their landed investments and withdraw from them as they are able, yet they have been, and are, largely interested in the fortunes of landed property, and perhaps especially in the rentals of landlords, on the security of which they have made advances. With the stability of the insurance companies is linked the preservation of perhaps the bulk of the savings of the professional classes. In short, in an old country a strict separation between the interests of different classes is only true with large deductions.

III. But economics also raises and solves the doubt whether depression in agriculture can be attributed to foreign competition alone. It is a significant fact that, according to authoritative accounts, many of the competitors of the English farmer have not escaped the distress from which he has suffered; and in England the depression, in spite of constant reductions and abatements, has exerted an influence on profits scarcely less grievous than that on rents. These circumstances certainly lend weight to the contention that the fall of prices, which is not peculiar, though perhaps especially discouraging, to agriculture, is partly due, to state the matter in the least controversial shape, to a change in the general relation between the supplies of gold and the monetary work that it is required to perform. To the discovery of a cause like this, hidden from superficial view, and to the indication of the manner in which it may affect the position of agriculture and other industries, economics, by virtue of its mission to discern the unseen, is peculiarly competent. I do not propose to enter now at any length on the vexed question of the currency, but it is certainly a prominent practical question of the day. It is a question on which the economist may claim to speak with authority, and the practical man may demand, as he may be expected to follow, the definitive guidance of expert opinion. On this question, perhaps, in particular, the unassisted vision of the naked eye may form erroneous conclusions, and derive no little profit from the use of the optical instruments provided by the economist.

I cannot preface what I propose to say more appropriately than by a quotation from Jevons. In that pamphlet on 'A Serious Fall in the Value of Gold"1 which has attained the rare dignity of an economic classic, commenting on the alarmist anticipations of Chevalier and Cobden, he remarks that the alteration in the value of gold consequent on the discoveries in California and Australia would probably be most gradual and gentle.' Far from taking place with sudden and painful starts, flinging the rich headlong to a lower station, and shaking the groundwork of society, nothing is more insidious, slow, and imperceptible. It is insidious because we are accustomed to use the standard as invariable, and to measure the changes of other things by it; and a rise in the price of any article, when observed, is naturally attributed to a hundred other causes than the true one. It is slow because the total accumulations of gold in use are but little increased by the additions of any one or of several years. It is imperceptible because the slow rise of prices due to gold depreciation is disturbed by much more sudden and considerable, but temporary, fluctuations which are due to commercial causes, and are by no means a novelty. I propose to apply briefly these remarks of Jevons to some aspects of the controversy which has arisen on the cause of the fall of prices of the last twenty years.

It is, for example, sometimes asserted that the influence of credit on prices is so considerable as to reduce to unimportance a decrease in the available supplies of gold. It may at once be admitted that the modern extensive development of credit obscures the relation between the metal and prices; but it does not destroy it, and, according to the view we have been trying to emphasise, the mission of economics is to remove this veil of obscurity. In this instance it may show that the relation is not unreal because it is indirect; that credit, expanding and contracting of itself owing to increasing or diminishing speculative activity, is yet limited and controlled in its movements by the changing dimensions in the basis of cash on which it rests; and that, through the bank reserves meeting or restricting the demands for petty cash and permitting an expansion or causing a curtailment of credit, the supplies of the standard metal exert an important influence on prices.1 1 Cf. Investigations in Currency and Finance, pp. 78, 79. 2 Cf. Giffen's Essays in Finance. Second Series, II.

