THE EFFECT OF CALIFORNIA ON FIXED INCOMES.

New Zealander, Volume 8, Issue 622, 31 March 1852, Page 3

THE EFFECT OF CALIFORNIA ON FIXED INCOMES.

(Fiom the Economist Novembci IS.) Tim discovery of gold in Australia — the more extensive and the better organized workings in California which have reduced the question of continued and even increasing supplies for some years to come to one almost of certainty, have again raised in the public a considerable anxiety as to the maintenance of our standard. The production of California during the current year will certainly exceed thirteen millions sterling, with every probability that it will reach .£1.5,000,000 during the coming year ; the production of the Russian mines and washings cannot he stated at less than .£4,000,000 ; and even in the first year a very moderate allowance for the produce of Australia will make the entire annual production of gold from these three sources alone reach the large amount of ,-£20,000,000, independent of all the old sources of supply. Undoubtedly, this is an enormous edition to the supply of the metal which forms our standard of value. But there arc two questions which arise before we can come to a conclusion as to the extent of any derangement which it A\ill create in the monetary arrangements of the country. 1 . In considering what effect it may produce upon the exchanges between this country with its gold standard, and other countries which use a silver standard, and consequently in the obligations existing between such countries, the first and most obvious .speculations are, the increase of the supply of silver at the same time, and the extent to which throughout the civilised world gold may be adopted in place of silver, under existing regulations, in regard to the circulation of coin, and independent of any reduction of price of the one metal as compared with the other. 2. There is still a fuithcr and perhaps, more important consideration which has hitherto been \evy much overlooked, namely, the tft'ect which has such a reduction in the price or intrinsic value of the precious metals will have upon the relative value of all other commodities, that is the quantities of each which will become equivalents of one another. With regard to the fnv>t of these considerations, the disturbance of the relative value between gold and silver, and consequently of the exchanges between this country and those countries which have a silver standaid, we have on frequent occasions stated oui views. In tin- first place, the.

discovery of California has given to the world a new, cheap, and inexhaustible supply of quicksilver, the cost of which very much determines the expense at which silver mines are worked. The cheapening- of this article, w.e are assured, has already produced a considerable influence, on the production of the Mexican mines. Some of the poorer mines, which had been closed because they were unprofitably Avorkcd with quicksilver at a high price, have been reopened, and are being profitably worked with quicksilver at its reduced price. Those which have hitherto been worked arc extending their operation's, and it is expected that new ones will be opened, which, but for cheap quicksilver would not repay the expense. Again, the great demand which has existed during the last year for silver, and the somewhat higher price which it has commanded in the United States and in the European markets, have given "a new impulse to its supply ; and the arrivals from the mining countries have ah eady somewhat increased. So much in favour of an increased production, which is likely to be still greater in proportion as quicksilver shall be rendered still cheaper by the more extensive workings in California, and in proportion as the price of silver may show a tendency to increase in relation to gold. Then as to the extent to which gold may be adopted in place of .silver under existing arrangements, and without implying any material alteration of their relative values. In all countries which have (t double standard of gold and silver, with the relative value of the two metals determined by law, the ciculation has hitherto consisted almost exclusively of silver, because for the c fifty years prior to 1850, the tendency was for "gold to become dearer in relation to silver. At whatever date the relative value of gold and silver had been fixed, the price of gold had somewhat increased, and silver had therefore practically become almost the sole circulation of such countries. In France the relative value of the silver and gold coins, which are legal tenders, was fixed in 1802 according to the exact price of the two metals at the moment. Gold very soon becoming somewhat dearer, rose to a premium as expressed in the silver coins of the country, and could not be obtained except by the payment of an agio, while silver, being the cheaper metal, became exclusively the circulating coin. So in the United States, gold and silver coins have a fixed legal rate at which they circulate, and until of late silver constituted nearly the whole of the circulation. So also in India, although silver is considered the standard, yet there is a gold coinage which is a legal tender, bearing a fixed proportion to the silver coins, but which having hitherto been of more intrinsic value has commanded an agio, and has not generally circulated. There are other less important countries similarly circumstanced. It is plain, then, that in this fact there is a means for a very extensive absorption of gold, and a proportionate release of silver. As might naturally have been expected, the circulation of the United States has been the first to be affected in this way. The large imports of gold from California during the last two years, a great proportion of which lias been coined in the United States, and the high price which silver bore in the European markets at the clobe of last year and the beginning of this, led to an extensive shipment of silver coins and to their being replaced with gold. To facilitate that operation, the United States Mint coined a large portion of the gold into pieces of a small denomination, as low, we believe, as .single dollars. The consequence has already been to supplant a circulation which hitherto was almost exclusively of silver witli one now almost exclusively of gold. Even in the largest cities of the United States, silver coins are said to be comparatively scarce. To some extent, the same thing has been taking place in France. For many months the French Mint has been occupied in coining twenty and ten-franc pieces of gold. And such has been the want of gold coin, and the demand upon the Mint for the coining of gold bullion deposited, that all its maims oi turning- out coin have been forestalled for months forward. And therefore, but for the limit of the power of the Mint, even a larger coinage would have taken place than has. The consequence has been now that gold commands no agio, but that silver is rather the more valuable of tha two, according- to the rates at which they are fixed by law, that gold has entered to some extent into the circulation of France, and has released a corresponding quantity of silver. But large as the quantity of gold coin is which has been received from the mint during the last year, it must bear a very small proportion to the enormous circulation of France ; where from the absence of a local banking system, and from the frequent recurrence of periods of discredit, the amount of coin at all times in the hands of the public is relatively greater than in any other country of the world. There is, therefore, still in France an extensive field for the employment of gold, and to whatever extent that metal is employed, silver will be disengaged. But to whatever extent all these considerations may prevent, for a long time to come, and perhaps altogether, any material alteration in the relative value of goid and silver, it is obvious that the more their value may be against any disturbance in that particular direction, the more they point to a large increase of the precious metals, gold and silver together. And this is perhaps by far, the most important question for that portion of the public whose incomes are fixed in a determinate quantity of the precious metals whether of gold or silver. In former articles we have carefully pointed out all the various classes of obligations that will be affected by such a reduction in the intrinsic value of the precious metals, for the purpose of illustrating the second important consideration to which we now wish to call the attention of our readers, we will take a^ an example the owners, of the puhlic funds, who for every hundred pounds of stock are entitled to receive £3 per annum, or 330 grains of pure gold. Whether that quantity of gold becomes of less or more value, the contract by which the debt is discharged by its payment cannot be altered. But here arises an important consideration. The intrinsic value of all commodities is determined by the quantity of labour required to produce them. The quantity of other commodities, such as grain, tea, sugar, wine or cloth, which a given quantity of gold will purchase, must, therefore, be determined by the relative quantity of labour which each requires for its production. Suppose the cost of the production of gold to remain stationary while that of all other commodities is being reduced, the real effect is to cheapen the price of such other commodities in relation to gold. This has already taken place to a great extent during the last thirty years. What with the change of our commercial policy, which has given a new and unexpected developement to our productive powers — what with the introduction of steam and mechanical aid — what with the cheapening of navigation and locomotion and the economy of time — what with the assistance of chemical and other sciences — and what with the rapid increase of capital and the reduction of the rate of interest — the production of all the ordinary articles of consumption has rapidly increased, and their cost has been extensively diminished. But, till lately, the production of the precious metals has been nearly stationary. The result has, therefore, been, that relatively with gold and silver, every other article has become cheaper. The recipient of the dnidends of the funds and of other annuities fixed iv money, have been therefore, greatly bencfitted by all the improvements to which we have now referred, and we may add to which in general they have contributed but little, and for which they have made no sacrifices. To them tho course ol events has been one of clear gain. But we would call 6spccial attention to this one consideration. Suppose, since 1820, the increase in the production of gold and silver had been as great as the increase has been in the supply of tea and sugar, iv the production of grain per acre, in tiio manufacture of cotton, woollen, and silk, in the means of cheap and rapid tra\el-

