m €mml\ Utriwmtg ff itog BOUGHT WITH THE INCOME FROM THE SAGE ENDOWMENT FUND THE GIFT OF Hcnrg W< Sage iSqi Cornell University Library 3 1924 031 495 975" ohn.anx The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924031495975 The Gold Supply and Prosperity Compiled and Edited by Byron W. golt Editor of Moody's Magazine Published by The Moody Corporation 35 Nassau Street, New York 19 7 CONTENTS Paee I. INTRODUCTION— The Problem Stated v II. THE QUANTITY THEORY OF MONEY 17 BRONSON C. KEELER, Writer on Financial and Economic Subjects, Los Angeles, Cal..' 19 GEORGE M. COFFIN, Vice-President Phenix Na- tional Bank, New York 31 IRVING FISHER, Prof, of Political Economy at Yale University, New Haven, Conn 35 MAURICE L. MUHLEMAN, Ex-Deputy Assistant Treasurer of the United States, New York City 39 HENRY FARQUHAR, Statistician and Writer on Economic Subjects, Washington, D. C 41 A. J. WARNER, President American Bimetallic Union, Gainesville, Ga 45 E. W. KEMMERER, Prof, of Political Economy in Cornell University, Ithaca, N. Y 49 III. THE WORLD'S GOLD PRODUCTION A. SELWYN-BROWN, C. E., B. Sc, Mining Ex- pert and Authority, New York City 53 IV. THE INCREASING SUPPLY OF GOLD— Its Effect Upon Prices, Wages, Interest, Securities, Etc 75 MAURICE L. MUHLEMAN, Ex-Deputy Assistant Treasurer of the United States 87 JOHN B. CLARK, Prof, of Political Economy at Columbia University, New York City 93 WALTER S. LOGAN, Lawyer, Writer and Speaker on Scientific Subjects ' 99 CONTENTS Page FRANK A. VANDERLIP, Vice-President, of the National City Bank of New York 113 IRVING FISHER, Prof, of Political Economy at Yale University, New Haven, Conn 121 ELLIS H. ROBERTS, Ex-Treasurer of the United States, Utica, N. Y • 133 HORACE WHITE, Ex-Editor New York Evening Post; Author of Many Books, New York City. . 143 JOHN DEWITT WARNER, Ex-Congressman; Author and Writer on Economic Subjects, New York City 151 L. CARROLL ROOT, Treas. American Cities Rail- way & Light Co., Author and Writer on Money and Currency, New York City 157 ROBERT GOODBODY, Member New York Stock Exchange, New York City 163 JOSEPH FRENCH JOHNSON, Dean of New York University School of Commerce, Finance and Accounts, New York City 173 JAMES R. BRANCH, Secretary American Bankers' Association, New York City 181 GEORGE H. SHIBLEY, President Bureau of Eco- nomic Research, Author and Writer, Washing- ton, D. C 185 V. CONCLUSION— Including Much New Matter on the Quantity Theory of Money, Prices of Bonds and Stocks, Gold Depreciation, Literature of the Fifties, Etc 193 INDEX 258 Preface The first (December, 1905) number of Moody's Magazine contained a symposium on the effects of the increasing supply of gold upon prices, interest rates, industry, etc. Both because of the able men who con- tributed to this symposium and the — to most men — novel theory advanced by many of the contributors, that more gold* means not only continuously rising prices, but rising or high, rather than low, interest rates ; and the fact, as was clearly shown, that the values of investments are rapidly changing as a result of the depreciation in the standard of value, there was such a demand for this number of the magazine that the supply was exhausted before the end of December. The demand for the "Gold Symposium" number con- tinuing unabated, together with the many evidences manifested of the growing interest of investors in this vital question, it was decided to republish the Gold Symposium in book form. Not only have the statistics published in connec- tion with the symposium been brought down to date, but much new material has been added. The "Quan- tity Theory of Money," as viewed by some of our ablest economists and thinkers, is given careful con- sideration. "The World's Production of Gold," by A. Selwyn-Brown, an expert, forms an important part of the book. Much new matter as to prices of bonds and stocks has also been added, which not only amplifies the data presented, but which demonstrates that, in practice, events are proceeding in accordance with the theories advanced by most of the contributors to the Gold Symposium. B. W. H. Introduction THE PROBLEM STATED During the campaign of 1896 and the previous two or three years, when the appreciation of gold was the chief topic of discussion in political and financial cir- cles and when "Coin's Financial School" was causing millions of debtors to believe that an appreciating dol- lar was silently but surely robbing them, by compelling them to pay in commodities much more than was stipulated in their bonds, many active and trained minds were earnestly studying the problem to see what truth there was in the statements of "Coin" Har- vey, Hon. W. J. Bryan, Dr. E. Benjamin Andrews, Hon. George Fred. Williams, Hon. A. J. Warner, Herbert Clark, Hon. Charles A. Towne and others who were teaching and preaching of the injustice of the robber gold dollar. Many able and conscientious men attempted to expose the fallacies back of "16 to 1" and "bimetal- ism." Some of them denied that the gold dollar was appreciating. They did not deny that prices were fall- ing, but they said that wages were rising and that, measured by both prices and wages, the purchasing power of the dollar was about stable. Some denied that the decline in prices was due to a scarcity of money and claimed that, with modern methods of do- ing business, (largely by credits), an immense busi- ness could be done with comparatively little money — vi INTRODUCTION providing the money was absolutely sound; that is, providing it had the confidence of the business world. Such men virtually, if not actually, argued that the quantity is of less importance than the quality of money in determining prices. INTEREST RATES AS A BALANCE WHEEL Others, of whom the writer is one, reached the conclusion that even if gold were appreciating, when tested by prices, a compensating force was at work which was partly, if not entirely, nullifying the thiev- ish tendencies of the dollar. This force, or factor, was preventing, in part, at least, the appreciating dollar from silently abstracting wealth from debtors and turning it over to creditors. This factor is the rate of interest which constitutes a part of every contract in defeired payments. Put in its simplest form this compensating force, factor, or law, may be stated as follows : 1. When the dollar is appreciating — that is, when prices are falling — the rate of interest on deferred pay- ments is either falling or low. 2. When the dollar is depreciating — that is, when prices are rising — the rate of interest on deferred pay- ments is either rising or high. These statements should not be taken too literally. They represent tendencies rather than laws. Thus, if prices are falling at an average rate of 3% a year the tendency is for the (money) rate of interest to be 3% below the normal rate with stable prices. If prices are rising at an average rate of 3% a year the tendency is INTRODUCTION vii for the (money) rate of interest to be 3% above the normal rate with stable prices. In practice, the inter- est rate is seldom or never fully adjusted to the chang- ing value of money. It is only in a long-continued rise or fall that the money rate