 
 
 
 K 
 
 
 
 tD 
 
 
 
 CO 
 
 
 
 
 Year. 
 
 N'-''-HU^'-< 
 
 O O O O Cft 
 
 O O O Cft O^ CTi 
 
 i-iOOcO'-i 
 
 ooooooo< 
 
 o<vovovooooooooo 
 
 ^^-^-^- 
 
 OOOOOOOO 
 
 oooooooooooooooooooooo 
 
112 
 
 <- 
 
 f 
 
 Avg. Bank of 
 England Rate. 
 
 Avg. Price of 
 
 Consols. 
 
 Silver. 
 
 Grand Total. 
 
 Total 
 Materials. 
 
 Sundry 
 Materials. 
 
 Textiles. 
 
 Minerals. 
 
 Total Food. 
 
 Sugar, Coffee, 
 and Tea. 
 
 Animal Food 
 (Meat, etc.! 
 
 Vegetable Food 
 (Corn, etc.) 
 
 Year. 
 
 
 SvOi-t 
 oo 
 
 oooo 
 
 ooo\aooooooo 
 
 vovovDOvo 
 
 00 00 00 00 00 
 
 00 00 00 00 00 00 00 
 
Avg. Bank of 
 England Rate. 
 
 Avg. Price of 
 Consols. 
 
 Silver. 
 
 Grand Total. 
 
 Total 
 Materials. 
 
 Sundry 
 Materials. 
 
 Textiles. 
 
 Minerals. 
 
 Total Food. 
 
 Sugar, Coffee, 
 and Tea. 
 
 Animal Food 
 (Meat, etc.) 
 
 Vegetable Food 
 (Corn, etc.) 
 
 Year. 
 
 . 
 
 OOOOOOOOOOOOOOt^VOVOvOVOVOvOVO 
 
 oo^- 
 
 lOvO 
 
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 MVOCVlT-i^-iOO 
 
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 r^r^OOOOOOOOOOOOOOOOOOOOC*CT>C*<^a> 
 
 oooooooooooooooooooooooooooooooooo 
 
114 
 
 
 Avg. Bank of 
 England Rate. 
 
 
 Avg. Price of 
 Consols. 
 
 
 Silver. 
 
 
 Grand Total. 
 
 
 Total 
 Materials. 
 
 1 
 
 Sundry 
 Materials. 
 
 .E VI Cont 
 
 Textiles. 
 Minerals. 
 
 HH 
 
 PQ 
 
 Total Food. 
 
 H 
 
 Sugar, Coffee, 
 and Tea. 
 
 
 Animal Food 
 (Meat, etc.) 
 
 
 Vegetable Food 
 (Corn, etc.) 
 
 
 Year. 
 
 x^ N* N" N^ 
 
 gsSssgasJSgss 
 
 S-i 
 vO 
 
 O^ O^ O^ O^ O ^3 O ^D 
 QO 00 OO CO O> O^ CTi O> 
 
 
 
 3 
 O g 
 
 *o 
 
 2 g 
 
 03 " v 
 
 - 
 
 v M 
 
 t; c 
 
 Till 
 
 Silf 
 
 2 ss| 
 
 ?r s 
 
Gold Production and Prices* 
 
 By CHARLES A. CONANT, 
 
 Ex-Treasurer of Morton Trust Co., author of "A History of 
 
 Modern Banks of Issue;" "Principles of Money and 
 
 Banking;" "Wall Street and the Country," etc., etc. 
 
 In my opinion the quantity theory is given 
 an altogether disproportionate importance in 
 many discussions in regard to the value of 
 money. It is probable that prices are influ- 
 enced by great and permanent changes in the 
 quantity of metallic money, but this influence 
 is only one of several and may be entirely 
 counteracted by the others. From a scientific 
 point of view, the subject calls for careful 
 definitions and fine distinctions and it is diffi- 
 cult to deal with it in a satisfactory manner 
 in limited space. While stability of value in 
 the monetary unit is generally treated as an 
 important aim, even this term "stability" is 
 often used in a careless and misleading man- 
 ner. There may be apparent appreciation in 
 the purchasing power of gold, which arises 
 from improvement in methods of production, 
 permitting a larger quantity of goods to be 
 exchanged for the same amount of gold. 
 
 * Specially written for this volume by Mr. Conant. 
 115 
 
116 
 
 There may be apparent depreciation in the 
 purchasing power of gold, arising from scarcity 
 of given articles or difficulty in obtaining them. 
 In either case, it is not strictly the value of 
 gold which has changed, but the value of par- 
 ticular commodities. The clarifying of this 
 problem is the subject of an entire book by 
 Professor C. N. Walsh, "The Fundamental 
 Problem in Monetary Science." 
 