ling, and in all that make up the sum of everyday wants, what would have been the effect l . Why, only that that the relative values of all those commodities, gold and silver included, would have remained the. Same — all would have been more abundant, the productive labour of the country would have become, as it has, more profitable, and would command, as it now does, more of all things in exchange, but the relative value of gold and other commodities would have remained the same, and the recipients of fixed income would have been neither better nor worse off than they were in ] 020. But what is true in this reasoning as applied to the past, is equally true as to the future. It may be that gold and silver from the causes to which we have referred, will become during the next twenty years much more abundant than they are now in relation to other commodities. But it will be a long time before their increased abundance overtakes tlie increase of abundance of other articles which has taken place during the la.st thirty years, and restores the equilibrium of relative values as they existed in 1820. But for the present holders of fixed annuities, there is another still more important consideration. Have the causes which for years past have been continually adding to the abundance and cheapness of other articles ceased to j operate ? Have the consequences of Free Trade been exhausted 1 Have mechanical and scientific improvements done all they can for the world 2 Have cheap locomotion and navigation, by which not only the different parts of our own country are brought so near to each other, hut by which the continent of America, and other distant countries have been brought almost along side of ' the west coast of Ireland, been extended to the limits of which they are capable \ On the contrary, consult the highest authorities in every branch of improvement and progress, and you will be told that they arc all in their infancy. T»ie most successful experiments have yet to be embodied in an extended practice. But if so, then greater and greater abundance in every other production, as well as of gold and silver, is ceitain to take place during the next ten or twenty years. With screw steamers running from the west coast of Ireland to the United States two or three times a week, who will attempt to say what the influence will be upon the comforts and the wealth of the fifty millions of human beings inhabiting the two countries \ With steam communication established with every port of Europe, every country in South America, with South 'Africa, Australia with India, China, and the whole of our Eastern markets, no one will venture to predict the results of such increased facilities during the next few years. The real question then is, will California, Russia, and Bathurst, in their increased production of gold, outstrip the remarkable agencies which are now at work for an increased production of all other commodities I If not, then what have the recipients of fixed annuities to apprehend. If not, they w ill not be injured, while all the productive classes in the world, but especially in this country, will be greatly benefitted and much enriched.