APPRECIATION OF GOLD.

Otago Witness, Issue 2105, 28 June 1894, Page 51

APPRECIATION OF GOLD.

The following is a second instalment of the paper on " The Appreciation of Gold," read by Professor Gibbons at the last meeting of the Otago Institute :—: — In the case of wool it is less easy to distinguish the different elements that have combined to lower its price, and the increase in the supply seems to have been the principal contributing cause. According to Messrs Helmuth, Schwartze, and Co.'s circular the increase in the world's supply of raw wools between 1871-75 and 1881-85 was 23 per cent., while between 1883 and 1892 the increase in the supply to Europe and North America has been 28 per cent., giving an increase in the last 20 years of 50 per cent. ; while the population constituting the market has not increased more than 20 per cent, in that time as an illustration of the increased production that has taken place, according to some figures published in the Otago Daily Times on the 9th of May last, the product of wool in New Zealand has increased 25 per cent, in the last five years, so that an increase of 50 per cent, in the world's production in the last 20 years would seem to be below the mark. Now, wool is an article which has always been subject to violent fluctuations, from 1873 to 1875 it rose 50 per cent, in price, and between 1877 and 1879 it fell 25 per cent., a fact which points to its price depending mainly upon the supply and demand ; and if we take the price in 1873 and 1892, the price in the latter year was only 3 per cent, lower than in the former, so that any change in the standard of value has not shown itself in a change in the price of this article.

Sugar is another commodity of which the production has been enormously increased during the last 20 years. Sauerbeck estimated- the increase in production between 1872 and 1885 to have been 68 per cent., while from 1885 to 1892 it has been 37 per cent., giving an increase during the 20 years of 130 per cent. In 1873 the index number of sugar stood at 74-, the point to which it had fallen from 100 in 1845-50, or. a drop of 26 per cent, during the time that the prices of most other articles had been steadily increasing, showing that there must have been powerful causes at work to counteract the general tendency to a rise in price. Now, so far as I can ascertain, the production of sugar in 1883 was 2,500,000 tons, while in 1872-3 it was etill under 3,000,000, or an increase in this period of only 20 per cent, or less than the rate of increase of consuming populations, so that the fall from 1853 to 1873 took place without being assisted by an excessive supply, and must therefore have been due to improvements in the methods of production. In 1893 the index number was 39, or s fall of 47 per cent, since 1873, which is not out of proportion, when the increased production is taken into account. But, in addition to this natural cause tending to lower the price, other causes have been at work in the same direction, whose effect can to a certain extent be traced. Improvements in the processes of manufacture of beetroot sugar have enabled a continually increasing amount of sugar to be extracted from a given amount of beet, for, while in 1869 121b of beetroot were I needed in German factories to make lib of sugar, in 1886 only eight and eight-tenths pounds were required. The Byßtem of taxation and drawback on the export of sugar on the Continent has had the effect of a bounty, and produced an artificially low price of sugar in England at the expense of the consumer on the Continent, where the price of sugar is as high as it was before the improve- ■ ments in manufacture. In the case of meat, the price of which was higher in every year from ! 1874 to 1885 than it had been in 1873 (and the rise in this was a serious set-off to the ordinary consumer in EDgland against the fall in the price of other articles), it was not until 1886 that the price fell below the level of 1873 ; and since then, according to the Economist index number, the price has in every year but oce been above that level in spite of the steadilygrowing importation of frozen meat from Australia and the River Plate, and chilled meat from America, which had grown from 150,000cwt in 1880 to 1,850,0000wt in 1892, or had increased twelvefold in as many years.' If now we turn from the class of food products to that of metals we see the same influences at work to cause a fall in prices, in increased fresh discoveries of rich deposits of I raw materal and in improved processes of treatment, which in the case of these commodities have had an even greater effect upon the price than the richness of the deposits. Id the case of iron and steel the production of the world increased from 16,490,000 tens in 1873 to 38,600,000 tons in 1892, or an increase of 140 per cent., or at the average rate of 7 percent, per annum ; and this increase in numbers does not represent the increase in the supply of material to satisfy the world's wants, as while in 1873 the proportion of iron to steel was as 11 to 1, in 1892 it was only 20 to 11, or rather less than two to one. It must be remembered that the durability of steel is not less than two to three times that of iron, and that the substitution of steel for iron means that a less amount of material is needed for a given amount of work — in the case of shipbuilding, for instance, 17 per cent, less weight is required to carry the same tonnage when a vessel is built of steel than when it is built of iron bo that the growth in efficiency of the product of steel and iron is far more than is represented by the growth in the amount given by theße figures. In addition to the effect upon the price caused by the increase in the amount produced, the improvement of methods of manufacture has operated in the same direction ; for while in 1873 two tons 391b of coal were required to produce one ton of iron, in 1892 only one ton 7121b were required, giving a reduction in the fuel of 35 per cent. ; and while one ton 14101b of limestone were used to smelt a ton of iron in 1872, only 15501b— i.e., less than one-half, was required in 1892 ; and according to the figures prepared by the Thomas Iron Company, of Bethlehem, Pennsylvania, the cost of produoing a ton of iron, which in 1873 was 29d0l lie a ton, had been reduced in 1892 to 12dol 94c a ton, and as this company is far from being one of the largest in the States, this would not probably represent the lowest cost of production, as it is well known that in the case of iron the larger the scale upon which it is manufactured the less the cost of producing it. In the case of steel a similar cheapening of the product has taken place. Previous to the Gilchrist-Thomas process, 90 percent, of the iron ores of the world were not available for making steel, but this process has made them capable of being used for that purpose, and in addition has reduced the labour required, so that four men can now make a given product in the same time, and with less cost of material, than it formerly took 10 men to accomplish. If we turn to another metal, copper, whose price has fallen to a lower level during the last 20 years, the fall is found to be almost simultaneous with the increase of output due to the discovery and working of the immense copper deposits on Lake Superior, and later in Montana. The total output of the Lake Superior mines rose from less than 11,000 tons in 1872 to 48,000 tons in 1892, while that of Montana l sprang from 4000 tons in 1882 to 73,000 in 1892. f And while in 1673 the world's copper produc-