is greatly affected. Even then, the change in rate is, apparently, seldom more than half sufficient to counteract the change in the purchasing power of the unit of value. Thus, there was a general downward tendency of both prices and interest rates from 1873 to 1896 or 1897. Since 1897, there has been a pronounced up- ward tendency of both prices and interest rates. In point of time the changes in interest rates follow some distance behind the changes in prices, and the changes in prices some distance behind the changes in the quan- tity of gold. Thus, although the output of gold began to increase in 1888, . and was increasing rapidly from 1890 to 1892, yet prices declined until 1896 or 1897, while the interest rate (except for a reaction in 1894, from the panic rates of 1893) continued to decline until 1897 or 1898. As suggested above, this theory of the equilibrat- ing action of interest rates was discovered by several thinkers, independently of each other. Prof. Irving Fisher, of Yale University, was one of the first modern writers to carefully consider this theory. His article in the Bond Record of April, 1896, not only stated the theory in full but verified it somewhat by statistics of interest rates in this and other countries.. He sum- marized his conclusions in this way : "In short, all the facts go to show that the rate of interest tends to adjust itself to the appreciation or viii INTRODUCTION depreciation of the monetary standard in such a man- ner as to correct in large measure those gains or losses to the contracting parties which would otherwise arise from variations in the purchasing power of money." His little volume, "Appreciation and Interest," published in August, 1896, was very full and complete on this subject. In it he said : "Here the effort will be to show that losses due to 'appreciation,' however defined, will tend to be fore- stalled. For this it is not necessary to scale the prin- cipal of a debt. The principal is not the only or even the chief element in a loan contract. The other ele- ment is the rate of interest." Professor John B. Clark, in the Political Science Quarterly of June, 1896, stated the theory as follows : "If, with a currency of perfectly stable value, the interest on loans is 5%, corresponding to the earnings of real capital, then a gain in the purchasing power of the currency of 1% a year has the effect of reducing nominal interest to 4%. The debtor then really pays and the creditor really gets the same percentage as before of the actual capital loaned." These two professors, though not the first to pro- pound the theory, were perhaps the first to grasp and state the great importance of the fact that interest acts as a balance wheel on the value of money used in de- ferred payments — tending to keep the present worth of a debt always about the same, regardless of great changes in the value of the principal, INTRODUCTION PROBLEM REVERSED IN 1896 As is evident from the preceding statements the wheels of progress (as to gold, silver, prices, interest rates, debtors, creditors, etc.) reversed themselves in 1896, 1897 and 1898, when gold began to depreciate and silver to appreciate ; when prices and interest rates began to advance; and when the poor, plundered debtor got on top of the rich, grasping creditor and began to rob the robber. Such good use is the debtor now making of his opportunity that he has, in ten years, got back all that was taken from him in fifteen years. He has a "strangle hold" on the unfortunate creditor and may be expected to keep him down until he gives up all that is worth taking. The "Cross-of-Gold and Crown-of-Thorns" speech would not fit today. Either the cross would have to be made of silver or it would have to be transferred from the once poor debtor to the present poor creditor. Instead of the gold dollar being "the most inhuman, cruel, murderous dollar which any quarter of century in the world's history has produced," as the Hon. George Fred. Williams designated it, this same gold dollar is now the most honest, humane and beneficent dollar the world ever saw — that is, if, according to the theories of Coin's Financial School, a depreciating dol- lar is as good as an appreciating dollar is bad. In any case the problem of today is the converse of that of 1896 and previous years. Instead of an ap- preciating dollar, with declining prices and interest rates, we now have a rapidly depreciating dollar, with rising prices and interest rates. Silver, struck down x INTRODUCTION by the "Crime of '73," has again lifted up its head and has risen more than 50% in price (from 46 cents an ounce, in 1902, to 71 cents, in 1906) during the last four years. It is, however, practically certain that the problem of a declining is no easier of solution than is that of a rising dollar. It may be, and probably will be, found that the evils of a depreciating dollar are more real and vexatious and fraught with greater danger to society than were the evils, — largely imaginary — of an appre- ciating dollar. It may be found that, even more than an appreciating one, the depreciating dollar takes from him that hath not to give to him that hath; that, especially, does it result in decreasing the share of the product that goes to labor. That is, it results in the cost of living rising more rapidly than wages. It may also be found, as is claimed by several professors, that much of the present world-wide discontent, crime and radicalism can be traced to the insidious influence of depreciating money and rising prices. It may be that, as suggested by Professor Norton of Yale, we will soon have government commissions to inquire into the causes and effects of the decline in the purchasing power of the world's standard of value, and to suggest means either of regulating the production and value of gold or of getting rid of gold and substituting some other standard of value. It may be that we shall see, during the next decade, a world-wide agitation against gold that will make the "16-to-l" agitation of 1896 and the greenback and bimetallic agitations' of previous years, appear insignificant. INTRODUCTION xi These are only suggestions of some of the dynamic possibilities to industry, politics and society that may lie hidden in a depreciating standard of value. The effects that more directly concern us and that are both more certain and easier of solution are those upon prices and interest rates and, through these, upon investments and incomes. It is with these effects that our contributors have mainly dealt and because of them that this book is published. These are the important effects that now confront investors and all men of affairs. WHAT MAY HAPPEN During the last decade prices have risen about 50%. Property and income values, throughout the entire world, have been greatly altered. During this decade the world's stock of gold has increased 50%. But in this decade many important countries have adopted gold as their standard of value, thus creating a demand for much of this surplus gold. Suppose, as is probable, that the world's gold sup- ply should increase 50 or 100% during the next decade and, suppose, as is also probable, that no important country