Economics may thus furnish a rational account of the modus operandi, and statistics supply corroborative evidence. This evidence, indeed, may be said to amount to ocular demonstration, for no one who has studied with moderate attention the course of a curve of general prices over a period of time, drawn in accordance with the graphic method of statistics, can have failed to distinguish the different character of the fluctuations thereby shown-to have separated the more obvious and pronounced fluctuations of credit, marking the flow and ebb of confidence, from the minor passing changes due to some temporary accident of demand and supply on the one hand, and, on the other, from the general trend of the curve indicating a growing abundance or scarcity in the available supplies of the standard metal. This is a broad influence, the operation of which is only discernible on a comprehensive view; but the graphic method of statistics brings it within the range of ordinary vision, and the reasoning of economics discloses the connection of the phenomena. The influence of credit is apparent on the surface, but the deeper influence can be detected beneath; and, if the general level of one credit cycle be higher or lower than another, the change points to the presence and action of some less obvious cause. In a modern commercial society, with its development of banking and credit, we are able to observe and to measure cause and effect. At the one end of the process we possess statistics of the production of gold, and can frame estimates of the amount and character of extraordinary demands. At the other end we can employ, in the form of index-numbers, as they are called, a means of measuring changes in general prices, which is certainly adequate to show the direction of the change, if it is not competent to indicate its precise amount. For the connection between cause and effect we look to economic reasoning, which here, as elsewhere, enables us to discern the unseen.

2

A similar test may be applied to the adequacy of some other causes. It is sometimes said that a complete explanation of changes in general prices can be discovered in the particular circumstances of individual commodities, without any reference to a common cause. The answer is evident on the principles we have been endeavouring to establish. Those particular circumstances lie on the surface, and the common cause is only apparent if we penetrate beneath. Here, again, economics is aided by statistics. Economics can recognise and explain the operation of a common cause in enhancing or diminishing the effect of particular circumstances, and statistics can offer corroborative evidence of the presence of such a cause. For the very meaning and intention of a statistical average is to eliminate the influence of particular causes, and therefore the testimony of those index-numbers, in which an attempt is made to exhibit the average change in prices, is adequate to establish the influence of some common cause, if the basis on which they are constructed be sufficiently comprehensive and typical. It can scarcely be doubted that this criterion is satisfied in the case of some of the best-known varieties. The presence of that common cause, it must be remembered, does not imply the absence of other contributory or counteracting causes; and the inquirer in the region of the moral and political sciences is always beset by difficulties arising from the plurality of causes. But, if he can establish the presence of a common cause competent to produce the effect, and can point to the effect which has been produced, the argument for the connection between the two attains that high degree of probability which is all that we can expect to reach. In the instance before us statistics may show the presence of this common cause and the occurrence of the effect, and economics may indicate the competence of the cause to produce the effect. We know that until recently the production of gold had declined from the level reached in the middle of the century, and we are aware that a series of extraordinary demands had coincided, while various index-numbers are in general agreement in

3

To some extent also this is true of the changes in the ordinary demands, but the stress of the argument may be laid on the extraordinary demands.

2 Cf. those compiled by the Economist, Mr. Palgrave, Mr. Sauerbeck, Dr. Soetbeer, and Sir Robert Giffen.

3 E.g., on the part of Germany, the United States, the Austro-Hungarian Empire, and Russia.

exhibiting a fall in prices, though the degree of the fall shown in each case may vary. The economic theory of supply and demand may, then, be used to establish the connection between cause and effect; for, if the supply of a commodity declines while the demand for it increases, a rise in its value, and a fall in the value of articles compared with it, become inevitable. Such has been the position of gold during the last twenty years.

It may be noticed that the possibility of a plurality of causes increases the likelihood of the action of some common cause; for, under the conditions, we cannot expect the apparent effects of this cause to be immediate or universal. The presence of counteracting or modifying circumstance, of opposing or contributory causes, will delay in some cases a process accelerated in others, will minimise here an effect which is accentuated there. The apparent change due to the cause is only likely to be general and not universal, to be gradual and not immediate. The assertion that a fall in prices, if due to an alteration in the available supplies of the standard metal, should be immediate and universal cannot be sustained when economics, penetrating beneath superficial appearance, reveals the interaction of different causes; and, if the testimony of index-numbers points to a general change, it is no sufficient answer to affirm that it is not universal. On grounds of economic reasoning we should expect a slower movement of retail than of wholesale prices, of the prices of articles of minor than of those of more general consumption, of wages than of prices generally.

