  Section CXXVII.Measure Of Prices,—Constant Measure. If we had a measure of prices with the same universality of application and the same unchangeableness as the measure of length, which is determined by astronomical calculation, we should be able, not only to clearly understand all the data relating to value, that is to say, a not unimportant portion of historical science, but we should, moreover, have a practical means to condition and fix even perpetual annuities, in such a way, that they would always afford the same economic and purchasing power to the person receiving them. No wonder, therefore, that political economists since Petty's time have zealously labored to find a constant measure of prices.772 If by this we understand a species of goods such that it should always maintain equal exchange-power, as compared with all other commodities, [pg 382] Section CXXVIII.Value In Exchange Estimated In Labor. Adam Smith is of opinion that different kinds of goods, no matter how far removed from one another they may be in [pg 383] But we may ask whether the same sacrifice of liberty is as great a hardship to a Russian as to a Bedouin; or whether the sacrifice of an equal amount of rest is as hard for the New Englander as it is for a Turk, or as difficult to endure on a hot day in July as in the cold of winter. Besides, we have [pg 384] The elements on which the demand and supply of labor depend are not, in themselves, invariable, nor do their variations usually compensate for one another. In progressive nations, the value in use of day-laborers' work increases as well as the capacity of their employers to pay them; but, at the same time, as a rule, and at least relatively speaking, the supply of labor diminishes on account of the increase in the cost of production of workmen. Precisely the reverse of this happens in nations in their decline, and in over-populated nations. The workman is subjected to the necessity of accepting distress-prices for his work, and especially of accepting them for a long space of time.776 How often it happens that, if only transitorily, when wages are declining, work improves, and vice versa.777 Ricardo's school employs, as the measure of the price of various kinds of goods, the quantity of work by which the goods themselves are produced.778 It is evident that the same [pg 385] Section CXXIX.The Precious Metals The Best Measure Of Prices. It is no more possible to find a constant measure of prices than it is to square the circle. (J. B. Say.) If the two magnitudes to be compared are separated from each other in space but not in time, the precious metals constitute not only the best measure of their prices, but also a very good one. But the precious metals are subject to very sensible and accidental variations in price in long periods of time. If, therefore, we would compare sums of money belonging to different times with one another, we must first construct a price-current list of all the more important articles of commerce for the time in question, and in the quantities they are needed in every [pg 386] In every such list, the wages of a day would occupy a very important place. The desire of exerting an influence over the lives and actions of other men, and the desire of relatively greater social distinction as compared with the social distinction of others, is very general; and there is scarcely any better evidence that it has been attained than the possession of the power of controlling a large number of days' work. The man who can keep one thousand day laborers is certainly, in a politico-economical [pg 387] No less important is the price of wheat, or rather of the principal article of food of the people, for the time being, with which the price of inland raw material—in so far as it can be produced from the same soil alternately with wheat—and, in the long run, also the wages of labor, are so essentially connected.783 The same indispensable necessity of wheat which causes its price to fluctuate so largely from year to year, and from month to month, promotes the uniformity of its average price,784 when many years are taken into the account.785786 [pg 388] But even the average price of wheat, during a long series of years, is not entirely invariable. The increasing consumption compels the nation, as a whole, to provide for its requirement of wheat from less fertile sources, which increases its price generally. It is true that the progress of the science of agriculture and of the corn-trade counteract this tendency, retard the advance of the price of wheat, and may, for a time, produce an opposite tendency. It is true, also, that the people are induced by their most general and vital interests to take advantage of this possibility. But spite of the frequency of exceptions to it, the rule remains.787 If, therefore, we wished to so fix a perpetual annuity that it should always be worth [pg 389] Section CXXX.History Of The Prices Of The Chief Wants Of Life. The higher civilization advances, the dearer all those commodities in the production of which the factor nature with [pg 390] Hence, from the relations the prices of the different classes of commodities bear to one another, we may draw important conclusions as to the degree of civilization which a country has attained. The above law also affords an explanation of the fact, that a young nation, which has made no great strides in the way of