should, in that time, change from a silver, cop- per or paper to a gold standard ; is it not possible and even probable, that prices would advance even more rapidly than during the last decade? Suppose that, as some expect, prices should advance at an average rate of 10% a year and that, in 1917, they should be 200% higher than now. Think what a revolution would have taken place in values? Cotton would then be selling at xii INTRODUCTION 30 cents a pound; corn $1.50 and wheat $3 a bushel; eggs, $1 a dozen; poultry 50 to 75 cents per pound; steak 60 cents a pound; hard coal $20 a ton; shoes $10 a pair; sugar 15 cents a pound; brick $20 a thousand; lumber from $100 to $200 a thousand ; and other things in proportion. But would the prices of other things be propor- tionately high? We know that such would not be the case. In this fact there are many little and big jokers that will play havoc with values and upset the world's industries and, possibly, its governments. Not only will the prices of commodities rise unevenly, articles of necessity and in which speculation is easily possible advancing most rapidly in prices, as a rule, but wages will fall far behind in the race. Comparatively speak- ing, prices will go up on an elevator while wages will climb the stairs. But what of the prices and rates charged by pub- lic-service corporations? What of 3-cent and 5-cent car-fares, 80-cent gas and 2-cents-a-mile passenger fares? What of freight rates? The most of these are fixed or regulated by state and national governments. It will be no easy matter to get them raised. Not until some of these corporations give up their charters and others are on the verge of bankruptcy will the people, in most cases, consent to have fares, rates and prices raised. Tom Johnson will hardly have gotten his 3-cent fare lines into full operation before the cost of carrying passengers will actually exceed 3 cents; soon after it may exceed 5 cents; in a few years more it may exceed 10 cents, INTRODUCTION xiii As certain as night follows day, will there soon be much trouble and tribulation for the stock and bond holders of our railroad, street railway, gas, electric light, telephone and telegraph corporations, if gold continues to decline rapidly in value and interest rates to rise. This is the great problem that now confronts the financial world and demands solution of every in- vestor. Not to solve it, may mean great loss and, pos- sibly, failure. To solve it, means success and greatly enhanced wealth for all who now either have a fair share of this world's goods or who' have credit and can intelligently go in debt for a large amount. Business men are only just beginning to realize that something unusual is happening in the value and price world. But few have, as yet, got their eyes open to the prime cause of the great changes that are occur- ring. Still fewer have any clear or comprehensive idea of the far-reaching effects proceeding from the rapid decline in the purchasing power of gold. That these effects may be revolutionary in the financial, in- dustrial, economic, political and social world is, per- haps, beyond the imagination of any but a very few men. Have not prices, wages and values been com- paratively stable in the past hundreds of years? What nonsense to suppose that any changes in the standard of value would seriously affect ethics, politics and soci- ety! In spite of theorists and dreamers is it not safe to conclude that this old world will, in the. future as in the past, proceed on an even keel? xiv INTRODUCTION This is about the way the ordinary man of affairs thinks and talks of the problems suggested by the in- creasing quantity of gold. He is, in fact, the dreamer and will not awaken to the rapidly changing conditions in the investing and business world until he is hit hard and, perhaps, kicked and pounded. He has held bonds while they have declined 10, 20 or 30% in price and he has no clear idea of the cause of the decline. He imagines that the decline is only temporary and that prices will soon begin to recover and will some day be as high, and perhaps higher, than ever before. He sees some stocks rising rapidly and others declining sharply without realizing that there is a fundamental cause that accounts for many of these changes, whether up or down. He considers himself a good judge of values and advises his friends to buy bonds now when they are cheaper than ever before and to sell stocks that have gone up 30, 50 or 100 points in the last few years. He is judging the future by the past. Ordinarily his advice would be good. He does not realize that we are now entering upon, and even passing through, an era that has no counterpart in the past. While the contributors to the gold symposium touch but lightly upon some of the effects and prob- lems growing out of the increasing supply of gold, some of them do open up many questions of great importance to business men. No business man can af- ford not to read these articles and many others that will undoubtedly appear on this subject during the next year. INTRODUCTION xv THE QUANTITY THEORY OF MONEY ■ While practically all economists agree that the quantity theory of money has some force; that is, that more money tends to cause prices to rise and less money tends to cause them to fall, yet, unfortunately, there is no general agreement as to the relation be- tween money and prices or, indeed, as to what kinds of money and what kinds of commodities have influ- ence in fixing prices. As this question is fundamental and must be con- sidered, when theorizing and prophesying as to what will be the effects of increasing gold production and supply, considerable space has been given to a discus- sion of this subject. Copious extracts are reprinted from a symposium on this subject in Moody's Maga- zine of September, 1906. This discussion precedes the discussion of the effects of the increasing supply of gold. It is necessarily somewhat academic and didactic. It is, however, so essential a factor in the problem that it could not be entirely disregarded. Those who think it safe to assume that more gold means higher prices, and that, other things being equal, there is a somewhat close relation between prices and the quantity of gold in the monetary world, may prefer to omit the reading of this discussion. The Quantity Theory; of Money nPHE six articles immediately following appeared as a A symposium in Moody's Magazine for September, 1906. They are here reprinted in full, except that about one-third of Mr. Keeler's article is omitted. The occasion of the symposium was the following letter sent to some fifteen or more authorities on money and prices. In fairness to Mr. Keeler it should be said that his article was contributed to Moody's Magazine without any idea that it would .form any part of a symposium : "Mr. Bronson C. Keeler, of St. Louis, has written an article for publication in Moody's Magazine which brings up at least two very important questions. (1) The quantity theory of money. (2) Accepting the quantity theory, what is money? "Mr. Keeler accepts the quantity theory. He holds that the price of money, as of commodities, is determined by supply and demand. He, however, makes the price formula as follows: v m P= c in which m represents the number of units in the com- modity fund, v the average velocity of circulation and c the volume of the commodity offered for sale. He says that 17 18 GOLD SUPPLY AND PROSPERITY " 'Bank credits, uncovered paper money, and simi- lar expedients, are not money, although often so called. They are velocity of circulation.' "Apparently he does not limit the original money, standard-of-value money, to gold, or to the precious metals, or even to things having intrinsic value. 