 It is my opinion that while the quantity of 
 money is one of several influences operating 
 upon the price of commodities, it is often 
 counteracted, although it may be sometimes 
 accelerated, by other influences and that these 
 considerations make it impossible to isolate 
 practically the influence of changes in the 
 quantity of money upon prices. It may be 
 possible to construct a theoretical formula 
 which meets the problem, but it is not possible 
 to separate the data in such a way as to justify 
 any dogmatic mathematical conclusions. More- 
 over, in my opinion, the quantity theory, in the 
 sense of a uniform rise of prices can never be 
 realized at any single moment, no matter how 
 much time is given for adjustment. If the 
 quantity of gold in the market, operating 
 through increased bank reserves, permits wide 
 extensions of credit, and prices are thereby 
 affected, it will be articles which are most sen- 
 sitive to changes of price which will first feel 
 the influence. These changes will react upon 
 
117 
 
 the prices of other articles, but the entire prob- 
 lem will become one of constant inter-related 
 changes instead of one of a final rise or fall of 
 all prices to a point which will leave them in 
 their old ratios to each other. The proof of 
 this principle I have endeavored to set forth 
 in Book II., Chapter 2, page 160, of my book, 
 "The Principles of Money and Banking." 
 
 To sum up the matter in simple language, 
 the quantity of gold undoubtedly is influential, 
 among other things, upon prices, but among 
 these other things is the state of credit, which 
 at least within short intervals moves prices up 
 and down much more violently than they are 
 moved by changes in the quantity of gold and 
 in the long run defeats any definite calcula- 
 tions as to the separate influence of the quan- 
 tity of gold. 
 
An Answer to the History of Prices* 
 
 By ALONZO E. COTTIER. 
 
 It may be true that "prices through social 
 evolution progressively increase over long 
 periods of time" as stated by Mr. Selwyn- 
 Brown, but that they do so without reference 
 to fluctuations in the volume of the money 
 metals as implied by him, his pamphlet affords 
 no proof whatever. 
 
 It may be claimed for his theory that in- 
 creased supplies of the precious metals are 
 manifestations of social evolution and conse- 
 quently if prices are thus increased, then the 
 primary cause is social evolution, and the in- 
 creased supply with its results on prices is 
 only secondary, an effect rather than a cause. 
 
 It is a noteworthy fact, however, that of the 
 three great upward swings in prices that have 
 taken place during the Christian era, two clear- 
 ly owed their impulse to wars of conquest 
 rather than to increased production of the 
 precious metals through the arts of civilization. 
 
 * Specially written for this volume by Mr. Alonzo E. Cottier. 
 118 
 
119 
 THREE GREAT PRICE MOVEMENTS. 
 
 The first upward swing in prices of which 
 we have authentic record had its inception in 
 the reign of Augustus. By successive con- 
 quests Rome had not alone acquired possession 
 of nearly all the mines throughout the world 
 (then yielding the precious metals) but a large 
 proportion of the whole mass of gold and silver 
 which had been produced during the pre- 
 ceding centuries was drawn to Italy. 
 
 William Jacob, in his "Inquiry Into the Pre- 
 cious Metals," estimates the stock of gold and 
 silver in Rome on the accession of Augustus 
 at the equivalent of one billion eight hundred 
 million dollars. This was the accumulated 
 treasure of centuries which had been possessed 
 by the sovereigns of peoples conquered by 
 Rome. The amount seems incredible measured 
 by the accumulation of to-day exceeding as 
 it does the gold possessed by any nation of 
 the modern world. There can be no doubt, 
 however, that at the lowest estimate the Im- 
 perial store amounted to the equivalent of hun- 
 dreds of millions of dollars, and its gradual in- 
 jection into circulation among the Romans and 
 the people of Italy was the direct cause of the 
 increase of prices that took place in Rome and 
 which raised the price level in the time of 
 Diocletian to a point probably not far from 
 that prevailing in modern times. 
 
120 
 
 The decline of Rome was accompanied by 
 the wasting away of this treasure, and the 
 Barbarian onslaughts on the Roman dominions 
 hastened its dispersal. Mining practically 
 ceased and the gloom of the Middle Ages fol- 
 lowed, when prices sunk to the lowest level 
 of the Christian Era. "Between the gth and 
 the 1 5th centuries the quantity of the precious 
 metals in existence had fallen to a minimum 
 and prices reached the point that copper, tin 
 and iron contained a value for their bulk ade- 
 quate to effect the few and tardy exchanges of 
 the dark age" (Francis A. Walker's Money). 
 The Dugdale manuscript cited by Mr. Selwyn- 
 Brown falls within this period. 
 
 The second great upward swing in prices 
 followed the acquisition by the Spaniards of 
 the Mexican and Peruvian hoards of precious 
 metals and the development of their mines 
 upon the discovery of America. The effect on 
 European prices is shown in Mr. Selwyn- 
 Brown's Table No. I. Wheat rose 100% and 
 other prices in proportion. In 1887 Mr. Inglis- 
 Palgrave, testifying before the Herschell Com- 
 mission, estimated the increase in the supply 
 of precious metals from 1492 to 1640 at 600%, 
 although the increase in prices amounted to 
 only 200%. 
 