development, and in which, of course, the production of raw material preponderates, draw their commercial and manufactured necessaries, by way of preference, from [pg 391] Section CXXXI.History Of The Prices Of The Chief Wants Of Life. (Continued.) A. In the case of a great many raw materials, we repeatedly find the following to be the course of development. In the lower stages of civilization, they grow of themselves, and in such quantities that a small amount of labor, and that only the labor of occupation, more than suffices to satisfy the small demand for them. Here, naturally enough, the price of raw materials is very low. After this, it rises with every advance made in civilization, for two reasons: first, because the demand becomes greater and greater; and then, because the naturally free sources of production, called into requisition by other wants, now flow less and less abundantly.793 This rise in price continues until the point is reached at which it becomes customary, instead of the mere occupation of the free gifts of nature, to bring forth the commodities in question by the more [pg 392] Section CXXXII.History Of The Prices Of The Chief Wants Of Life. (Continued.) B. The rise in prices is observed earliest in that class of goods in question which by reason of their small volume and [pg 394] Conversely, the price of those portions which are most difficult of transportation, by reason of their volume or of the difficulty of preserving them, rises latest. To this category belongs milk, the production of which in a fresh state can be made an object of economic speculation, only where civilization is at its very highest, and especially in the vicinity of large cities.802 It is indeed possible by its transformation into butter or cheese to preserve milk and make it capable of [pg 398] Section CXXXIII.History Of The Prices Of The Chief Wants Of Life. (Continued.) C. Those raw materials which, from the very first, have been obtained by the means of production properly so called, maintain a much greater uniformity in price. In the lower stages of civilization, they are never found permanently in excess; and as the economy of a people advances, the growing dearth of natural forces may be more or less counterbalanced [pg 401] D. In the case also of those raw materials which are objects of occupation, and never of real production, as, for instance, minerals, a progressive public economy, by altering the different elements of price in an opposite direction, may leave their price on the whole unchanged. Here, indeed, the discovery of new and especially of rich natural stores may exert an incalculable influence; but such “accidents” underlie the laws of human development only to the extent that those ages which are intellectually most active are those also which are most industrious and fortunate in the discovery of their natural resources.810 Section CXXXIV.History Of The Prices Of The Chief Wants Of Life. (Continued.) E. The products of industry become cheaper and cheaper as economic culture advances; whereas, for instance, in England, towards the end of the middle ages, a single shirt was considered of importance enough to be made not unfrequently an object of testamentary bequest.811 And, indeed, the price of industrial products sinks lower the more important the part played in their production by capital and the division of labor is as compared with the part played by the raw material.812 [pg 403] F. But the price of commodities decreases, especially in the higher stages of civilization, to the extent that it is dependent on commerce.816 Here capital and human labor almost exclusively are effective, and the modern improvements of communication, legal security and competition are especially striking.817 G. Since personal services are, as a rule, performed and received only by individuals, the principle in accordance with which labor in general becomes cheaper in the higher stages of civilization, does not apply to them to any great extent.818 Yet we may claim that advancing civilization has pretty universally a twofold influence on the price paid for personal services. In the first place, freedom of competition, with the more accurate and equitable determination of price which it produces (in contradistinction to servitude, privilege and custom) always tends [pg 405] Section CXXXV.History Of The Values Of The Precious Metals.—In Antiquity And In The Middle Ages. It is impossible to write a real history of the values of the precious metals in ancient and medieval times: the sources of [pg 406] Thus, for instance, the supply of the precious metals furnished by the mines, in the earlier times of ancient history, was kept from entering the market by the system which then prevailed everywhere, of hoarding treasure by the state, by the temples etc., and later by great reserves of treasure kept by individuals.821 The revolutions in prices in ancient times were produced as frequently by the sudden opening of such reservoirs, as by the discovery of richer sources. Thus, for instance, such events as the dissipation of Pericles' treasures, the subsidies of the Persian kings, the spoliation of many temples in consequence of declining religiousness, the distribution of Persian treasures by Alexander the Great,822 had a vast influence on the undeniable rise in the price of Greek commodities in the century succeeding the Peleponnesian