'It is not necessary,' he says, 'that the standard of value should possess utility, or even tangibility. Its essen- tial is that it should effectually control the issue of paper money.' "Reference to several authorities on money indi- cate that there are indeterminate factors both as to money and commodities. Just now, when prices are rising, supposedly because of the rapidly increasing quantity of gold, it is extremely important that some sort of an understanding be reached, if possible, as to what constitutes money and commodities, in their price-determining functions. Will you not kindly state briefly, for Moody's Magazine, your answers to the following questions? "1. To what extent are prices determined by the supply of and demand for money? "2. What kinds of money count in fixing prices? (a) One or more intrinsic-value moneys? (b) Representatives of intrinsic-value money ? (c) Credit currency — bank notes, checks, etc.? (d) Fiat money, if made legal tender and re- stricted as to issue? (e) Fiat money, if unrestricted? "3. What kinds of commodities count in making a demand for money and in fixing price? THE QUANTITY THEORY OF MONEY 19 (a) All goods produced? (b) All goods exchanged? (c) All goods sold for cash? (d) All goods sold for cash or credit? "4. To what extent are prices affected by the rapidity of circulation of money and what instruments affect rapidity of circulation? "5. To what extent are prices affected by the rapidity of exchange of commodities? "A general will be as acceptable as a categorical answer to these questions." By Bronson C. KsblSr The denial of the quantitative theory of money will one day take its place in the museum of intel- lectual curiosities alongside the denial of the spher- icity of the earth ; since both propositions are self-evi- dently true to any man who will look at the surface facts dispassionately. Yet both have required elabo- rate demonstration, and I have seen, in this month of July, 1906, the quantitative theory denied in the edi- torial columns of one of the greatest daily papers in the United States. For generations it was admitted by all; and it was the exigencies of political, and not of economic, debate which first brought about its rejec- tion. Prof. Henry Dunning Macleod, a learned but fervid English writer, first led the way; and he was followed by zealous imitators, who equaled him in hysteria but not in erudition. The increasing output of the gold mines, and the profound rearrangement it is having upon values 20 GOLD SUPPLY AND PROSPERITY throughout the world, render the subject of pressing importance at this time. STANDARD OF VALUE It was a notable saying of John Law, "Money is not that for which wealth is exchanged; it is that by which wealth is exchanged" The standard of value, then, is some one thing by which all other things are exchanged. Anything can be used as a standard that the people will; and shells, beads, tobacco and many other things, as well as gold and silver, have been so employed. It is only neces- sary that the people should, for any reason, act to- gether in making all commodities exchangeable through that one thing. Experience has shown that if government declares anything to be a legal tender for debt, that action will, of itself, cause that thing to be- come a standard of value. And this is the method now employed by governments in establishing a standard of value. Paper answers quite as well as anything else, but for the difficulty in controlling the amount. The object of stamping the money function on the precious metals is to limit the issue, to keep the numerator of the fraction more constant. Money is any measure of value which acts as a medium of exchange. A standard of value need not necessarily circulate. Its representative, paper money redeemable in the THE QUANTITY THEORY OF MONEY 21 standard, may circulate instead. Indeed, Ricardo de- clares that one function of a standard of value is to determine how much paper money shall be issued. A measure of value, on the contrary, must circulate It cannot be a measure unless it does. Nor is it necessary that the standard of value should possess utility, or even tangibility. Its essen- tial is that it should effectually control the issue of paper money. The distance from here to the sun could be made the standard. Suppose that we assume that distance to be one hundred million miles, that we issue that many paper notes, each representing one mile, each note called a dollar, and declare them a legal tender. Prices would adjust themselves to this money, sales would be made, and debts would be contracted. But as human ingenuity increases the means of pro- duction, prices would tend to fall, because, while com- modities increased, there would be no increase in the standard, and no increase in the volume of money. Suppose that it were apparent that the volume of com- modities having doubled, prices would fall one-half. This would benefit creditors and injure debtors. EQUALITY BETWEEN DEBTORS AND CREDITORS The question would arise: Who was entitled to this increase in the purchasing power of money, the debtor or the creditor? The debtors would claim it, on the ground that if things remained in statu quo they .would repay twice the purchasing power that they borrowed ; and they would urge that the volume of notes be doubled, making them 200,000,000, and 22 GOLD SUPPLY AND PROSPERITY each note representing one-half a mile. This would cause the purchasing power of each note to remain un- changed, and would preserve the equities of the case, so far as debtors were concerned. But the creditors would say that when they made the loans, they did not lend purchasing power, but a definite amount of the standard; and they would object that they were being wronged, in that the government was about to put only half as much distance in the dollar as was in it at first. Or, suppose, on the contrary, that the volume of commodities should decrease as compared with the volume of money, say one-half ; and that prices should double, so that a dollar would buy only one-half as much as it would before. This would injure creditors and help debtors. The creditors might propose a re- duction in the number of outstanding dollar bills to one-half, to 50,000,000, making each bill represent two miles, but maintaining the purchasing power of each one to its former efficiency. This would maintain the equities of the case, so far as they were concerned. But the debtors would object. They would claim that what they had borrowed was not purchasing power, but the standard of value; and that they would be wronged by the proposed change, as