COST OF LIVING.

Taranaki Herald, Volume LX, Issue 143788, 11 May 1912, Page 4

COST OF LIVING.

In his recent book on the increased cost of living Professor Ashifiy declares that two explanations may bo dismissed. Protective tan [is and Trusts are not a sufficient cause. “I am ono of those who regard neither Protection nor a Trust as in itself necessarily ’bad,” says Professor Ashley. “On the other hand, 1 am not in the least concerjued to defend every measure in the Ghrman protective policy or every measure adopted by American Trusts. . . . Protection or Trust may do much or littlie in Germany and America, but it is highly improbable that they can entirely account for the rise in prices even tfhero, since a rise certainly half as grea'i has taken place in England.” The true causes are more probably to be tound in two phenomena—shortage of production in certain commodities, as cotton and rubber, ami a vastly increased production of gold. As for this last cause, Professor Ashley has greatly modified his position. In the original draft of his articles he regarded the increased production of gold as responsible for only about o per cent, of the increase in prices. Now he states, it in a note as being responsible for “between 16 and 17 per cent.” So that if lie is right, the maim cause of the advance in prices has been the cyanide process of extracting gjold, which, patented in 1890, has reirdered lowgrado gold mines workable with profit and prodigiously increased the world’s output of the precious metal. How prodigious that increase has been is shown by his figures. Between 1890 and 1897 the world’s output of gold doubled ; between 1897 and 1911 it almost doubled again. So that in twentyone years it was quadrupled. It is an accepted principle that if you enormously increase the supply of any article its price will fail unless the demand expands correspondingly. For gold, though it is used as the basis of money and exchange has a price. The ounce of gold will buy fewer bushels of wheat and fewer pounds of cotton to-day than it would buy in 1896. And as all our system of money is based’upon gold, the abundance of gold is one secret of the diminished purchasing power of money and the rise in prices. How exactly an incroased output o: gold produces tills effect is a matter of dispute among economists. Prolessor Ashley tells us in an invaluable note’ that it is “by adding to the- gold reserves of the banks. This enables them to lend on easier terrasand this again, by encouraging enterprise, leads to a greater demand for commodities and to a rise in prices. It must, of course, be borne in mind that the actual medium of circulation in the business of this country is coming to bb more and more a cheque. The whole mass of currency, in’ tho widest sense, including cheques and bills as well as the relatively insignificant quantity of notes, rests, howover, on the basis of the available gold.” This conclusion is ofoxtreme moment. It may, of course, be objected that prices did not begin to rise when the output of gold began to increase about 1890, and that the riso had not gone so far as we might have expected if the increased output of gold was the cause. The answer is undoubtedly that in the earlier years of the movement State after State abandoned silver and introduced gold as tho basis of its money. Thus, in 1892 Austria adopted gold ns its standard; in 1893 India did the same; in 1897 Japan exchanged from silver to gold; while from 1890 to 1897 the Russian Government was collecting the vast reserve of gold which its State Bank holds to-day. These factors would tend to neutralise the' increased supply of gold, and, by ciWting a demand for that heavy and expensive metal, keep up its value, amd so maintain lowprices of other articles. The enormous expansion in tho world’s trade and industryl which occurred subsequently to 1900 would also iutorease the demand for gold and thus Help to absorb some part of the ever growing supply. Nor can the increased iise in the arts be overlooked. Gold is employed on a very large scale in photography for “toning,” and, as photography has spread, a very considerable weight/ must bo absorbed for this purpose alc»io and be lost every year. Finally, in countries such as India and Egypt gold is now being boarded, which rneakie that it disappears from view and can no longer affect the market.

All the evidence, then, supports Professor Ashley’s vicjw. Henceforth we may accept it as ptovecl that the main cause of high pricefe is increased output of gold. ' But high prices, he tells ns more than once, are not evil in themselves. “High prices may go alonfe with national pros'perity and low prices with general depression. It may be better to have abundant and wfell-paid employment with general high, prices, than scanty and ill-paid employment with genera! low prices. . . . Higher prices are both a cause and' a result of growing prosperity,” Moreover, he shows that, on the whole, employment is better when prices are high. For that reason he whether any remedy is Required. Now_ that labour is well able to take care of itself, it can prevent any lowering of the standard of life which would be the result of a rise of prices if unaccompanied by an advance in wages. ‘ “What the industrial population of the country needs, especially in a period of rising prices, is a strong organised and welldisciplined trade Such a unionism will obtain its fair share of increase* - ! profits. But Professor Asliloj is equally clear that “a revolutionajc and unbusinesslike unionism” can do nothing but harm. There are, however, as he points out, already signs that the output of gold is slackening. High-water mark seems to have been reached last year. It is possible, indeed probable, that the era of high prices is drawing to its close.