war.823 Later, it is said that in Rome, the price of pieces of land was doubled [pg 407] Section CXXXVI.Effect On The Discovery Of American Mines Etc. On The Value Of The Precious Metals. The discovery of America influenced the market of the precious metals less by the peculiar wealth of the mines in that part of the world than by their almost incredible number.829 The sources of wealth that the conquistadores first lighted upon were, however, much over-estimated.830 The production of the American mines first assumed great importance after the discovery of Potosi, in 1545, which was soon followed by the working of the American mines at Guanaxuato. (1558.) [pg 409] The production of gold in Brazil began to be important after the commencement of the eighteenth century,835 and the working of the Mexican silver mines of Valencia, Biscaina etc. from the middle of the same century. In the beginning of the nineteenth century, Mexico produced, annually, 537,512 kilogrammes of silver, and 1,609 kilogrammes of gold; Peru, 140,078 and 782 of silver and gold respectively; Buenos Ayres, 110,764 and 506; Chili, 6,827 and 2,807; New Granada, 4,714 kilogrammes of gold; Brazil, 3,700 kilogrammes of [pg 410] In Europe, also, the obtaining of the precious metals during the fifteenth and sixteenth centuries took a great stride, especially in Germany;839 but, on the other hand, the Spanish gold and silver mines were closed in 1535 by a law. In the seventeenth century, there was another lull, followed, at the end of the eighteenth, by a second period of activity which has not yet closed. The great development of the production of gold in the Ural mines since 1819, and in the Altai mines since 1829,840 the revival of the production of silver in the old Spanish [pg 411] Section CXXXVII.Revolution In Prices At The Beginning Of Modern History. The mere discovery of new and richer mines need not, of itself, lower the price of the precious metals. Their price depends on their cost of production; and it may be very much increased, even under the most favorable natural conditions, by the unskillfulness of labor, the dearness of the means of [pg 412] I opine that the price of metallic money, since the discovery of America, has diminished until the present time in the ratio of from three to four to one.847 The prices of wheat in France, [pg 413] Now, the increased production of the mines cannot be the only cause of this great perturbation in prices. It commenced, in most countries, at a time when the supplies from America were still too small to account for such an effect. One of the chief causes of the phenomenon was, that precisely at this period, there was in so many nations a transition from a sluggish circulation of money, made still more sluggish by the custom which everywhere prevailed of hoarding treasure, to a rapid circulation, which was made still more rapid by the use of all kinds of substitutes for money. (§ 123).849 In the earliest ripe fruit of European civilization (Italy), this transition had long been accomplished; and, on that account, the value in exchange of the precious metals was there, for a long time previous, comparatively low.850 From the second third of the seventeenth century, the value of the medium of circulation seems, on the whole, to have remained stationary.851 Tooke seeks to demonstrate the steady [pg 415] Every great war may very easily have for effect to slacken the speed of the circulation of money, to promote the hoarding and even the burial of treasure for a rainy day, and to paralyze credit and its power to supply the place of money. Hence, it seems preferable to seek for the cause of the variations in price, during the great war, in the commodities themselves whose price was affected; since their production must [pg 416] The cessation of these restrictions upon production, in consequence of the restoration of peace throughout the world and the great progress afterwards made in almost all branches of industry, explain why, from 1818 to 1848, the precious metals have apparently stood higher than during the period immediately preceding.855856 Section CXXXVIII.Revolution In Prices.—Influence Of The Non-Monetary Use Of Gold And Silver. To understand why so great an increase in the production of the precious metals produced so small a decline of their value in exchange, we must turn our attention to the other and further uses of gold and silver. The amount devoted to these uses can never be very accurately determined, since [pg 417] But, lastly, the principal cause consists in the powerful increase of the demand for money, which, during the last two centuries, the great impulse given to the rapidity of circulation, and the great increase in the substitutes for money, have scarcely been able to outweigh. Besides the great growth [pg 419] Section CXXXIX.History Of Prices.