they would have to pay back twice as much distance as they had re- ceived from the creditors. DEMAND, SUPPLY AND PRICE Having determined the relations between the THE QUANTITY THEORY OF MONEY 23 standard of value, the measure of value, and money, it will be seen that while is the ratio at which will exchange for Value Price another commodity money. d While the value equation is v = , the price equation becomes p = that is, price equals money divided by commodities. The two equations are identical, except for the necessary change in tech- nical terms, and the definition given above of value is applicable to- price; both being the quotient obtained by dividing demand by supply, and expressing the re- sult in terms of demand. In the price equation, money is the demand, or that through which demand voices itself; commodities are the supply; and price is the quotient. To deny the quantitative theory of money, to as- sert that the amount of money in use is not a determin- ing factor in prices, is to assert that the size of a numerator has nothing to do with the amount of the quotient. A most important point to be noted is the differ- ence between value and price, itself a corollary of the quantitative theory of money, lying in the fact that while there can never be a general rise or a general fall in values, there can be a general rise or a general 24 GOLD SUPPLY AND PROSPERITY fall in prices. This is due to the fact that, in value, all commodities exchange for all commodities, and an illustrating figure would be a lattice work; while, in price, all commodities are exchanged by one thing, money, and an illustrating figure would be a hub with spokes converging into it from all directions. Each country in the world receives its distributive share of an international standard of value, and that share constitutes the measure of value of the property offering for exchange in that country. Each com- munity receives its distributive sliare of the country's share, and each man in the community receives his dis- tributive share of the community's share. DISTRIBUTION OF MONEY AND COMMODITIES These distributive shares are divided into com- modity-funds, a certain percentage of the total being used as the measure of the several commodities ex- changed. Thus, in an average community, about 15% of the money goes for rent, and constitutes the rent- fund; about 45% for food, about 15% for clothing, about 5% for fuel, and so on. These commodity funds vary from season to season, and from minute to min- ute. They may be formed instantly, as when a man suddenly sees something new which his fancy impels him to buy on the spot; and they flow from one to another readily. What in winter constitutes the heavy-underwear-fund, in summer may go into the fresh-vegetable-fund, or the ice-cream-fund. When at 10.32 a. m., June 26, 1906, 5,000 bushels of July wheat sold in the Chicago wheat pit for 81^ cents a bushel, THE QUANTITY THEORY OF MONEY 25 it was because at that instant there were at that point $4,075 in the wheat-fund and 5,000 bushels willing to exchange at that price. And when, two minutes later, 10,000 bushels sold at 81^ cents, it was because, with telegrams pouring in from all over the world, there were, at that instant, $8,162.50 in the wheat-fund press- ing for the purchase of wheat at that price. Both the demand and the supply had increased, but the demand had increased faster than the supply, the numeratpr of the fraction had grown faster than the denominator, and the price rose. If, in New York City, today, 10,825 chocolate eclairs sell for one cent each, it is because the confection makers know, from experience, that there are about $108.25 in the chocolate eclair fund there. In general, at any time, at any given point, the price at which a commodity sells is determined by the amount of money in that commodity-fund divided by the quantity of that commodity offered for sale. The division is performed by the interplay of demand and supply; by what Adam Smith called "the higgling of the market." A moment's reflection will satisfy any practical man that these commodity-funds are real entities and not theoretical. Every congress or legislature, in pass- ing an appropriation bill, recognizes their existence; otherwise, the same amount of money would be set apart for each item, as much for cuspidors as for a Panama canal. What man of mature years has not sat down to estimate the next year's expenses, and in thus doing has allowed so much for this, so much for 26 GOLD SUPPLY AND PROSPERITY that, according to his attained income? When he did these things, he recognized the existence of the com- modity-funds and the quantitative theory of money. A second reflection will convince a man that while these commodity-funds differ from time to time, and under varying circumstances, they yet bear a certain fixed ratio one to another. For example, the clothing- fund will always be larger than the black-pepper- fund. And a third reflection will convince him that each com- modity-fund in a community bears a ratio more or less fixed to that community's distributive share of money. Statistics also confirm this abundantly. If the value of money changes either way, relatively to the volume of commodities, the percentages will remain the same, and therefore prices must change correspondingly, otherwise the money would not be in the community's distributive share. These facts of every day observation prove the quantitative theory of money. VELOCITY OF CIRCULATION However, the volume of money in use is not the number of pieces in circulation; but what John Stuart Mill called "the efficiency of money"; which is the number of units in circulation multiplied by the aver- age velocity of circulation of each unit. A one-dollar piece, passing from hand to hand ten times in one day, does as much work as a ten-dollar piece changing hands but once in a day. The efficiency, therefore, is represented by the term vm, meaning thereby the aver- age velocity of each measure multiplied by the num- THE QUANTITY THEORY OF MONEY 27 ber of measures. Every price equation, therefore, is vm expressed, p = , in which p stands for price, v for c average velocity of circulation, m for the number of money units in the commodity-fund, and c for the volume of the commodity offering for sale. Or, p may stand for the average price level of the community or of the country, vm the efficiency of the measure of value, and c the total volume of commodities offering for sale. This is what those financial writers have had in mind who said that the amount of money in use was not the determining factor in prices. They meant that even with a smaller amount of legal tender money in use, if the velocity of circulation were increased cor- respondingly, prices would not change. Technically this is true; but they have never stated their case cor- rectly, and they have ignored the fact that money pre- cedes velocity, and that quality of circulation is better than velocity. If their theory were correct, it would be absurd for government to coin so much money. It should coin only one piece, and let that circulate rapidly enough to prevent a fall in prices. BANK NOTES