THE FINANCIAL DEPRESSION.

Ashburton Guardian, Volume V, Issue 1414, 23 November 1886, Page 3

THE FINANCIAL DEPRESSION.

An exceedingly well-written pamphlet on “The Financial Depression—its Cause and Remedy,” has been forwarded to us from Auckland by the author, Mr R. D. L. Duffus, who attributes the general fall in pi ices to an increase in the purchasing-power of money, and chiefly to the appreciation of gold resultant upon the gold produc tion of the world falling short of the requirements of trade, the evil being, as he contends, greatly intensified by the demonetisation of silver. The case presented is of so entirely technical a description that it is "difficult in the brief compass of a newspaper notice to state it in a form readily comprehensible by all classes of readers ; but we will endeavor to give the drift of the argument in as clear a form as possible. Our author shows that with an increased yield of gold and silver the purchasing-power of money falls, and the prices of commodities are correspondingly enhanced, while the reverse results are the necessary consequence of reversed conditions. For example, he states that “ the purchasing power of money gradually declined for several centuries after the discovery of America, falling no less than three and a half-fo(d, in consequence of the in creased supply of the precious metals lowering their exchange value, and unparalleled progress was the result From 1810 to 1830, on the contrary, the production of the mines decreased considerably, and prices steadily fell simultaneously, as was proved by Mr Tooke and Professor Jevons, and the subsequent increase in their production up to 1848 was quite insufficient to keep pace with the ever growing demand, and the consequence was that deplorable stagnation of industry which characterised the second quarter of this century, and the world-wide suffering of that gloomy epoch so graphically recorded by Sismondi, Martineau, and others, is certpinly one of the darkest pages of history. Between 1848 and 1870, however, the rich treasures discovered in various parts of the globe nearly doubled the annual supply of gold and silver, and prices during that period rose from 18 to 20 per cent., so stimulating industry and commerce that the whole civilised world progressed by leaps and bounds —industrial marvels springing up on all sides as it beneath an enchanter’s wand.” From 1873 to the present day the supply of gold has been steadily decreasing, and as of the total yearly production, now about Soetbeer estimates that ,£12,000,000 are annually consumed in the arts and manufactures, and ,£4,000,000 are absorbed in the East, there remain only 2,000,000 to supply the whole world with a medium of exchange, while, if losses and wear and tear are taken into consideration, there remains only ;£i,000.000 to cover the monetary requirements of the entire world, with all its growing population and trade. This contracted gold supply to meet the necessities of the constant enormous expansion in comraeice would alone be sufficient to account for a large increase in the purchasingpower of the sovereign, which is the equivalent of a sharp decline in the prices of commodities ; but Mr Duffus goes on to show that the demonetisation of silver intensifies the evil, which he regards as a deplorable blunder, and of which he quotes no less an authority than Mr Goschen as having predicted in 1878 that it “ would produce a more disastrous crisis than any of those recorded in history.” He argues that “ while the profits upon the exports of all nations using a gold standard and currency have been swept away by the appreciation of that metal, the profits upon the exported productions of those that still possess a silver standard have been actually trebled at our expense," and instances India and Russia as countries which are benefiting largely at the cost of other nations. He puts the case as follows: —“ Let us pursue the inquiry a little, and endeavor to ascertain why it is that the enterprising and industrious AngloSaxon is now unable to hold his own as proudly as formerly against inferior and semi-barbarous races. Have our industrial classes—the bone and sinew of the nation—degenerated ? Or have they been unjustly handicapped in the great battle of life by blind statesmen and bungling legislation ? Let us first put the farmer in the witness-box, since his occupation is the sheet anchor and mainstay of every country. Ask him why he has to throw up the sponge and confess himself beaten at his own trade by the semi-barbarous hordes of India and Russia, and other silver using countries that now easily under sell him in all the great markets of the world. His plain matter of fact statement is simply this : —That while for a given quantity of produce, costing say be formerly received ,£IOOO in the London market. leaving him jQ too for his labor, now, since prices have fallen 10 per cent., he receives for a similar shipment a draft on his banker tor only ,£9OO, leaving him no margin of profit whatsoever. On the other hand the same quantity of wheat or other produce shipped from India to London also sold until within the last ten years for ;£iooo, which was returned to the Indian producer in the form of a draft on his banker for 10,000 silver rupees, the currency of his country, leaving him likewise a profit of one-tenth, or 1000 rupees. The ,£9OO, however, which the same quantity of produce at present realises in London is now remitted to India in the shape of a bank draft for 12,000 rupees, since the exchange value of the rupee, as estimated in England’s gold coin, has fallen twenty-five per cent., or from 2s to is 6d. But since the purchasing power of silver has not declined in India, as pointed out by Professor Fawcett, and clearly proved by the commission that lately sat to investigate that question, the cost 6f production is manifestly still the same there as formerly. The Indian producer, therefore, has just three times his former profit, or 3000 rupees for his trouble, instead of xooo.” Space does not admit of our following Mr Duffus further in his very interesting argument as to the cause of the present depression, and we must hasten on to state in a few words the remedy which he proposes. As will be inferred from the foregoing, he admits that the remonelistalion of silver would in itself be a considerable relief, but he contends that the remedy is to be found in a State paper currency, and argues that

