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capital from other departments of business not similarly affected, till the inequality was corrected. Without pretending, however, to trace the whole effects of the operation, it is evident that the pressure would ultimately fall in its chief extent on that portion of the floating capital of the nation which constitutes the wages-fund. And this, indeed, seems to be Dr. Chalmers' opinion; but on this hypothesis equally, it may be shown that his conclusions are untenable.

The assumption on which his argument proceeds is that each abstraction of capital effected by state-loan necessitates a corresponding diminution in the quantity of commodities produced. Now (on the supposition that the funds in question come from the general wages-fund of the country) it is to be remarked that commodities are not produced by the capital constituting this fund, but by the labourers who consume it: consequently the abstraction of capital which the argument supposes cannot be allowed to have any effect in diminishing the production of commodities, unless it can be shown to lessen the number or impair the efficiency of the labourers who produce them.

That the effect of war is to lessen the number of the labourers employed in producing commodities is true; since the army and navy can only be recruited by draughts upon the labouring population; but this is equally the case whether the expenditure of the war is supported by loan or taxation; and, consequently, so far as this point goes, the distinction on which the argument is based falls to the ground. And with regard to the efficiency of the labourers, the effect which an abstraction of capital would produce in this respect would depend upon the existing standard of wages in the country, compared with the extent to which the proposed operation would be calculated to depress it. Granting, what the argument of Dr. Chalmers and Mr. Rickards assumes, that the whole fund drawn off by Government loan would come directly from the active capital of the country, and would be felt in a reduction of wages (and I believe, as a general proposition, this portion of the assumption is perfectly well-founded); still, unless it can be shown that the standard of wages in the country is at present at, or so near its minimum, that the slightest reduction of wages would at once show itself in the enfeebled frame and failing energies of the workman— say, unless this can be shown to be the necessary result of the operation, the assertion that the quantity of commodities produced would be diminished to the whole extent of the abstraction of wealth which is supposed to take place cannot be maintained. Now no one will pretend that the rate of wages which at present prevails in the country is near this minimum. When we look to the large sums which are spent by the labouring population in articles which are certainly not indispensable to the maintenance of their physical energies; when, further, we bear in mind the large amount which is expended, especially by the artisan population, in the consumption of articles which are actually deleterious, we shall hardly be of opinion (even supposing the abstraction from the wages-fund to be considerable) that the physical ability of the labourer need be impaired at all, and certainly not to the extent of this abstraction. It

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appears, therefore, from these considerations that a draught upon the capital of the country by Government loan does not necessarily involve any diminution in the number of productive labourers, beyond what the same expenditure supported in any other form would produce; nor does it necessarily imply any deterioration of the productive ability of the workman: it follows, therefore, that neither on this supposition is there any ground for the assumption that an abstraction of £20,000,000, by Government loan necessitates a corresponding reduction in the quantity of commodities produced in the country. The second assumption made by Dr. Chalmers in the argument under consideration is that while a given sum, say £20,000,000, raised by taxation involves a corresponding diminution in the purchasing power of the community, the same sum raised by Government loan necessitates no such diminution. "There is nothing," he says, "in this transaction between government and so many of of the capitalists of the nation that can effect either the power or the inclination of buyers to purchase. There is as effective a demand as before, but a diminished supply, &c." It is evident from the scope of the argument that by the word "buyers," Dr. Chalmers intends to express the public at large as distinguished from the Government: the assertion, therefore, amounts to saying that a deduction of £20,000,000 from the capital of the country does not affect the purchasing power of the public. Now capitalists are certainly a portion of the public; and, according to Dr. Chalmers' own principle, the capital thus drawn off would, had it been left to its normal functions, have been employed in the production of commodities. In what manner, then, I would ask, can capital be used in the production of commodities otherwise than by being applied either in the purchase of raw material, or in the support of labourers, who expend it in the purchase of such articles as they require? The purchasing power, therefore, of capitalists, or of the labourers whom their capital supports, must, to the extent of the abstraction, be diminished.