 The third great upward swing followed the 
 discovery of gold in California and Australia. 
 Prices for articles included in Sauerbeck's In- 
 
121 
 
 dex (Mr. Selwyn-Brown's Table No. 6) rose 
 from 74 in 1849 to an average of 105 in 1857, to 
 in in 1873, then dropped to an average of 61 
 in 1896, following the practical elimination of 
 billions of dollars of silver as a standard money 
 and its regulation thenceforth to the level of 
 a mere commodity. 
 
 SELWYN-BROWN'S CONTENTIONS NOT 
 WELL BASED. 
 
 Mr. Selwyn-Brown's contention that prices in 
 England in A. D. 1290 remained practically the 
 same as in Rome A. D. 303, is not sustained by 
 his tables. He asks us to contrast the prices of 
 poultry and meat in Tables II. and III. and says 
 that little or no advance was made in these 
 during a period of one thousand years. What 
 the tables really show, however, is an astound- 
 ing decline. For example, Diocletian attempted 
 to arbitrarily reduce the price of pork to twelve 
 cents a pound (the then current price must 
 have been higher), whereas, one thousand 
 years later a sow could have been purchased 
 for sixty-two cents, and ducks for which the 
 decree price in Rome was sixty cents each, 
 could have been bought for only two cents 
 apiece! It should be noted, however, that an 
 exact comparison of the Roman prices with 
 those of the present day is impossible owing 
 to the uncertainty that exists as to the real 
 
122 
 
 value of the Roman coin the denarius, in 
 which the decree prices were expressed. 
 
 Table No. 6 does not sustain Mr. Selwyn- 
 Brown's theory that social evolution produces 
 higher prices when working over long periods 
 of time. From 1846 to 1907 is a fairly long 
 period of time, and measured by commercial 
 activities, inventions, increase in population 
 and complexity of wants, was probably the 
 most progressive period in history, yet at the 
 end of it we find prices at about the same level 
 as at its beginning. An examination of the 
 table shows, however, large fluctuations during 
 the intermediate years, to wit: a rise of 50% 
 from 1849 to 1873 (gold discoveries), followed 
 by a drop of 45% to 1896 (silver demonetiza- 
 tion), a recovery to 1907 of nearly 50% (in- 
 creasing production of gold). 
 
 THE LOW PRICES OF 1896. 
 
 The period from 1872-73 to 1896 of falling 
 prices was one characterized by a diminishing 
 supply of standard money. While a general 
 realization of the factor of silver demonetiza- 
 tion in producing this result has been obscured 
 by political exigencies in the United States and 
 possibly by self interest in England, that it was 
 the controlling influence in producing the low 
 prices up to 1896 will hardly be denied at the 
 present day. 
 
123 
 THE PENDULUM THEORY. 
 
 Mr. Holt, the compiler of "The Gold Supply 
 and Prosperity," in summing up the arguments 
 of the contributors to that symposium in a 
 final chapter, suggests that prices under the in- 
 fluence of an increasing supply of gold will rise 
 faster than the actual quantity of gold in stock 
 would warrant. If that is true, then would not 
 the converse also be true, to wit: under a di- 
 minishing supply of the monetary standard, 
 prices would decrease more rapidly than the 
 reduced volume of money would actually war- 
 rant? 
 
 The deduction from this theory would there- 
 fore be that prices in 1896 had dropped below 
 the point justified by relative exchangeable 
 values and that since that time, under the in- 
 fluence of a greatly increased supply of gold, 
 they have increased faster than would be justi- 
 fied by relative exchangeable values. Is it not 
 a fair inference from this that prices will move 
 upward less violently during the next ten 
 years than in the decade just terminated? 
 
 It took twenty-three years for prices to drop 
 from in in 1873 to 61 in 1896, and if we 
 assume that a corresponding time will be re- 
 quired for the return swing of the pendulum, 
 that would indicate a return to the prices of 
 1873 by 1919. Now prices had already recov- 
 ered from 6 1 to 88 (44%) prior to the panic 
 
124 
 
 of 1907, leaving room for only an advance 
 from 88 to in (25%) to bring us back to the 
 high level of 1873. 
 
 The above theory may be objected to as being 
 purely fanciful, in that it is not sustained by 
 any computation to show that by 1919 the ad- 
 verse effects of the withdrawal of silver will 
 have been balanced by an increased supply of 
 gold sufficient to also provide for the increased 
 volume of commodities, naturally to be ex- 
 pected by that time. 
 
 A corroborative reason, however, for think- 
 ing that prices will now rise more slowly is 
 found in Prof. W. S. Jevons' book "Investiga- 
 tions in Currency and Finance." 
 
 ECONOMIC SANCTION FOR THE BELIEF 
 
 THAT PRICES WILL NOW RISE 
 
 MORE SLOWLY. 
 