The mention of wages suggests another point neglected in some current discussions, but brought by economic reasoning from obscurity into prominence. It is sometimes asserted that the fact that wages have not fallen is a proof that monetary causes have not produced the fall of prices. But, apart from the known tendency of wages to move more slowly than prices, such an assertion overlooks the possibility of a simultaneous change in distribution. Economic reasoning points to the probability of such a change in favour of the wage-earner, and to the effect that it would produce; and statistical evidence corroborates that reasoning. If such a change be proceeding, we should expect wages to rise, and the fact that they are stationary tends to prove, not to disprove, the existence of a monetary cause of the fall of prices. A failure to give explicit recognition to this possibility is due to neglect of the plurality of causes, and is akin to another argument sometimes advanced. This maintains that, if it can be shown that the country has progressed, or not receded, in wealth, in the development of trade and manufacture, in the prosperity of the mass of the community, it is thereby proved that the fall of prices has wrought no injury. But it may be answered that the progress might have been greater in the absence of the fall, and other forces may have prevented the cause in question from producing its full effect. Here, again, economic reason ing may aid in discerning what is invisible to the unassisted eye.

Few truths, indeed, are slower to receive, and more likely to lose, popular recognition than those which lay stress on the mutual action of different causes. We are told, for instance, that the fall of prices is due to circumstances connected with improvements in the production and transportation of commodities; and it must be admitted that such a common cause is not, like particular causes affecting individual commodities, eliminated in the general average of the index-numbers. But the one common cause-that of improvements in production-does not exclude the operation of the other-that of a change in the available supplies of gold. Taking a broad view of the whole century, it would certainly seem that the movement of improvement has set steadily in one direction, but that the movement of prices has first declined, and then advanced, and then declined again. It is possible that the movement of improvement may have been accelerated and retarded at different times; but the change in the movement of prices, which requires ex

1 An index-number may be briefly described as a mode of showing the average change in prices by comprising in one grand total the percentages of rise or fall shown in the recorded prices of certain selected typical commodities.

Cf. the investigations of Sir Robert Giffen in England, of M. Leroy-Beaulieu in France, and of other inquirers in other countries.

planation, is not a variation of degree, but a reversal of direction. And this reversal coincides with similar changes in the available supplies of the standard metal. If the disturbances in America at the beginning of the century, with the known diminution in production, were followed by a fall, if the Californian and Australian discoveries of the middle of the century were accompanied by a rise, and if the notorious extraordinary demands since 1873, statistically computed by Sir Robert Giffen,' coming on a supply which until the past few years was diminishing, coincided with a fall again, it seems impossible to doubt that, although improvements in production and transportation may have been contributory causes, an important influence has been exerted by the monetary supplies. With the aid of the economic telescope and microscope forces too remote or obscure to be detected by the naked eye are thus brought within the range of ordinary vision; and the action of the standard metal on prices is one of those forces, for, in Jevons's language, it is insidious, slow and imperceptible."

Such is the guidance which, as it seems to me, economics is able to offer; and in this question of the currency, as in the others of which we have treated, it is surely not destitute of practical import, for the detection of a monetary cause of the fall in prices is so far an argument for the adoption of a monetary remedy. Such guidance also, I believe, economics can furnish on many other questions coming to the front; and, in offering this, it cannot be accused of an excessive or defective estimate of its claims to popular recognition. I am convinced that, as the years elapse, its aid will be sought with increasing urgency, and that it will discharge, with a fuller consciousness of its high prerogative, its important but difficult mission of seeing for itself, and disclosing to others, the unseen.

The following Papers were read:-

1. Comparison of the Rate of Increase of Wages in the United States and in Great Britain, 1860-1891. By A. L. BOWLEY, M.A.

The basis of the calculation is the Senate Report on Wholesale Prices, Wages, and Transportation, 1893, with which is compared the author's estimate of the change of average wages in the United Kingdom, published in the Journal of the Royal Statistical Society, June 1895.