tion was less than 1 20,000 tons, in 1892 it had siaen to 296,000 — an increase of nearly 180 per Cent. This increase in production has also been accompanied by a reduced cost of working, owing to improved processes. In the Central mine the total cost of producing a pound of copper was reduced from 12 cents in 1873 to 14 8 cents iv 1891. At the Quincy mine in 1873 it was 18 - 7 cents, while in 1891 it was 9'l ; and at the Calumet and Hecla it was reduced from 18-4 cents in 1873 to 9-4 in 1890.

The range of prices in the case of quicksilver, on the other hand, shows the effect of a decrease in the output in raising the price. For the three years 1880 to 1882, when the average world's production was 119,000 flasks, the average price was £6 Bs, the range on either side of this price being only 10s ; while for the three years 1889-1891, when the total average production was 100,000 flasks, the average price was £8 10s ; while the average price for the years 1889-91 has been 15 per cent, higher than the average between 1858 and 1869, during the whole of which period the price remained steady about £7— a remarkable fact when we consider that between these two periods the prices of most. commodities had fallen, and not easy to be reconciled with the theory of an appreciation of the standard of value.

The article cotton, again, is one whose production has increased at a greater rate than the consuming power of the world, and in consequence there has been a drop in price. In 1870 the world's production was under 5,000,000 bales. In 1880 this had grown to over 8,000,000, or an increase of 60 per cent. ; while in 1891-92 it had grown to more than 12,700,000, or more than two and a-half times what it had been 22 years earlier ; while the price had fallen from 9d a pound in the former year to 4£d in the latter. .

lhe experience of all these commodities, which taken together form a considerable proportion of the articles on whose prices the Economist index number is formed, is almost uniformly the same — an increase in the amount produced, which outstrips the increase in the populations of the consuming countries, and a steady continued improvement in the processes of manufacture, tending to lessen the amount of labour and material required for a given quantity of the product ; and this increase has been far greater in the past 20 years than it was from 1850 to 1873. According to Mr Sauerbeck, in his evidence before the Gold and Silver Commission, from 1849 to 1860 the increase of commodities in England was 30 per cent. ; from 1860 to 1873 the increase was 37 per cent., or an average of less than 3 per cent, per annum ; while taking the articles iron, lead, steel, coal, copper, and petroleum, the increase in the world's supply between 1873 and 1892 has been 94- per cent., or an average of nearly 5 per cent, per annum.