AND CREDITS INCREASE CIRCULATION When a bank with a legal tender dollar on deposit issues one paper note against it, and that paper note passes from hand to hand, it creates a simple velocity of circulation; so-called, because only one man can use the same dollar at the same time. It is a velocity 28 GOLD SUPPLY AND PROSPERITY of one-to-one. But when a bank issues four paper dollars against one legal tender dollar, as the law permits with us, it creates a compound velocity of cir- culation, because four men can use the same dollar at the same time, and the velocity of circulation is four- to-one. Bank credits, uncovered paper money, and similar expedients are not money, although often so called. They are velocity of circulation. Any velocity of circulation above the normal aver- age tends to raise prices, no matter how. it may be at- tained. But no rise in prices can produce a monetary crisis, if the rise is caused by a velocity of circulation of one-to-one and without mortgage indebtedness; for each debt is extinguished with each passing of the money. But a rise in prices caused by a compound velocity of circulation can cause a panic, because there is always present the indebtedness at the bank, and very often a further indebtedness created by the buyer in addition. That is, the purchaser often pays the equity with a debt at bank, and creates a subsidiary debt besides. Whether bank notes, bank checks, drafts, etc., tend to raise prices depends entirely on ■ whether or not they increase the velocity of circulation, and this can only be told by an examination of each individual case. This is why the discussion of this question, pro and con, has been so indeterminate. The world never had a monetary crisis until Pater- son invented the compound velocity of circulation. Prof. Macleod once said that he had never seen a banker who could define his own business, meaning by "banker" an officer in a bank of issue; and then he THE QUANTITY THEORY OF MONEY 29 dropped the subject without giving the definition him- self. A bank cannot be defined as a house that lends money. A money lender does that. Nor as a house that discounts paper. A note shaver does that. Nor as a place where money can be left for safe keeping. A safety deposit vault does that. A bank is an institu- tion that is permitted by law to create a compound velocity of circulation of money. Before leaving this subject it may be well to note the different conditions under which changes in price will occur by the quantitative operation of money. They are disclosed in the following table : QUANTITY OF MONEY AND PRICES If the volume of money, the numer- ator of the fraction, and if the volume of com- modities, the denomina- tor of the fraction Prices will Increases increases equally I remain stationary increases taster 1 fall f 1 Remains stationary ■{ I increases fall ( remains stationary fall remain stationary ( increases fall It will be seen from the last column of the table that there are eleven price resultants possible under the different conditions of demand and supply : four in which prices rise, four in which they fall, and three in which they remain stationary. 30 GOLD SUPPLY AND PROSPERITY GOLD PRODUCTION AND PRICES Whether the increasing output of gold from the mines, now under way, is to result in a constant rise in prices for a series of years, will depend upon whether the production of commodities, under the improved methods of machinery and under the stimulus of greater profits from the rising prices, will not increase commensurately with the production of gold. If the average price level continues to rise, it will be proof positive that the volume of money is increasing faster than the volume of commodities. If the average price level remains stationary, it will indicate that the pro- duction of commodities has overtaken the supply of money. And if the average price level falls, it will indicate that the volume of commodities is increasing faster than the volume of money. The wise investor will note carefully, all the time, the output of the mines and a standard index number. If gold production con- tinues to increase, and the general price level con- tinues to rise, he will dispose of his bonds and mort- gages, and invest the money in property. But when the gold production falls off, he will sell his property, anticipating a fall in prices, and will invest the funds in contracts calling for the payment of specific sums of money — such as bonds and mortgages. Volume of Money Determines Prices By George M. Coffin A NSWERING your questions in a general way, I "^ think that the volume of money in circulation in any country has a decided influence on the prices of all commodities measured in money; and, inversely, that the prices of money measured in commodities is also influenced by the supply of money. And this because the prices of money and all other commodities are sub- ject to the universal law of supply and demand, which causes them to act and react on each other. By money I mean any kind of coin or paper cur- rancy not covered by coin issued either by the Govern- ment or the banks (for instance, U. S. notes and na- tional bank notes) which has the purchasing power of coin, even when not redeemable in coin, as in the United States from 1861 to 1879. Gold itself is a commodity used in the arts and sciences, but most largely as the standard money of commerce and the ultimate measure and test of re- demption of other kinds of money, because it is rela- tively scarce, and has certain inherent or intrinsic qualities of weight, non-corrosion, indestructibility and others which, by the almost universal judgment of mankind, best fit it to its use as money. As an illus- tration of the effect the volume or quantity of various kinds of money has had on business and prices in the 31 32 GOLD SUPPLY AND PROSPERITY United States, see the following table showing the stock of money in circulation in 1847 and at various periods of financial stringency or panic occurring thereafter, the percentage of increase of money and of population, respectively, between these periods, and the kinds of money constituting such increase: STATISTICS OF MONEY ETC., FOR 1847 AND PANIC YEARS THEREAFTER u ca ock of Money a the United States, (millions of dollars) .sS ° B C aj-« o >- CO-— rtn r- (1 HI O «*" v- « a, a; >tn « > Z ai fflH -3 OS » o " u tj » -2 t - , a » fl « niC bfl *" > C C 2 £ S B ° it r"j3 £ o.