The

On examination it is found that the final wage tables of the Senate Report do not rest on sufficient data, that no account is taken of the relative importance of different occupations or of the different levels of wages, and that the figures for many of the industries included are based on very slender information. industries for which the data appear on analysis to be sufficient are selected, and the average wages in these industries reworked for certain years directly from the original table of wages. By this means the relative wages for these selected trades are found, on a method more correct than in the Report, for the years 1860, 1871-3, 1879-80, 1883, 1886, and 1891.

These relative wages are compared individually and collectively with the corresponding figures already found for the United Kingdom; and it is seen that money wages have followed very much the same course in both countries, rising to a maximum in 1873, falling till 1880, and then rising till in 1891 the level of 1873 is again reached. Wages in the wool-trade follow a different course, and do not make much progress in England, whereas in the States they increase rapidly after 1873.

To estimate the relative change in real wages, it is necessary to find indexnumbers formed on the same plan for both countries. This is done in three ways: Sauerbeck's numbers are first compared with similar numbers for the States; secondly, they are grouped and weighted, and compared with weighted numbers given in the Senate Report; while a third series is found from certain wholesale prices compiled and grouped in the same Report. After discussion, the second of 1 In evidence given before the Gold and Silver Commission, and, more recently, before the Commission on Agriculture.

these series is chosen; the relative money wages are corrected by these indexnumbers, and results are deduced from the relative real wages so computed. It is now found that, in the limited area of industry considered, real wages have increased continuously in the United Kingdom, till they stand more than seventy per cent. higher in 1891 than they did in 1860; while in the States real wages rose with the same rapidity till 1873, were checked, and finally fell in 1880, and then rose rapidly till in 1891 they were nearly sixty per cent. higher than in 1860. These conclusions must not be taken to represent industry in the States or in England as a whole, since it has not been possible to include agricultural

wages.

2. Bimetallism with a Climbing Ratio. By HENRY HIGGS, LL.B.

FRIDAY, SEPTEMBER 13.

The following Papers were read :

1. The Normal Course of Prices. By WILLIAM SMART, M.A., LL.D.

What course may prices be expected to take in a period of normal industrial activity? Practical men, seeing that, in one or two well-known trades, reduced material and freights, improved machinery, centralisation, and gigantic production sum up a lower cost of production, generalise this, and assume that a steadily falling level of price is inevitable as the expression of reduced cost.

But, on looking through money price to exchange values, it becomes obvious that reduced cost takes effect in increase of supply, and that prices come down only in default of corresponding increase of demand. What is usually forgotten is that every change in supply means a change in demand, the two being different aspects and names for the same goods.

(1) Every increase of supply (reduction of price) of any article calls out a new demand for it, and prevents the fall in price being proportional to the fall in cost. The present congestion of capital and labour conceals this; because manufacturers can just now get both at low rates, we unconsciously assume that there could be indefinite production of any article without increase of cost. (2) Every increase in the total product of industry is a new demand for goods generally, just as truly as would be a chance discovery of sovereigns in an old drawer.

Suppose A products and B products represented the national output. So long as A and B increased simultaneously and harmoniously, there would be indefinite increase of both supplies without fall of exchange values. If now the same capital and labour doubled A product, while B product remained constant, the exchange value of every A would, in terms of B, fall to one half. If subsequently B products experienced the same increase, every A would again rise in terms of B. Recognising that no two articles have equal elasticity of demand, and that this subsequent rise of price and its extent cannot be foreseen, the essential fact remains that every particular increase of supply is increase of general demand. This being so, reduction of cost, which is the real characteristic of prosperity, will find expression now in falling price, now in rising price; the falling price being due to increased supply of the particular article, the rising price being expression of the increased supply of other articles.

Conclusion: that, so far as the late fall in prices is general, it cannot be due to causes inside the production process; and this seems to point to a contraction of the universal commodity in which all goods (and all costs) are named.

Corollary that if manufacture-that is, the employment of the masses-is to remain subject to steadily falling prices, the manufacturer will require to find some new means of paying himself for his work. Otherwise he will find it in speculation or in combination to sustain price artificially.