 Prof. Jevons says, "In periods of the depre- 
 ciation of gold, in consequence of its increase 
 in production, the most sudden fall must occur 
 at first and the value of gold will fall more and 
 more slowly as time gets on and the total ac- 
 cumulation of gold grows." For example, if 
 the world's gold stock were $100,000,000, and 
 $50,000,000 more were added by production in 
 a year, and other things remained equal, we 
 could expect a rise of 50% in prices. The sup- 
 ply now being $150,000,000, a following year's 
 production of $50,000,000 more would increase 
 
125 
 
 the total supply only 33 1-3%, therefore a rise 
 in prices of that amount only would be indi- 
 cated for the year, and so on. 
 
 The quantity theory of gold also involves a 
 quantity theory of commodities. Mulhall's 
 "History of Prices" gives the increased volume 
 of the world's products from 1850 to 1884 at 
 104%, being an average of 3% per annum. 
 The present visible supply of gold being over 
 seven billion dollars and additions now being 
 made from production of about $325,000,000 
 annually (after deducting that used in the arts, 
 etc.), the present rate of increase of the world's 
 supply is therefore only about 5%. Now, if 
 the volume of commodities is also increasing 
 3% yearly, then the net yearly increase in 
 prices would be only 2%. The depreciation of 
 gold would thus proceed more slowly than in 
 the past ten years, unless indeed a large ex- 
 pansion in production should take place. 
 
 It is, of course, impossible to take effectively 
 into consideration all the factors that will arise 
 to influence future prices. The above is there- 
 fore submitted not as a prediction that prices 
 will be only 20% higher in 1919 than in 1907, 
 but only to indicate some reasons for believing 
 that the rise will be less violent than that which 
 occurred after 1896 and up to the fall caused by 
 the panic of 1907. From this latter level a 
 rather quick recovery seems to be generally 
 anticipated. 
 
Gold Depreciation 
 (A Rejoinder.*) 
 
 By BYRON W. HOLT. 
 
 Of the three fundamental propositions ad- 
 vanced in connection with the problem of gold 
 supply, neither Mr. Conant nor Mr. Cottier 
 have discussed but one. These three proposi- 
 tions are: 
 
 1. The gold supply will continue to increase 
 rapidly for many years. 
 
 2. Because of this increase and the fact that 
 gold is the standard of value prices of com- 
 modities will rise rapidly. 
 
 3. Because of rising prices interest rates will 
 average higher than they would if prices were 
 stable. 
 
 These propositions contain all that is really 
 debatable in connection with the gold problem. 
 Assuming the truthfulness of these proposi- 
 tions, the more important results, such as the 
 
 * This reply to the dissenting views of Mr. Selwyn-Brown. 
 Mr. Conant and Mr. Cottier was specially written for this 
 volume by Mr. Holt. 
 
 126 
 
127 
 
 effect on bond and stock values, on equities 
 in real estate, on speculation, etc., are deduci- 
 ble and reasonably certain. 
 
 Neither Mr. Conant nor Mr. Cottier claims 
 that there will not, in the next ten or twenty 
 years, be a tremendous increase in the output 
 and supply of gold. Neither denies that if we 
 have such an increase and if prices of com- 
 modities advance rapidly that the average rate 
 of interest will not be high. Apparently their 
 only quarrel is with the idea that a greatly 
 increased supply of gold will cause the average 
 price level of commodities to rise materially 
 from year to year or, at least, from decade to 
 decade. Nor is it clear to what extent they 
 wish to quarrel with this idea. 
 
 Mr. Conant freely admits that "The quantity 
 of gold undoubtedly is influential, among other 
 things, upon prices, but among these other 
 things is the state of credit, which at least 
 within short intervals moves prices up and 
 down much more violently than they are moved 
 by changes in the quantity of gold and in the 
 long run defeats any definite calculation as to 
 the separate influence of the quantity of gold." 
 
 Admitting that the "state of credit" tempo- 
 rarily and, at times, violently "moves prices up 
 and down," what has this fact to do with the 
 main question? The influence of cheapening 
 gold upon prices continues incessantly regard- 
 less of temporary influences of one kind or 
 
128 
 
 another ; just as the influence of the moon and 
 sun operates steadily on the earth and causes 
 the tide to rise regardless of the temporary 
 and perhaps violent fluctuations due to waves 
 caused by the "state of the weather." 
 
 Besides, has not the supply of gold more to 
 do with the "state of credit" than any other 
 single factor ? Is it not certain that the world's 
 unprecedented credit resources of to-day are 
 due primarily to the world's unparalleled stocks 
 of gold in public and private vaults? It is be- 
 cause of our rapidly increasing credit facilities 
 that business revives quickly, after a panic, and 
 proceeds feverishly and speculatively until the 
 credit facilities are again exhausted and relapse 
 follows. Then, when our credit power is re- 
 established mainly by increased gold reserves 
 we rush ahead and repeat the speculative 
 cycle. The speculative cycle is due to the 
 effect of rapidly rising prices. If, as in the last 
 decade, prices rise 40% in five years, then de- 
 cline 6% in one year, then advance 20% in 
 three years, and decline 15% in one year, it is 
 reasonably certain that when prices begin to 
 rise again, as is now the case, there will be a 
 substantial rise in the next two years. Human 
 nature being what it is, manufacturers, mer- 
 chants and speculators will hasten to take ad- 
 vantage of this prospective rise in prices. Ma- 
 terials and goods will be bought, not entirely 
 for immediate needs, but to carry in stock 
 
129 
 
 while their values are enhancing. A quick re- 
 vival follows and soon all manufacturing and 
 transportation facilities are taxed to their lim- 
 its. The demand for new capital soon exhausts 
 the accumulated credits of the world, money 
 gets "tight," prices begin to decline, demand 
 for goods slackens, mills close, railroad earn- 
 ings decline and industry halts until new credit 
 can be created. 
 