It thus appears that the two fundamental assumptions involved in this argument are wholly unfounded. The diminution in the supply of commodities which Dr. Chalmers takes for granted I have shown to be no necessary consequence from the facts; and the supposition of an unimpaired purchasing power on the part of the community under an abstraction of £20,000,000 of capital I have shown to be directly contrary to facts, as well as inconsistent with Dr. Chalmers' own principles. The conclusion, therefore, which he supported on this basis, that it was the tendency of a war expenditure defrayed by Government loan to produce a high range of general prices, must fall to the ground.

Had this question as the to effect of war on prices been considered more with reference to the general laws affecting prices, the extent to which they are controlled by the quantity of the precious metals employed in the commerce of the world, and the influence which prices exercise upon the movements of the precious metals from country to country, such misconceptions as I have just been considering could hardly have taken place. In speaking of prices here, I, of course, confine my observations to those countries only

where the currency in which they are measured is either gold or silver, or paper convertible into gold or silver. Where the quantity of currency in circulation has no other limit than the will of the sovereign power of the state, the same also must be the sole limit to prices. But, with regard to those countries where one or both of the precious metals are recognized as the standard of value, it is evident that the quantity of these in general circulation must set the limit to the general standard of prices throughout such countries. So long as the quantity of gold employed in commerce remains the same, the only possible means by which a general rise in prices could take place, would be by a proportional reduction in the number of transactions for the performance of which the use of gold as a medium is required. Now, there is nothing in a state of war to lessen the number of such transactions; on the contrary, it is rather the tendency of war to require gold for the performance of engagements which before were transacted through other means. A vast portion, for example, of the expenditure of our armies now in the East is carried on by gold, which in time of peace was transacted by the ordinary paper currencies of the countries where the different portions of our army happened to be stationed. It is quite impossible, therefore, while the quantity of gold in the world remains as it is, that a state of war could produce any general rise of prices in the markets of the world. And equally certain is it, that it could not produce any general rise of price, of more than a mere momentary character, in the markets of any of the belligerent nations, at least in any of those from which, as in the case of our own, there is free egress for the exportation of gold. When the prices in this country, as compared with other countries with which we have commercial relations, have found their natural level, any sensible elevation beyond that level here, must necessarily operate as a stimulus to the importation of foreign productions into this country, whilst it would at the same time operate as a check to exportation; the effect of which joint action would be to send out gold in payment of the increased imports until prices here were restored to their natural level as compared with the rest of the world. It follows, therefore, that neither in the general market of the world, nor in those of the belligerent nations, so long as free trade in gold is permitted, is it possible, while the quantity of gold employed throughout the world remains the same, that any general rise in the sum total of prices could take place.

Against such views, however, it is usual for those who hold the theories which I have been combating, to refer triumphantly to the high prices which ruled during the great European war at the commencement of the present century, as well as to the high prices for most articles of general consumption which at the present moment prevail. It is proper, therefore, that to this appeal to experience a distinct answer should be given; and that the facts of the case be shown to be at least reconcileable with the principles which have been advanced.

Had those persons who insist upon a necessary connexion between war and high prices, instead of confining their attention to a very superficial glance at the commercial phenomena of the last war,

desired, at a certain fixed proportion, was withdrawn. The effect of these two measures, however, was inconsiderable, and operated rather in preventing gold from acquiring a new market than in depriving it of an old one. Silver had previously been employed for the most part in both countries, British India particularly, and the consequence of the prohibition was less to oblige people to discontinue making payments in gold, than to prevent them from beginning to use it on a large scale instead of silver. The following table, from the Economist, May 27, 1854, proves this clearly as regards India:

Coinage, in pounds sterling, of British India, from 1848 to 1852 inclusive.