—Californian And Australian Discoveries.Tengoborski is of opinion, that the flow of gold from Siberia alone would have been absorbed by the ever-increasing want of civilized nations of money; but that the coincident discoveries in California and Australia, in September 1847, and February 1851, must sooner or later produce a revolution in prices. And, indeed, the fecundity of these countries is unparalleled. North America, which in 1846 produced only 3,600 pounds of gold, according to Soetbeer, produced in the years from 1849 to 1863, respectively, 118,000, 148,000, 178,000, 195,000, 180,000, 165,000, 165,000, 165,000, 160,000, 145,000, 125,000, 120,000, 115,000 and 110,000. Austria produced in the years from 1851 to 1863 respectively, 27,000, 196,000, 250,000, 160,000, 170,000, 195,000, 180,000, 175,000, 160,000, 150,000, 160,000, 160,000, 170,000, pounds of gold. From 1864 to 1867, the aggregate production of gold in the world was, according to the last mentioned authority, a yearly average of 188.4 millions of thalers, and of silver, 94.8 millions. In Europe, Russia not included, the production was, in 1863, [pg 421] The question, whether in this second half of the nineteenth century, we are to have a revolution in prices similar to that which took place in the sixteenth century can be answered only hypothetically. The gold diggings now most productive will, probably, as we may judge from analogous cases in the past, be soon exhausted.863 But it is entirely possible that, for [pg 423] So far as silver is concerned, there can be no question that America possesses mines unlimited in extent, and, as yet, almost untouched. “The time will come,” says Duport,866 “a century sooner or later, when the production of silver will have no other limits than those put to it by the continual decline in the price of silver.” There seems, also, to be no lack of quicksilver, especially in California; and the cost of its production hitherto may be lessened very much by the labor of better workmen, machines and means of transportation.867 All this supposes great progress of the mining countries in civilization in general; and yet, thus far, Mexico's republican independence etc., as compared with the later years of the Spanish colonial system there, is a great retrogression. The conquest of Spanish America by the United States would give a vast impetus to economic improvement; and here, [pg 425] But especially must the demand for the precious metals, which naturally increases with the wealth, commerce and luxury of nations, constitute a decisive element in answering our question. Nothing, for instance, were a reduction in prices impending, would promote it so much as a series of devastating wars or revolutions in Europe. Moreover, it should not be forgotten, that the money market is now almost commensurable with the world, and will soon embrace it within its limits; and that market embraces not only the precious metals but the numberless representatives of money and media of credit. The basin, therefore, to which the gold and silver streams of the world are tributary is immeasurably greater than it was in the sixteenth century; its level cannot be changed as readily, and an equal addition made every year to its previous contents can increase it only by a small amount.868 Nor could a considerable decline of the value of the precious metals be readily produced without making the circulation of money slower, and the employment of means of credit relatively less frequent, in consequence of which, the further decline would, to a certain extent, be arrested.869 In the case of other commodities a decline of prices leads only probably to an absolutely greater demand; in the case of money, it leads to a demand necessarily greater. That the money market in our days can stand pretty rude shocks is evident from the fact, among others, that the price of gold is so high as compared with that of silver.870871 Section CXL.Revolution In Prices.—Its Influence On The National Resources. The ulterior consequences of such a revolution in prices would contribute to the real wealth of a people only in the sense that they would place such a people in a way, with less sacrifice, to employ the precious metals on a large scale in ministering [pg 427] Besides, at the beginning, and before a corresponding depreciation of its value has taken place, an increase of money produces as a rule a low rate of interest (§ 185), and an itch to buy on the part of the public. All this may serve as a powerful stimulant to production on a large scale.876 Those most certain to suffer loss are officials877 with a fixed salary, and so-called annuitants, creditors of the nation and of individuals. Even bankers, too, have no means to fix the value of their wares which they see disappearing, so to speak under their eyes.878 Of land owners, those who are in debt gain, that is especially the poorer, and the more speculative among them.879 On the [pg 429] The condition of those who earned a living by manual labor no doubt deteriorated in the sixteenth century, as may be inferred from the extraordinary activity of public charity in that period. Between 1500 and 1550, silver purchased, in Orleans, from 4.1 to 4.5 times as much common labor as it does now, while silver, as compared with the average price of twenty-seven commodities, has grown cheaper in the ratio of only from 2.6 to 2.7:1. (Mantellier.) It was impossible for this class to raise the price of their wares as rapidly as that of the medium of circulation declined, because they could not wait, nor hold back their commodity even for a moment. (§ 164.)880 This would, indeed, be very different in our day. Wages, because of the facilities, both physical and moral, which have everywhere been placed in the way of emigration, were necessarily one of these articles which rose soonest in price, as compared with money.881 Lastly, the state itself profits by the diminished [pg 