Chapter XV.

Fall in Prices Since 1874.

We have already adverted to the fact that the great increase in the amount of our exports in 1872 and 1873 was more the result of advanced prices than of augmented production. Similarly the decrease in the amount of our exports since then has been far more the result of diminished prices than of diminished supply. We will endeavour to verify and as nearly as possible measure this decline in values.

We append a table of the comparative quantities and values of the leading articles of export for the years 1872 and 1878 respectively, these years being the highest and lowest points of our exportation since 1868. It will show, among other interesting inferences, that the amount exported in page 58 1878 represents nearly as many tons, yards, &c., of goods, as the larger amount exported in 1872.

It appears from the foregoing table, supposing that the important articles named afford a fairly approximative index to the rest, that, if the quantities exported in 1878 had been at the same prices as ruled in 1872, the amount thereof would have been £162,900,000, instead of the actual amount £107,700,000; consequently the general fall of prices must have been in that proportion, viz., 34 per cent.; of course, the decline was lighter in some articles, and heavier in others, but that must have been the average percentage.^*

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On the other hand, the prices we paid in 1878 for our imports were also much reduced, though not in the same proportion, because in them the previous rise had not been great. By the following table of the comparative quantities and values of the leading articles of import for the years 1872 and 1878 respectively, it will be seen that the average decline since the former year in the prices of those articles is about 22 per cent

For, taking the leading articles selected as a criterion for the rest, if the quantities imported in 1878 had been worth the same prices as those which ruled in 1872, the page 60 amount thereof would have been £285,500,000, instead of the £222,200,000 that they actually did amount to. Consequently the general fall of prices must have been in that proportion, viz., 22 per cent.

That this fall in values is chiefly due to reaction from their sudden inflation in 1871-2-3 is beyond all question, but it must be observed that the fall has been hastened and probably intensified by another cause that is working slowly and silently, but efficiently and continuously. We allude to the diminished, and still diminishing, production of gold, in the face of the yearly extension of its use for currency purposes. Not only are the auriferous districts of California and Australia yielding smaller quantities than formerly, but, at the same time, gold has been rapidly replacing silver as the chief circulating medium of France, Germany, and Holland; and as the bi-metallic system loses ground, the currency of Europe will consist more and more of gold, and will absorb it in greater quantities. Tending in the same direction is the fact that the greater the production, the commerce, and the wealth of the world, the larger become its circulation requirements. As the objects constituting material wealth multiply, so either the number of golden counters by which they have to be represented must be multiplied in the same proportion, or else, each counter will have to represent more of such objects than before, that is to say, prices will have to fall.

For a time, the increasing demand for gold was amply met by copious supplies from California and Australia. Indeed at one period it was thought that there would be a great excess of supply, and speculations were rife as to the extent to which prices might be expected to rise in consequence. But, for some years past, the yield of the gold-fields has fallen off, and has not kept pace with the increased demand for gold. If this disparity should continue, and a fortiori, if it should become greater, there must necessarily ensue a corresponding fall in the money equivalent, or price, of all commodities. Were it not for two incidental circumstances, this general fall of prices would be of little importance, as commodities would still retain the same page 61 relative, or exchangeable value, and the wealth of the world would remain unaltered. But these two circumstances, which are as follows, introduce some rather complex elements into the subject.

1. The recipients of fixed incomes, such as interest on loan investments, &c., will have to receive the same nominal sum, whatever rise may take place in the value of money, and, in proportion to such rise, will they be receiving more than the real amount contemplated when those liabilities to them were originally contracted. Such variations are of small consequence as long as they keep within a limited range. There have constantly been some fluctuations in the value of money, but these have never gone beyond certain bounds, and the oscillations have sometimes moved in one direction, sometimes in the other. But should the supply of gold persistently continue inadequate to the demand (and it must be remembered that, besides what is used in the arts, the actual wear and tear by abrasion, &c., and loss by shipwreck, hoarding, &c., amount to many millions per annum), the aggregate deficiency year after year must be productive of serious changes in the relations between the payers and the receivers of fixed annual sums; between the governments throughout the world and their creditors, the holders of stock. If the time should come when gold shall have so increased in value as to acquire twice the purchasing power which it now possesses, England, for instance, will find herself in a very peculiar position. The yearly interest of her own debt, if then nominally the same, will in reality be twice as costly and onerous as it now is; while, on the other hand, the £50,000,000, or thereabouts, which the British public now receive yearly from abroad for interest, &c., on foreign investments will, if then paid, be equivalent to £100,000,000 of money at its present value; or, as the sum would be received in imports at half the present range of prices, foreign nations will have to send to England twice the quantity of commodities which they now send, in payment of the same nominal sum.

2. A tendency to lower prices is generally adverse to the revival of trade. Capital and credit, the two wheels on page 62 which commerce revolves, and without which it drags, keep aloof from falling markets, and distrust the security of property that is declining in money value. It is when prices are rising that capital and credit freely come forward and accelerate the rise. They like to connect themselves with prosperity, and it is their recklessness in assisting it that often pushes it beyond the mark; just as, when the reaction comes, the wild rush of alarm with which they tear themselves away aggravates the panic from which they seek to fly. It is best for the interests of trade that prices should remain as steady as possible, or, at all events, should be free from other fluctuations than those to which it is inherently liable. But unless the increasing circulation requirements be met by an increasing supply of the medium of circulation, the divergence will materially affect the stability of prices, independently of all other causes.

The disturbing influence which a very deficient gold supply would exercise may, let us hope, be averted by increased production, and even if not, it is only by degrees, and in the course of years, that its effects would be felt to any severe extent. We thought it right, however, when treating of the fall of prices, to advert to a cause which, although only a subordinate one for the present, is likely, as time advances, to become more and more powerful.