Now, if we consider the index numbers formed from the nine articles — wheat, sugar, iron, copper, wool, and four different cotton articles — in all of which the increase of supply has been most marked, in 1873 their sum is 1119, and in 1893 it is 634, a decline in those 20 years of 43 per cent. ; while for the remaining 13 articles making up the Economist index number the decline is only from 1570 to 1486, or a fall of 6 per cent. Now, of these latter there are some, such as tea, butchers' meat, lead, and tin, whose production is known to have very largely increased, more so than the demand from increase of population. So that on general grounds a decline in price from the level of 1873 might be expected, and would be sufficiently accounted for by the increased supply without looking for any further cause. Within the last 10 years, however, it has been strenuously asserted that this fall in prices is due to causes arising not from changes in the supply of or demand for the commodities themselves, but from changes in the supply of and especially in the demand for gold; and the increase in the demand is due to the demonetisation of silver and the substitution of gold for it in the currency of certain nations.

Now it is an established fact that between 1873 and 1880, during the early part of the period that the fall in prices was taking place, three countries — Germany, the United States, and Italy — went over from what had been a silver or a paper currency to a mixed silver and gold one, and to obtain the necessary currency made demands upon the gold supply of the world amounting (according to Mr Giffen's estimate, which waß accepted by the other witnesses before the Gold and Silver Commission) to two hundred millions sterling. However, as against this demand must be set off the fact that between 1872 and 1873 the French Government raised two loans to the amount of two hundred millions, which were subscribed to a very considerable extent by the French peasantry — a class that has always been noted for its thrift and hoarding. And it is more than probable that a large amount of gold coin was drawn out of their hoards, where Jt had not been available for circulation, and was as much an addition to the world's supply as if it had been extracted from the - mines. For in 1873 the amount of gold exported from France to Germany was 48 millions sterling. If it is asked where the gold so hoarded can have come from, it is known that between 1851 and 1866 gold to the amount of two hundred and twenty millions sterling was coined in France, and silver to the amount of not more than seventy-five millions was exported ; so that, making full allowances for the demands of increased trade and population, there was ample margin left for hoarding. In addition to this Spain, which had been a gold-using country, exported gold largely during this period and replaced it by silver coinage. All this time, too, though the stock of gold was not being added to at the same rate as during the preceding 20 years, yet a constant addition to it was taking place ; so that, allowing for 12 millions sterling for annual consumption in the arts — and this was the highest estimate given by any witness before the Gold and Silver Commission — and the amount exported to India during that period, the addition to the stock available for coinage from 1873 to 1879 was 55 millions sterling. In addition to this supply from the mines there is another source which must be taken into - account. The Italian demand upon the world's stock was 16 millions, employed for the purpose of changing from a paper and silver | currency to a gold one; but almost as soon as it was put into circulation it was exported, and four years ago it was possible to travel from one end of Italy to the other without seeing a | gold coin — which, indeed, were at a premium of nearly 5 per cent, as compared with paper, — I so that this 16 millions must not, taking the whole of the period 1873-1892, be treated as a demand upon the world's stock which would have any effect in lowering prices. So that up to 1880, on the quantity theory of money, this unusual demand upon the stock of gold in the world would no doubt have had some effect in causing a fall in prices. How great this fall might be, and how it could be distinguished from the effect produced by natural causes, is a problem no one has attempted to solve, nor has any satisfactory explanation been attempted of the way in which the cause operates. But since 1880 these extraordinary demands have ceased, no nation has changed the nature of its currency, and the supply of gold from the mines has gone on steadily, and during the latter half of the period rapidly in-

creasing. And in the highly-developed countries of Western Europe and North America, the gold-using countries of the world, the facilities for banking and expedients for economising coin have continually increased.

During the 13 years from 1880 to 1892 the gold supply of the world gives a surplus of 81,000,000 sterling as available for purposes of coinage. Now, the total amount of gold coined down to the end of 1885, according to a table in Soetbeer'a " Materialen," was 650,000,000 sterling, and of this a considerable portion must have been recoinage, bo that the additions to the stock available for coinage purposes was more than 13 per cent, during that 13 years — a rate of increase quite as large as that of population. (To be continued.)