- a THE WORLD'S GOLD PRODUCTION 71 are chiefly of two types — bucket and pump dredges. A bucket dredge consists of a barge fitted at the bow with a digging apparatus consisting of an endless chain of buckets of great weight and capacity that will cut and dig, not only the auriferous gravel, but also the bed rock in which some of the gold may be intrenched ; a revolving or shaking screen, located amidships, which sizes and washes the dredged material; gold saving devices; an elevator and stacker at the stern for dis- charging the waste; pumps for supplying water for washing the gravel and concentrating the gold from it, and winches for working the dredge by means of ropes and keeping the dredge in the position most suitable for working. Power is supplied by steam, electricity or hydraulic pressure. Some of the largest machines, which resemble in general appearance the bucket dredges employed in harbor works, have a capacity of 200,000 cubic yards of sand per month, when operating in alluvial soil. They are operated at a cost varying from iy 2 to 15 cents per cubic yard, depending upon the local costs of labor and supplies and nature of ground worked. A modern gold dredge costs up to $50,000 and requires a crew of 4 to 6 men to operate it. The pump dredge resembles the centrifugal dredges used in deepening harbors, and although not used very largely in gold-winning in America, is very successfully applied in such work in many places in Australia. The application of gold dredging is already exten- sive; but it still has many possibilities. It is a New Zealand invention, and was at first applied to deep, 72 GOLD SUPPLY AND PROSPERITY sandy river beds. It was afterwards extended to opera- tions on the ocean bed adjacent to the coast, and to auriferous coast beaches. In Australia it was adapted to the working of flats adjacent to rivers, benches or terraces back from the coast, and paradoxical though it at first appears, to inland arid sand plains. PADDOCK DREDGING The dredging of arid regions for gold is carried out by digging a paddock, usually about half acre in extent, in which a dredge is built. Water is pumped into the paddock from artesian wells, or other sources, to float the dredge. As the dredge works away the ground to the required depth and width, it fills in be- hind with the waste removed from the front with little loss of water. In some recent Australian plants the dredge is not floated at all. It is simply placed in posi- tion and moved about by mechanical means. Water is required only for filling a small pit in which the bucket diggers work, for washing the dredged material, and for concentrating the gold in the sluices. The water is saved and used over again. As an instance of the profitableness of gold dredg- ing in suitable localities, it may be stated that the Elec- tric Dredging Company's No. 1 dredge, working on a New Zealand river, obtained 1,273 oz. of gold, valued at $26,313, in five days' actual dredging, and this record has been approached by many other machines. IMPROVED METHODS Improvements in mining methods and metallur- gical processes are continually being made with most THE WORLD'S GOLD PRODUCTION 73 beneficial results in regard to the reduction in the cost of gold production. At present, attention is directed mainly to methods of ore extraction without the use of timber for supporting the sides and roof of the exca- vated ground. In many mining localities large quan- tities of timber were required for such work. Recent improvements in mining have enabled many mines to almost do away with timber for underground supports, as the waste is filled into the portion from which the ore is removed. When the mining operations do not supply sufficient waste rock for the purpose of filling the excavated ground, waste is sent down from the surface. In mines working wide ore bodies, the ore is very cheaply mined by means of steam shovels working downward from the surface. This system has been pursued for many years in the Alaska-Treadwell mine, Alaska, and has recently been most successfully adopted in the famous Mount Morgan mine, Queens- land. The most noticeable features in recent methods of gold ore treatment have been fine crushing in tube, or ball mills, and the leaching of the gold from the slime by the cyanide process. .Much attention has also been given to improvements in pyretic smelting processes which have greatly reduced the cost of treating sul- phide ore. Wonderful improvements have also been intro- duced into metallurgical processes from which gold is obtained as a by-product. The most prominent of these are the new processes of treating the auriferous 74 GOLD SUPPLY AND PROSPERITY zinc ores of the Broken Hill field, by magnetic, and oil and gas concentration. A GOLD FAMINE IMPOSSIBLE The principal points the writer desired to empha- size were that the known gold deposits of the world are ample to supply all the demands likely to be made upon them. There will never be any likelihood of gold famines occurring from lack of gold deposits. As the rich surface deposits are being worked out, improve- ments in mining and metallurgical processes are enab- ling poorer and poorer deposits to be worked. The annual output of the world will continue steadily to increase; but fluctuations in the yields of particular countries, or mining districts, will vary, as heretofore, in sympathy with the temper, or psychological envi- ronment, of the mining markets in respect to gold min - ing investments, and the demand for gold. An exact estimate of the annual production cannot be formed owing to the uncertainty of several import- ant factors. The estimate of the director of the mints, referred to above, is undoubtedly too low. Within the next year or two the annual output will almost cer- tainly exceed $400,000,000; thereafter a progressive increase each year may confidently be expected. The Increasing Supply of Gold Its Effect Upon (a) Prices, (b) Wages, (c) Rents, (d) Interest, (e) Industry, (f) Securities, (g) Busi- ness Ethics, (h) Politics (i) Society The first thirteen articles on this subject were published as part of a symposium in the first (Decem- ber, 1905), number of Moody's Magazine-. They are republished here without change. The following tables and memoranda as to gold, prices, wages and interest rates are also republished from the introduc- tion to the symposium. They have, however, been revised to bring them to date. MEMORANDA AS TO GOLD, PRICES, WAGES AND INTEREST The following tables of statistics of prices, wages, interest rates and gold are given mainly for purposes of comparison. All such statistics are necessarily in- accurate and unreliable. No two authorities agree. Frequently they differ radically. 75 76 GOLD SUPPLY AND PROSPERITY Statistics of Gold, Money, Interest Rates, World's u Annual Output «i of Gold* > OMnHCMlOMCOM ccosavot^a^i-H-^-^pood COCOOOOHtMHOOiOl voo~io VO ONC«] 500 OO 50 O O O jqqqq "oo"o O eg voo\w HPOfON o o o o oo qqq doid o\ o io oqeo ro ON00 OfON nmts ooooo o o oo o o_o_o oo o"o"oo"o" ooooo t^t-.>-H O^O ~vo£;o"o SMOW CTi tO'O ******* ■!— I— »— * * OOOOOOlOOlOOC«lr*)OlOOl/iOtt"lOVO OOOOOOWOOCOOOCOOOOOOOCGOOOOOOcKCTicKcK r. •-probable that, after making a proper and not very large yearly allowance of gold to offset and prevent the natural decline in prices, due to improved methods of production, we can conclude that prices, in the long run, increase or decrease as the quantity of monetary gold increases or decreases. That is, the law of demand and supply holds good when applied to monetary gold. This means that the quantity theory of money (gold being considered as the only real money) is more nearly true of gold than of almost any other commodity that could be used as money. 