Why is it that gold leaves country and goes to another? For one reason
only--the advantage of its owner. Whenever he can make a profit by
sending it out, the gold goes; and the period when that profit can be
made is indicated when the prices of goods that are internationally
dealt in are either rising in the country which it leaves or falling in
the country to which it goes. It is only to pay for importable goods
that gold ever leaves the country in which the owner resides. Being an
international money, and receivable everywhere at its full face value,
gold loses nothing by transfer; hence it is sent wherever it will for
the time being have the greatest purchasing power.
Whenever the general range of prices in this country of commodities
internationally dealt in becomes than higher than the general range of
the same commodities abroad, it is manifest that then gold can used to
advantage by purchasing those articles abroad and selling them here. If
the gold that goes out goes from stock that has been hoarded here, the
outflow has no immediate or direct effect upon prices in this country,
although, by increasing or "inflating" the volume of money abroad it
assists in raising prices there, and thus tends to secure for our
exported products a better price in the foreign market. But if the gold
goes from the amount that is in active circulation here, and if the void
created by this outflow is not filled with other forms of money, such as
silver, or paper, it results in a reduction of the volume of money in
actual use in this country, while at the same time increasing the volume
of money abroad.
This increase in the foreign money stock causes a rise of prices abroad,
while the corresponding reduction of our currency causes a proportionate
fall of prices here, hence there is a constant tendency to an
equilibrium of prices of all articles of international commerce.
No outflow of gold would follow a rise of prices here except in so far
as that rise affected articles internationally dealt in. No rise of
prices of such articles as we do not import would tend in any way to
drive out gold. If, for example, raw cotton should increase in price in
this country, that fact would not tend to drive out gold, because we do
not import raw cotton. But should the prices of articles of manufactured
cotton rise here above what those same articles could be bought for in
any foreign country our merchants would send abroad for them, provided
that, after paying the freight charges and customs dues, they could make
a profit on them.
So, also, if crockery-ware were made in this country, and its price
should rise to, say, double the present price, then, instead of buying
the American, or home-made article, our crockery merchants, finding that
they could buy in England, France, or Germany cheaper than they could
buy in this country, would decline to buy the American crockery, and
would send abroad for any article, provided that, after paying freight
charges and customs dues, they could sell it here at a profit. That
would tend to increase the shipments of gold to foreign countries.
That an outflow of gold does not follow from a rise of general prices,
but only of prices of articles of international trade, is manifest from
the fact that if land becomes cheap in other countries, gold does not
leave this country to buy it. When real estate is cheap in Brazil, or
Australia, or in Germany, France, or even England, the owners of gold in
this country do not send it abroad to make purchases of real estate.
So wages of labor may rise in this country, or compensation for all
manner of services that must be performed here, and gold would not leave
as a consequence. But if cloth were cheaper--quality considered,--in
England, France, or Germany, or at the remotest ends of the earth,--than
in this country, our merchants would send gold for it in order to sell
it here at a profit.
Altogether too much importance is attached to the possession of a large
stock of gold, unless that stock form part of the active circulation of
the country. So long as it remains in circulation it sustains prices and
develops industry and internal commerce. But the tendency of gold being
to find the most profitable field for operation, its continued presence
in the country can never be relied upon.
When we take gold from other countries prices in those countries fall,
owing to the reduction of the volume of money there; and owing also to
the action of the foreign banks in immediately raising their rates of
discount on commercial paper and suddenly calling loans. As there is
less money left in such country with which to pay for commodities, we
are obliged to accept lower prices for the products we ship to it.
The larger the stock of gold, therefore, accumulated by us the lower,
necessarily, must be the price which we can receive for our surplus
agricultural products.
In order to maintain parity between the metals, it is not necessary for
us to have all the gold we now have; $200,000,000, or even $100,000,000
of gold, would maintain that parity. The parity between the metals can
never be broken until all the gold leaves, and provided we retain one or
two hundred million, the rest can not be placed more advantageously than
where our languishing surplus products must be sold.
When gold leaves this country it is because prices here are rising.
Prices are now lower than they have been since 1847. Must they continue
declining in order that we may be able to retain all our gold? It is
manifestly impossible for the people of this country to prosper with a
constantly lowering range of prices. It is equally impossible for the
present level of prices to be maintained with a constantly increasing
demand for, and as constantly diminishing a supply of, gold. It is
universally admitted that an increase in the money circulation of this
country at the present time is an exigent necessity. The advocates of
the single gold standard, while admitting that we must increase our
money volume, the effect of which must be to maintain, if it does not
raise, the level of prices here, insist that we shall let none of our
gold go in order that prices abroad may rise.
Mr. BLAIR. May I ask the Senator a question?
Mr. JONES, of Nevada. Certainly.
Mr. BLAIR. Does the Senator mean to be understood that the falling of
prices is an absolute demonstration of the increased value of the money
without limitation?
Mr. JONES, of Nevada. I have already, in the early portion of my
remarks, had occasion to state that when a fall in prices was brought
about by a larger subordination of the forces of nature to the uses of
man, as where the comforts and conveniences of life could be produced
with less sacrifice than before, it was not an injury to society, but in
advantage. In other words, if, by a certain amount of sacrifice
seventeen year ago, only one pair of shoes could be produced, and if by
the same sacrifice two pairs could be now produced, there would be a
lowering of the price of shoes to about one-half of what it was
seventeen years ago, which would be a very great benefaction to mankind.
But, as I then stated, there is one certain sign that that is not,
except to the slightest extent, the cause of the present universal fall
of prices. When prices fall owing to improvements in manufacture,
business revives, the masses of the people are at work, those who toil
find themselves possessed of more of the comforts, of the conveniences,
and even of the luxuries of life than before. They are better contented
with their condition, and more buoyant and hopeful than before. On such
occasions money becomes more and more in demand than it was before, and
instead of being hoarded is put into active and productive business
where it will make a profit. But when interest falls, pari passu, with
the fall of prices, it shows that the fall of prices is not due, except
in the smallest degree, to improved methods of production, but to the
increased value of money.
Mr. BLAIR. I was not controverting the Senator's theory as to the
existing facts in this country, but I understood him to be laying down
an absolute principle, applicable under all circumstances and in all
times, that the fall of prices is a demonstration of the increased value
of money. I supposed that the fall in prices resulting from a
protective tariff was beneficial, and not an indication of an increase
in the value of money, and that that fall of price was not owing to the
increased value of money, but was by improved machinery and all that. So
it is possible that some of the fall in prices in this country may be
owing to increased facility in the matter of production and to the
beneficial operations of the protective tariff.