 There is nothing in all of this round of in- 
 dustrial and financial events to disprove the 
 so-called quantity theory of gold. No one 
 claims that prices will rise continually, every 
 day, every month and every year, under the 
 influence of cheapening gold. The main claim 
 is that, disregarding temporary fluctuations, 
 average prices will, every three, five or ten 
 years, attain new high levels. 
 
 Mr. Conant's statements in regard to de- 
 clines in the prices of certain articles, because 
 of improved methods of production, about ad- 
 vances in the prices of certain other articles, 
 because of their scarcity or "difficulty in ob- 
 taining them" and about some articles being 
 more "sensitive to changes of price" than 
 others, as well as his statement about the "con- 
 stant inter-related changes" of prices of differ- 
 ent commodities without changing their old 
 ratios with each other, are like the flowers that 
 bloom in the spring '"they have nothing to do 
 with the case." To discuss these facts and to 
 
130 
 
 pretend that the truthfulness or falsity of the 
 quantity theory rests upon any or all of them 
 or that it demands a "uniform rise of prices" 
 is to thresh a man of straw. Discussions of 
 this character are beside the question. 
 
 To make a fair test the price of no one com- 
 modity and of no ten commodities must be 
 considered. Each and all may be exceptional. 
 The average price of all commodities cannot be 
 exceptional. The average price for a month 
 or a year, however, might be exceptional and 
 might not indicate the real tendency and direc- 
 tion of prices. The average price of all com- 
 modities for a long period of time must show 
 the trend of prices and this trend must show 
 whether gold is depreciating or appreciating. 
 It cannot be otherwise, for gold is the standard 
 of value by which all other things are meas- 
 ured. It is on one side of the economic scales 
 and all other things are on the opposite scale. 
 When one scale goes down the other scale must 
 go up. 
 
 While we talk of the "quantity theory" of 
 money and of products we do not really mean 
 that the relative quantities of any two com- 
 modities determines their exchange values. It 
 is not quantity but cost of production that, in 
 the end, determines the exchange values of 
 any two products wheat with cloth, coal 
 with cotton or corn with gold. If the cost of 
 producing any one commodity is suddenly re- 
 
131 
 
 duced 50%, while the cost of producing other 
 commodities remains the same, the cheapened 
 commodity will, under free competition, tend 
 to sell at half its original price, as compared 
 with the prices of the other commodities. If 
 it be a perishable commodity, such as wheat, 
 cotton, paper or potatoes, it will soon be sell- 
 ing at half its original price. If it be a non- 
 perishable commodity, such as gold or silver, 
 the price, or exchange value, will not change 
 rapidly, and much time will be required to ad- 
 just the price to the cost of production. Gen- 
 erally speaking, then, the quantity of a com- 
 modity affords a rough measure of its ex- 
 change value with other commodities. It is 
 more nearly true of gold than of any other 
 commodity because gold is an almost universal 
 standard of value and medium of exchange, 
 and the demand for it is unlimited. Other 
 things remaining the same, doubling the quan- 
 tity of gold, then, will double the prices of all 
 commodities, for all are measured by gold. 
 
 But other things do not remain the same. 
 It takes time, much time, to double the world's 
 supply of gold. While this is being done, not 
 only is population increasing and civilization 
 expanding, but improvements are cheapening 
 the cost of producing most other commodities. 
 Both processes tend to lower prices and will 
 lower prices constantly if there is no reduction 
 
132 
 
 in the cost of producing the commodity chosen 
 as the standard of value. 
 
 To overcome the tendency of prices to de- 
 cline because of improved methods of produc- 
 tion, an increase of something like 2% a year 
 is necessary in the quantity of gold. To coun- 
 teract the increased demand for gold, due to 
 industrial expansion, a further increase in 
 quantity of perhaps i% a year is necessary. 
 
 Unless, then, the world's supply of gold in- 
 creases at the rate of about 3% a year, the 
 price level will tend downward. 
 
 This fact explains why taking the figures 
 quoted by Mr. Cottier prices increased only 
 200% from 1492 to 1640, while the supply of 
 the precious metals increased 600%. It ex- 
 plains why prices declined materially from 
 1873 to 1890. During the latter period the 
 supply of gold increased only about 21%. As 
 this was insufficient to offset the natural de- 
 cline in prices, the price level declined 22% 
 during this period. 
 