It “ has yet to be shown—in spite of all ffie ridicule that has been ignorantly or selfishly heaped upon it—that national paper money based upon sound economic principles, would not preserve the equilibrium of the standard and prove an incalculable blessing to mankind.” Adam Smith (says Mr Duffus) “ foresaw the possibility of a crisis arising from a scarcity of the precious metal, and pointed out the only rational remedy in the firss chapter of the fourth book of Wealth of Nations, saying :— ‘ If gold and silver should ever fail short in a country that has wherewithal to purchase them, there are more expedients for supplying their place than that of almost any other commodity. It the materials of manufacture are wanted, industry must stop. If provisions are wanted, the people must starve; but if money is wanted barter will supply its place, though with a good deal of inconveniency. Buying and selling upon credit, and the different dealers compensating their credits with one another once a month, or once a year, will supply it with less inconveniency. A well regulated paper money will suppy it not only without any inconveniency . but in some cases with some advantages over the precious metals themselves.’” Mr Duffus then deals with the objections usually advanced as against the proposal for a State paper currency, i.nd with much ability. We are unable to give even a resumd of his argument as a whole, but will just allude to one point, viz., the oft-repeated objection that while State notes might be made a legal tender within the bounds of the colony without inconvenience to anyone, they would not avail for payments requiring to be made beyond the bounds of the colony, and for which gold would be required. His answer is that very little coin indeed is really required for export, inasmuch as our exports and imports of money very nearly balance each other. “ Thus in 18S1 the difference against the colony was .£13,000; in only, and since then our imports have considerably exceeded our exports, in consequence, probably, of the depression having alarmed our banks.” Going on to show what would be the advantages flowing from the removal of the cause of depression which he indicates, Mr Duffus says : —“ No man living can assign any logical reason why, if supplied with a sufficiency of a reliable medium of exchange, and a just standard of value, the industrial classes could not now create wealth and prosperity on all sides just as rapidly as they did during the best days of the goldfields, or indeed far faster, for the supply of currency was even then always costly and uncertain, while the medium of exchange should be inexpensive, economical, and perfectly accessible at all limes to any who are willing to give good value in exchange for it, since it has no conceivable limit short of the legitimate requirements of civilisation for the distribution of the fruits of industry,” And he concludes a very able and interesting pamphlet which will certainly repay perusal by all who take a thoughtful interest in this important, though somewhat abstruse, question, with an extract from an article in the Nineteenth Century on the increasing scarcity of gold, in which the following passages occur :—“ Men may believe it or not, just as they please, but the fact is, as time will quickly prove, that all civilised nations are now being gradually reduced to the verge of starvation simply because the great artificial wheel of exchange has broken down under the excessive burden now imposed upon gold We disdain to believe for an instant that when British workmen once fully realise what is now going on through the appreciation of gold they will tamely submit to be drained of their lifeblood, and ground systematically down to poverty, degradation, and famine, to pamper and fatten their greedy and grasping rivals —the teeming and semibarbarous hordes of Northern Europe and Asia. Although by means of an artificially contracted currency, and a viciously unjust standard of value they are now hopelessly handicapped out of the race of life, let their rulers only give them fair play and they can safely defy competition and hold their own fearlessly against every nation upon the face of the earth,”