Discussions have for ages been directed to the question of deciding as to what practically available standard might be least liable to fluctuations; and the meaning of the term as used by such writers may be illustrated by a further reference to Mr. Macleod, who says :—

'In the times of the Homeric poems there was no money. It was usual to estimate things as being worth so many This reference to oxen, however, as a measure of value, 'did not in any way imply the use or existence of money.'

" oxen.

In such case, then, in those Homeric times, oxen were, in fact, the standard by which the relative values of commodities were measured, just as gold is now the standard by which values are measured in England. Gold in the aggregate is our standard of value; the rate of eleven parts of fine gold to one of alloy is the standard of our coinage; and the sovereign, containing 123 grains of standard gold, is our standard unit, or measure of value. We cannot measure directly with the whole mass of gold which forms the standard of value, but. with the coin which is a fraction of that mass. Those writers who deny the existence of any standard of value are in fact, quarrelling with the most ordinary use of a common English. word without on that point having necessarily, in economic doctrine, any intrinsic difference of opinion from their oppo

nents.

I now pass on to the statement that bank-notes, bills of exchange, and banking credits, payable in gold, have exactly the same effects as an equal amount of gold. As regards this point Mr. Macleod agrees with the rough general principle, which forms an important part of the basis of the argument of bimetallists, to the effect that if gold were the sole circulating medium, prices of commodities would vary directly as the quantity of gold; or, in his words, if gold became as plentiful as silver, even while the weight of the coins and their quality ' remained the same, gold would fall to the fifteenth part of its

same nominal price is sometimes of very different values.' Adam Smith, Wealth of Nations, vol. i. p. 49. London: 1802.

Report of the Royal Commission on Gold and Silver, 1888, p. 232.

'former value as a purchasing power.' But then Mr. Macleod says that, besides silver and copper, 'in modern times a new 'kind of stuff has been employed to a gigantic extent to fill the 'channel of circulation, and that is credit, or rights of action ' in different forms.' In this manner he estimates the circulating medium in this country alone as 6,120,000,000l. sterlingthe round amount of 6,000,000,000l. being credit, and the fraction, 120,000,000l., specie. And he says, 'the prices of com'modities are estimated according to the aggregate of all these 'different kinds of stuff, and not according to any single one.” What is completely overlooked in this opinion, which Mr. Macleod says is entertained by all economists, is the fact that the value of every pound in the 6,000,000,000l. of stuff forming that part of the circulating medium which is not specie is measured by the value of the 120,000,000l. of specie. The organisation of credit eases the demand on specie, but nevertheless the value of a bill of exchange for 100l. depends on the value of the specie in which it is payable. If a diminished supply or an increased demand for gold increases the value of the pound sterling, which is the standard measure of value, then the bill of exchange for 100l. becomes increased in value, and vice versa. Thus the range of prices, and with it the nominal amount of transactions, whether credit or cash, tends to vary directly as the amount of gold in circulation. The intrinsic value of the commodities and transactions may remain the same, but if the gold be doubled in value, then the nominal amount of transactions measured by the gold standard is proportionately reduced, for a bill of exchange or a bank cheque for 100l. will then represent the same value of merchandise as would otherwise require a bill or a cheque for 2007. The prices of commodities and the sum of credit stuff acting as circulating medium throughout the country are alike dependent on the value of gold which is the standard by which their values are measured.

1 Report of the Royal Commission on Gold and Silver, 1888, p. 245. 2 Ibid. p. 234.

The question as to the extent to which the demand for gold is diminished by credit is not necessarily involved at all in the discussion of bimetallism, though certainly of indirect interest in the subject. The chief effect of credit has almost obviously been the rendering possible such an increased number of transactions as it would have been physically impossible to conduct without the use of credit; and it seems to be a fairly open question as to whether the increased demand for specie currency to serve as a basis for that increased amount of transactions is greater or less than any possible restriction of demand effected by avoiding as far as possible the trouble of paying in coin.1