 Generally speaking, Mr. Cottier's conclusions 
 do not appear to be justified from his facts. 
 He admits that prices rose in Rome when the 
 gold supply increased and that they fell during 
 the "Middle Ages," when "mining practically 
 ceased" and "the quantity of the precious met- 
 als in existence had fallen to a minimum." He 
 admits that an "upward swing in prices fol- 
 lowed the acquisition by the Spaniards of the 
 
133 
 
 Mexican and Peruvian hoards of precious met- 
 als and the development of their mines upon 
 their discovery of America." He admits that 
 another "great upward swing followed the dis- 
 covery of gold in California and Australia." 
 
 After admitting nearly all that is claimed 
 by those who accept the quantity theory of 
 money, he expresses the opinion that, in fu- 
 ture, the rise of prices will not be as rapid as in 
 the past ten years. He predicts that "prices 
 will be only 20% higher in 1919 than in 1907." 
 
 This would indicate a rise in prices of about 
 2% a year, which is about all that could be ex- 
 pected when the world's gold supply is in- 
 creasing only about 5% a. year. However, as 
 prices declined about 15%, from the highest 
 point in 1906 to the lowest point in 1907, it is 
 highly probable that we will not have to wait 
 three years to see prices 20% above the low 
 level of 1907. This prediction will be put along- 
 side of Mr. Cottier's. 
 
 Another reason for expecting a swift rise in 
 prices in the next five years is due to the ab- 
 normally high profits now made in the world's 
 greatest gold mines. In the Robinson Gold 
 Mine the world's greatest producer the net 
 profits in 1907 were 71%, and in September, 
 1908, 77%. In the whole Rand mines now 
 producing $150,000,000 of gold a year the 
 average profits for the first nine months of this 
 year were 42^%. That is, for every $100,000,000 
 
134 
 
 of gold produced $42,500,000 are profits. Such 
 profits as these cannot but attract more capital 
 to gold and cause the output and supply of 
 gold to rise rapidly in the next few years. 
 There is reason, then, for supposing that the 
 world's gold supply will increase even more 
 rapidly than at the rate of 5% a year, during 
 the next 10 years, and that prices will rise 
 more than an average of 2% a year for this 
 period. More likely, they will rise an average 
 of 3% or 4% a year. 
 
 "The proof of the pudding is in the eating.'* 
 We will watch*the course of prices with great 
 interest for the next few years. Unfortunately 
 we no longer have an accurate and scientific 
 method of tabulating prices. The world met 
 with a very appreciable loss when "Dun's Index 
 Number" was discontinued two years ago. 
 
THOMAS GIBSON'S MARKET LETTERS 
 
 THIS ADVISORY SERVICE CONSISTS OF: 
 
 1. A daily letter mailed at 3.30 P. M. 
 
 2. A weekly letter covering general business con- 
 ditions, crop conditions, the technical situation and 
 offering suggestions for operations during the com- 
 ing week. 
 
 3. A special letter weekly covering whatever topic 
 is most vital. 
 
 4. A special letter weekly on crop conditions, dur- 
 ing the season. 
 
 5. Analysis of the reports of leading corporations 
 as they appear. 
 
 6. Monthly booklets giving prices by days for 
 active stocks. 
 
 7. A monthly booklet of charts. 
 
 8. A daily table of average stock prices (Rails and 
 Industrials). 
 
 9. Occasional telegrams regarding important 
 changes. 
 
 10. Privilege of a reasonable number of inquiries 
 by mail or telegraph. 
 
 The subscriber to this service may rest assured that 
 every question affecting future values and prices of 
 securities will be thoroughly covered. 
 
 These letters deal particularly with securities. Grain 
 and Cotton are also briefly touched on. While I at- 
 tempt to gain the most dependable opinions on com- 
 modities, the advice offered is not based on personal 
 investigation. 
 
 THE PRICE OF THE SERVICE IS AS FOLLOWS: 
 
 COMPLETE SERVICE ( O ne month. . .$10.00 
 
 AS DETAILED ABOVE ] One Tear 7500 
 
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Gibson's Manual 
 J909 
 
 The value of this work lies in the brevity 
 with which information regarding different 
 corporations is presented to the speculator or 
 investor. The more cumbersome methods in 
 vogue have been discarded. 
 
 Under the heading of each corporation is 
 given a short history of the Company's capi- 
 talization, comparative earnings, dividends 
 paid, high and low prices by years and months 
 for the past ten years, and a chart showing the 
 price movement of each stock for ten years. 
 
 The list of corporations includes nearly 150 
 railroads, industrial and miscellaneous stocks, 
 actively traded in on the New York Stock Ex- 
 change. 
 
 Typographically the manual is attractive 
 and does not tire the eye. 
 
 Bound in cloth in compact form SixiiJ. 
 Price $5.00. 
 
 Published by 
 
 THE GIBSON PUBLISHING CO. 
 