430] However, the new additions of gold and silver to the already existing supply may not immediately produce a corresponding depreciation of the value of the precious metals. If the first receivers of the additional supply of money exchange it rapidly for other goods, it will probably bring them the former value in exchange of the metal. Not until it has passed into a third or fourth person's hands is the depreciation apt to be perceptible. It is, therefore, in this case, a great advantage to be the first hand. The world-threatening power of Spain, in the seventeenth century, was very essentially promoted by the American gold and silver mines;886 nor is it a matter of less [pg 431] Section CXLI.Effect Of An Enhancement Of The Price Of The Precious Metals. A great enhancement of the precious metals would naturally and necessarily produce a revolution in prices in a direction888 opposite to the one just described, and one which would be much more injurious to a nation's economy. Such a revolution would weigh most heavily on the most sensitive, and the momentarily most productive classes of the people, inasmuch as the price of the ready product as compared with advances made for the purposes of production would be a declining one; and it would benefit those classes who live in leisure on the fruits of previous labor. There would, at the same time, be a perceptible growth of consumption in certain departments, useful, no doubt, in themselves, but apt to degenerate into excess, and which are, therefore, most easily cared for. (§ 212, seq.) [pg 432] Section CXLII.The Price Of Gold As Compared With That Of Silver. The price of gold as compared with that of silver does not, by any means, depend entirely on the ratio of the quantities of the two to each other. Rather is it, in the long run, determined by the average cost of production necessary at those gold and silver mines which exist under the most disadvantageous conditions, but which it is still necessary to work in order to satisfy the aggregate requirement of these metals. On the whole, with an advance of economic civilization, the dearness of gold as compared with that of silver has been enhanced. The former, in the middle ages, was worth from ten to twelve times as much as the latter,890 while now it is [pg 433] These facts are explained as well by the demand as by the supply. As the production of gold requires so little skill or capital, and that of silver so much of both, the former may be considered a natural product to a greater extent than the latter, and therefore, the rule laid down in § 130 is applicable to it. (Senior.) Besides, in the higher stages of civilization, especially when the precious metals are cheap, larger payments are usual, to the making of which, gold is certainly best adapted; just as in every day trade merchants are wont to accept a gold piece in payment, even at something of a premium, while the peasantry hesitate to do so.893 [pg 434]It is very much of a question whether gold or silver is, on the whole, subject to greater variations in price. The fact that gold is more strictly a natural product would of itself constitute a powerful element of variation. (§ 112). But, on the other hand, its greater durability and the greater care bestowed on its preservation, have for effect to make the existing quantity preponderate in importance over its annual increase. The demand for gold varies more suddenly than the demand for silver. In case of war or sedition, the former is more easily carried away or hidden. It is also more desirable for the state for its military fund. On the other hand, on account of its greater capacity for transportation, it may follow such claims when made on it, more easily, from country to country. On the whole, I am inclined to think that, for short periods of time, silver maintains its value better, and gold for longer ones.894 Section CXLIII.The Price Of Gold As Compared With That Of Silver. (Continued.)If the gold-production of California should be attended895 by a notable depression of the value of that metal, it becomes a question whether or not silver would be necessarily depreciated with it. Senior claims that it would not, for the reason that the two precious metals do not, for most purposes, act as substitutes each of the other. If a country needed 1,000 pounds of gold and 15,000 pounds of silver as money,896 and these two sums of metal were equal in value, an increase of gold by one-half, which would depreciate its price in relation to silver to 10:1, would not overflow the channels of circulation. The 1,500 pounds of gold are now also equal to only 15,000 pounds of silver, and vice versa. I would put very important limitations to this assertion. Even a moderate depreciation of gold would drive out the silver from all those countries which had a mixed coinage made up of the two metals; and hence the supply of silver would be increased in the other countries. And so it is quite possible, up to a certain point, that the larger silver coin should be replaced by small gold ones, ten and five franc pieces etc. Rau is certainly right in his surmise that a general rise in the price of commodities as compared with coin, the result of a great increase of gold, would go farthest in countries in which the gold is the medium of circulation, begin later in those [pg 436] |
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