1 Mill, after arguing that 'What does act on prices is credit, in what' ever shape given,** says: 'The credit given to anyone by those with 'whom he deals does not depend on the quantity of bank-notes or coin ' in circulation at any time, but on their opinion of his solvency.' It is certainly quite true that the intrinsic value of the credit given does not depend on the quantity of bank-notes or coin in circulation; but, on the other hand, it is just as certain not only that the nominal amount or money value of the credit must depend on the quantity of bank-notes or coin in circulation, but also that the value represented by such bank-notes must depend on the proportion the bank-notes bear to the coin. And therefore not only the value of a credit for 1,000l., but also the value of 1,000%. in bank-notes, both depend on the value of the coin in which the notes are payable. If gold double in value, then 500l. in notes and 500%. in credit will serve for transactions which would otherwise have required 1,000l. in notes and 1,000%. in credit. John Stuart Mill's right mind as regards the effect of credit on prices is shown in the following passage: 'Having ⚫ formed a general idea of the modes in which credit is made available as a substitute for money, we have to consider in what manner the use of 'these substitutes affects the value of money, or, what is equivalent, the prices of commodities. It is hardly necessary to say that the permanent ' value of money- the natural and average prices of commodities — are not in question here. These are determined by the cost of producing or of obtaining the precious metals.'t

It is dangerous to launch the theory of Mill on credit without the ballast I have placed in italics, which shows that his views on that subject have really nothing to do with the question of bimetallism, but ought

*

Principles of Political Economy, by John Stuart Mill, vol. ii. p. 52, 6th edit. (Longmans, 1865). † Ibid. p. 73. ‡ Ibid. p. 51.

The true question is as to the expediency of legislating in such a manner as either to increase or diminish the supply of specie currency. Gold and silver are valuable commodities which have, rightly or wrongly, been selected as standards by which to estimate or measure the relative values of all other commodities, whereas the so-called credit circulation merely represents the value of commodities in negotiation, and must fluctuate with the fluctuation of the prices of those commodities as measured by the gold, or the silver, or the double standard of value. A thousand tons of coal, and also a thousand gold sovereigns paid for the coal, are both real wealth or intrinsic values; whereas a bill of exchange drawn against the coal, or a bank cheque drawn to pay for it, are merely representatives of wealth or value, without intrinsic value of their own, and are, together with the price of the coal, measured by the gold standard of value. Mr. Macleod considers it absurd to distinguish between 1,000l. in gold coin and a bill of exchange for 1,000l. as being, the one 'intrinsic value,' and the other only the representative of value'; but his statement that 'land, cattle, timber, trees, bank-notes, bills of 'exchange, &c., have value,'' makes the bills of exchange current in the country part of the country's wealth as well as the commodities they represent !

II.

Lord Addington, premising that 'the appreciation of gold 'implies its scarcity,' insists, notwithstanding numerous statements and explanations to the contrary, 'it necessarily ensues 'upon a scarcity of gold, that it commands, as capital and as

rather to be applied merely to speculative inflations of prices and resulting depressions. I should not, however, like to venture on the task of proving that Mill is not at variance with himself on that point.

1 Report of the Royal Commission on Gold and Silver, 1888, p. 240. 2 Ibid. p. 241.

'currency, a higher rate of interest in use, a larger quantity of 'commodities in exchange.' 1

That the gold when appreciated in value should command a larger quantity of commodities seems natural enough, presuming of course that those commodities have not also appreciated in value; but as regards the interest, seeing that interest on a gold loan is also gold, it appreciates with the appreciation of the inoney, and therefore there is not the same reason for the money to command a higher rate of interest as there is for it to command a larger quantity of commodities. If we suppose an increased demand to double the value of gold, then a bill of exchange for 100l. will represent an amount of merchandise which would otherwise have required a bill for 2007. ; and the 57. paid for interest on the 100l. will represent the same value as the 10l. which would have been paid for interest on the 200l. The gold offering as interest on loans is affected by the same scarcity as the gold offering in the loans themselves. The value of the interest on 100/. fluctuates with the value of the 100l. itself without any change in the rate of interest.

Not only is there, for the foregoing reason, no direct tendency for a scarcity or an appreciation of gold to cause a rise in the market rate of interest, but, on the other hand, such scarcity has an indirect tendency to cause a fall in the rate of interest. This is so because the disorganisation of trade and industries, caused by falling prices for commodities, whilst the gold amounts payable for rents, wages, and long loans remain unchanged, checks the investment of capital in industrial enterprises, and thus tends to create a plethora of loanable capital. Consols have recently been higher than they had ever been before, and I do not doubt that the present currency discussion

1 Report of the Royal Commission on Gold and Silver, 1888, p. 212. Mr. Robert Barclay Chapman, at a meeting on the Silver Question, held at the India Office, London, on November 12, 1881, replying to a sug-gestion that the enhancing value of gold would lead to very high rates of interest, said: 'Certainly, in my judgment, gold standard countries need 'not fear any crisis from a deficiency of gold, for the smaller quantity will 6 represent higher value.'