 15 William Street, New York 
 
The Pitfalls of Speculation 
 
 BY THOMAS GIBSON 
 
 In this volume the author has endeavored 
 to discuss as simply as is possible, the salient 
 factors of speculation and investment. The 
 Table of Contents, following the introduction, 
 treats of: 
 
 Ignorance. 
 
 Over-Speculation, etc. 
 
 Manipulation. 
 
 Accidents. 
 
 Business Methods in Speculation. 
 
 Market Technicalities. 
 
 Tips. 
 
 Mechanical Speculation. 
 
 Short Selling. 
 
 What 500 Speculative Accounts Showed. 
 
 Grain Speculation. 
 
 Suggestions as to Intelligent Methods. 
 
 Conclusion. 
 
 Bound in cloth, 146 pages. Price, $i ; by 
 mail, $1.10. 
 
 Complete Library (7 vols.), $5.00. 
 Address orders to 
 
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 15 William Street, New York 
 
The Cycles of Speculation 
 
 BY THOMAS GIBSON 
 
 This book enters a little further into the influ- 
 ences bearing on price changes, than does the "Pit- 
 falls of Speculation," described on the preceding 
 page. 
 
 The Table of Contents introduces as bearing 
 upon the subject: 
 
 The Cycles of Speculation. 
 
 The Gold Supply and Its Effect on Prices. 
 
 Money. 
 
 Political Influences. 
 
 Crops, etc. 
 
 Puts and Calls. 
 
 The Question of Dividends. 
 
 Basing Railroad Values. 
 
 Effect of Business Depression. 
 
 Undigested Securities. 
 
 How to Compute the Value of Rights. 
 
 Barometer of Averages. 
 
 Best Method of Trading. 
 
 Indication of Crisis. 
 
 The Ordinary Swing of Prices. 
 
 The Factor of Safety. 
 
 Borrowing and Lending Stock. 
 
 Scalping. 
 
 Crop Damage. 
 
 Selection of Securities. 
 
 The Bank Statement. 
 
 The Cycles of Stock Speculation. 
 
 The Cycles of Grain Speculation. 
 
 The Cycles of Cotton Speculation. 
 
 Conclusion. 
 
 Bibliography. 
 
 Bound in cloth, 183 pages; uniform size and 
 binding with "Pitfalls of Speculation." Price, $1.50; 
 by mail, $1.62. 
 
 Complete Library (7 vols.), $5.00. 
 ADDRESS ORDERS TO 
 
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 15 William Street, New York 
 
Thomas Gibson's 
 Market Letters for the Year 1907 
 
 This volume includes all the weekly letters 
 and several of the special letters published in 
 the year 1907. The value of this work lies in 
 the fact that the great decline of 1907 was pre- 
 dicted months before it occurred, and every 
 reason for anticipating such a decline is set 
 forth in the letters. 
 
 The educational value of the work cannot be 
 overestimated. It has demonstrated absolutely 
 that it is possible to foresee great price changes 
 through the mediums of logic and the study of 
 economic factors. 
 
 The book contains a number of valuable 
 statistical tables and offers a broad prediction 
 of price movements in the year 1908. 
 
 Uniform in size with the Pitfalls and the 
 Cycles of Speculation. Price, bound in cloth, 
 $1.00. By mail, $1.10. 
 
 Complete Library (7 vols.), $5.00. 
 
 Published by 
 
 THE GIBSON PUBLISHING CO. 
 
 15 William Street, New York 
 
Thomas Gibson's 
 Weekly Market Letters for 1908 
 
 IN TWO VOLUMES 
 Vol. J Weekly Market Letters. Vol. 2-Book of Charts 
 
 This volume includes all the weekly letters pub- 
 lished in the year 1908, together with a number of 
 valuable statistical tables. The letters form a history 
 of the stock market of 1908, not alone a record of 
 prices and movements, but a practical and philo- 
 sophic discussion of economic causes and effects 
 underlying the broader swings, and also offers a 
 comprehensive forecast of price movements for 1909. 
 
 No attempt is made at day to day or week to 
 week prognostications. The intent and purposes of 
 these letters have been to adhere to the original 
 policy which is made clear in the Weekly Letters of 
 1907. Current events of interest in market circles 
 are taken up each week and their relation market- 
 wise discussed in the broadest sense. 
 
 Ordinary gossip, idle rumors or "inside informa- 
 tion" find but little space in these letters, although, 
 of course, some of this base currency of the Street 
 cannot be entirely ignored because of its temporary 
 influence upon prices and sentiment. 
 
 The book of charts, which is more fully described 
 on another page, is an almost indispensable com- 
 panion work to the weekly letters, being a visible aid 
 to the thorough understanding of the movements dis- 
 cussed and analyzed. Reference is invariably made in 
 the letters to particular pages in the book of charts. 
 
 Price, bound in cloth, uniform in size with Pitfalls 
 and Cycles of Speculation, $1.00 for each volume, or 
 $1.50 for the two. By mail, $1.10 and $1.62. 
 Complete Library (7 vols.), $5.00. 
 