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This shows that before the late discoveries the coinage of gold was very insignificant, and that it was not until 1851 there were any symptoms of its becoming generally employed; a symptom which was immediately followed by a prohibition of the double standard which had been previously tolerated for a few years. The great increase in the coinage of silver in 1852, occurring contemporaneously with the falling off in the employment of that metal in the countries which had hitherto employed it on the largest scale, is also deserving of our notice, as helping to explain the continued drain of silver to the East which has of late years set in. It is not an increased demand for that metal in the East which has been the primary cause; but a falling off in the demand elsewhere has rendered it profitable to export silver to India and other places, where it is still the general medium of exchange.

The facts which have been noticed establish that the comparative steadiness in the price of silver, so far from affording any just grounds for concluding that gold has not become depreciated, serves but to conceal the true state of the matter; and, when accurately investigated, proves the very contrary. As the demand for silver has declined, and the supply has not fallen off, its value must have decreased; and so also must that of gold to the very same extent, in addition to the trifling diminution in the proportion of 4s. 1ld. to 5s. 1d. before adverted to. These figures show the entire extent of the change in relative value which the two metals have undergone. Beyond that, this relative value has remained unaltered; and, any variation in general value which the one has undergone must have been accompanied by a co-extensive alteration in the other. But it has been proved independently, that silver itself must have fallen in value; gold, therefore, must have declined in proportion, over and above the change exhibited by the rise in the price of silver of from 4s. 11d. to 5s. 1d.

The accounts of the mint operations in countries using a double standard convey another lesson. They enable us to answer the often repeated question, "What becomes of the new supplies of gold?" That the increased coinage of gold of late years has been sufficient to absorb the new supplies is a fact which has been occasionally noticed; and to the preceding question, taken literally,

tensity of the contest; and, therefore, that the latter cannot, with any show of reason, be assigned as the cause of the former.

There is one other feature connected with the history of prices under review, which it is important to notice, as it seems to be as once destructive of the theory of "war prices," as that phrase it ordinarily understood; it is this, that the fluctuations in the prices of commodities of general consumption were very often in opposite directions; the prices of one class of articles being often found steadily to advance, while those of another class as steadily declined; proving, as it manifestly does, that such oscillations in price were connected with special causes affecting the particular commodity, and not with any cause of general operation, such as the abstraction of capital by Government loans, according to Dr. Chalmers' theory, or the increased Government expenditure incident to the war, according to the ordinary notion. Thus, for example, while between the years 1796 and the close of 1798 the prices of provisions suffered, as I have shown, a very remarkable decline, the prices of articles of colonial produce, such as coffee, sugar, cotton, and tobacco, underwent an equally striking rise; the advance in the latter articles proceeding to 100 per cent., beyond their previous rates, while the former showed a decline of 50 per cent.; that is to say, the price of one class of articles was halved, while that of the other was doubled-a phenomenon which was repeated in the interval between 1813 and 1815 in a still more remarkable manner.

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Another instance of the same kind will be found on comparing the fluctuations in the prices of meat and corn between 1804 and 1808. During these four years the price of corn exhibits a steady and progressive rise, while the price of meat as steadily falls,† and this, notwithstanding the large demands for the victualling of the army and navy which were made towards the close of 1808, when fleets and armies were being despatched for the war in the Peninsula. "If," says Mr. Tooke, in recording this circumstance," the rise'in the price of corn is to be explained by the supposed operation of Government demand, how is the fall in the price of meat to be accounted for?"

So far, then, as regards the general question, I think it is sufficiently plain that neither in the principles of political economy, nor yet in the experience of past wars, is there any foundation for the common opinion which supposes a necessary connexion between a state of war and a high range of prices for articles of general consumption. How far the existence of a state of war is calculated to produce a disturbance in the markets of the belligerent nations,-enhancing the price of certain articles, while it depresses that of others-is another question, and one which can only be determined by the special circumstances of each particular case. would, at the present moment, be an interesting inquiry, and one which would serve to clear up many difficulties connected with the question under consideration, if we were to pass under review some of the principal articles of consumption in this country-to ascertain the fluctuations which have taken place in their prices since the † Id., vol. 1, p. 271.

*Tooke, vol. 1, p. 190.

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