 Published by 
 
 THE GIBSON PUBLISHING CO. 
 
 15 William Street, New York 
 
Thomas Gibson's Book of Charts 
 
 In this volume are reproduced the charts issued in 
 connection with Thomas Gibson's Market Letters for 
 1908. A few of the various subjects graphically 
 presented in these charts are: 
 
 Railroad Earnings and Their Immediate Effect on 
 Stock Prices in Years 1893-4, 1903-4 and 1907-8. 
 
 Effect of Reductions in Iron and Steel Prices in 
 Periods of Depression upon the Common Stock of 
 the United States Steel Corporation. 
 
 Stock Prices and Total Cereal Crops of the 
 United States by Years since 1885. 
 
 Market Movements of Stocks in 14 years in which 
 Labor Troubles Occurred. 
 
 Stock Prices and Cotton Crop of the United States. 
 
 Average Monthly Stock Movements and Quarter- 
 ly Dividends of Amalgamated Copper for Years 1900 
 to 1908; also Average Monthly Prices of Electrolytic 
 Copper for the same Period. 
 
 Average Monthly Stock Market Prices and Divi- 
 dend Payments for Years 1904-08. 
 
 Average Monthly Movements of 20 Active Rail- 
 way Stocks from January, 1888, to March, 1908; 
 also Dull Months of that Period. 
 
 Bank Clearings of the Entire United States and 
 Prices of Twenty Principal Railroad Stocks for 
 Twenty-five Years. 
 
 Total Cereal Crop of the United States and 
 Prices of 20 Principal Railroad Stocks for a Period 
 of Years. 
 
 Comparison of Earnings and Price Movements of 
 United States Steel Common since 1902. 
 
 Stock Prices, Crops, Trade Balances and Bank 
 Clearings from 1885 to 1908. 
 
 Stock Market Movements in Month of June, 1908. 
 
 Railroad Earnings and Market Movements of 
 Stocks for 6 Years Next Following Panic Years of 
 1873, 1877, 1884, 1893, 1896, 1903. 
 
 Market Movements of Industrial Stocks for 
 Seven Years Next Following Panic Years. 
 
 Price, cloth, $1.00. Postage prepaid. 
 
 THE GIBSON PUBLISHING CO. 
 
 15 William Street, New York 
 
Thomas Gibson's 
 Special Market Letters for J908 
 
 The subjects discussed have been chosen as bearing directly 
 upon the prices of securities, and in all cases the views of 
 men who speak with authority are presented. 
 
 Probable Effect of Tariff Revision on Securities, by Byron 
 W. Holt, chairman Tariff Committee, Reform Club of New 
 York, editor of The Gold Supply and Prosperity; Increasing 
 Gold Supply and Stock Prices, by Maurice L. Muhleman, 
 ex-Deputy Assistant Treasurer of the United States ; A Talk 
 About Cotton, by Katherine M. Giles, cotton expert ; The 
 Coal Land Law, a compilation of the confidential opinions on 
 the constitutionality of the law by leading Senators and Mem- 
 bers of Congress ; The Importance of Fixed Charges, by 
 Carl Snyder, author of American Railways as Investments, 
 New Conceptions in Science, The World Machine, etc. ; 
 The Balance of Trade, by Charles A. Conant, ex-treasurer 
 of Morton Trust Co.. author of A History of Modern 
 Banks of Issue, etc. ; Review of the World's Gold Sup- 
 ply, by Arthur Selwyn-Brown, E.M., M.A., B.Sc., consult- 
 ing mining engineer; The Outlook for the Next Six 
 Months, by Professor J. Pease Norton of Yale University, 
 author of Statistical Studies in the New York Money Mar- 
 ket, etc. ; Railroad Earnings and the New Accounting, by 
 George Bevan Mott, editorial staff The Wall Street Summary; 
 Gold Depreciation and Security Values, by Byron W. Holt ; 
 Call Money Rates and Stock Prices, by John P. Ryan, financial 
 writer; Convertible Bonds, by Robert W. Speir, manager bond 
 department of Knauth, Nachod & Kuhne, New York ; The Func- 
 tion of Speculation, by Frank Fayant, writer on financial and eco- 
 nomic subjects ; Mines on the New York Curb, by George E. Vi- 
 gouroux, mining editor of the New York Commercial ; Speculation 
 Its Place in Economics, Speculation vs. Gambling, The 
 Moral Aspect of Speculation, Should Speculation be Regulated 
 by Law are the captions of an article ably discussed by How- 
 ard Schenck Mott, associated with Messrs. Malcom & Coombe, 
 and on the staff of Harper's Weekly; The History of Prices 
 for 2508 Years, bv Arthur Selwyn-Brown, E.M., M.A., B.Sc., 
 etc. ; Copper, by Frank Fayant. 
 
 Cloth, Price $1.00; by Mail, $1.10. 
 
 Complete Library (7 vols.), $5.00. 
 
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