204 GOLD SUPPLY AND PROSPERITY This statement is true not simply because gold is the standard of value but partly because there is virtu- ally an unlimited demand for any imperishable com- modity that has become the standard of value of the civilized world. With other commodities, used for other than monetary purposes, there is what we may call a saturation point which, when passed, prices de- cline rapidly. Thus, a certain per capita quantity of sugar, salt or pepper will satisfy ordinary needs and command a fair price. Twice these amounts would, perhaps, reduce prices to one-fourth of what they form- erly were. It is because of this fact that unusually big crops of cotton, wheat or peaches sell for less than smaller crops and unusually small crops are often more valuable to producers than are average crops. There can be no saturation point for gold, when it is the standard of value; no point where the supply satisfies the demand. Before the saturation point is reached, prices rise and the saturation point recedes. Like the bundle of oats on the end of the wagon pole in front of the donkey, the demand for gold always out- runs the supply. An increase of supply results in in- creased prices. With higher prices more gold is needed to measure goods and there is an increased de- mand that will still further increase the supply. Again prices will rise and call for more gold. Thus the de- mand for gold grows by what it feeds on and is just as great, after the supply has doubled or quadrupled, as it was before. It is, in fact, greater, because it is ac- celerated by the artificial demand created by rising prices. Besides, prices will, at times, rise even faster and farther than the cost of gold or the supply on hand CONCLUSION 205 would warrant; just as land values run ahead of in- creasing population. The quantity theory of money, then, is substan- tially true with a precious metal like gold as a standard of value. "Quantity," however, is only an incident, a means by which prices are adjusted to cost of produc- tion — the most important factor of the problem. Be- fore there can be a supply of an article there must be a demand for it at a price above its cost of production. First, demand, next cost and then production and sup- ply. Cost is the fulcrum with demand on one end and supply at the other end of the balance. When supply is high demand will be low, at the prices prevailing, and production will decline. When supply is low de- mand will be high, at the prices prevailing, and produc- tion will increase. Cost of production, then, is the most important factor and the one that determines demand, fixes price and restricts supply. This kind of a "quantity theory" is, then, in real- ity, not a "quantity theory of money" at all but a "cost- of-production theory of gold" or of any precious metal used primarily as a standard of value. This theory is not deducted from, or sanctioned by, any one or all of the writers of the symposium in this book. Nor is it accepted by many economists. It is, however, not out of harmony with the view of many economists and writers. Thus Ricardo said: "Gold and silver, like all other commodities, are valuable only in proportion to the quantity of labor necessary to produce them and bring them to market." Professor Francis A. Walker said: "No one has ever yet seriously undertaken to show 206 GOLD SUPPLY AND PROSPERITY what determines the value of money — that is, prices — if supply and demand do not." This cost-of-production theory apparently harmon- izes with the views of Mr. E. J. Shriver in the De- cember, 1906, number of Moody's Magazine. Mr. Shriver holds that "the value of money, like that of any other article, cannot but depend upon the amount of effort required to obtain that of which it is composed — in other words, upon its labor cost." He says that the universal rise in prices is accounted for by the lower cost of production of gold. Discussing the value of money, he says : "The value could never be regulated by the quan- tity in use, so long as the same amount of labor exer- tion would produce fresh supplies. As a measure of value it never was the coined or printed dollars that counted; it was always the material that entered into them, for paper dollars have had value only for what they represented in metal behind them, modified or dis- counted often by doubt as to the certainty of obtaining it. As a medium of exchange, the tangible dollars, whether of gold or silver or paper, have passed out of existence, except for the petty transactions, the total number and value of which are too small for the quantity of money to have any significance." Of course, by labor cost, Mr. Shriver means the total cost of production, capital being considered but an aid to labor. That cost is more important than quantity is evident. Let us suppose that, in 1907, new methods of producing gold, in unlimited qualities and at half the present cost, will be found. Again suppose that production, should jump to $1,000,000,000, in 1907, CONCLUSION 207 and to $2,000,000,000, in 1908. Does any one suppose that prices will rise only about 10%, in 1907, and 20% in 1908 — the per cent, that would be added to the world's gold supply? As Mr. Logan suggests in his article, would not the world's speculators begin to anticipate coming events by buying up all kinds of commodities and property that would surely appre- ciate in value? Would they not deal in gold futures just as they now deal in cotton or wheat futures? Would not the coming crop of gold depreciate its value just as the coming crop of wheat, even before it is har- vested, depreciates the value of the wheat on hand? Would not, then, average prices rise much faster than the actual quantity of gold in stock would warrant? Most economists, including some of those who par- ticipated in the symposiums in this book, hold substan- tially that all kinds of money and all kinds of goods affect prices, but that the money in circulation and the goods in exchange have more effect upon prices than have other money and other goods. Mr. Keeler, Professor Kemmerer and Professor Fisher not only consider the volume of money in cir- culation — and include credit currency with money — and the volume of goods in exchange, but they make the velocity of circulation a factor in the problem. Professors Fisher and Kemmerer even make a factor of the average rate of exchange of commodities. Mr. Muhleman thinks that "rapidity of circulation of money and rapidity of exchange of commodities are indicators of the status of the demand" and, as such, "they probably have indirect influence upon prices." Apparently, however, Professor Fisher lacks confidence 208 GOLD SUPPLY AND PROSPERITY in the rapidity of circulation theory and in the effect of inferior kinds of money for his last sentence is : "In short, prices in gold countries depend chiefly on the amount of business and the amount of gold." Ex-Congressman A. J. Warner, although he thinks that all forms of money that do the work of gold have the same effect on prices as gold, ridicules the idea that prices are affected either by the rapidity of circulation of money or by "the rapidity with which swapping is done." He holds strictly to the quantity theory and says that "price levels are determined by the available supply of money," that is, by the relation of goods to money. It certainly does appear ridiculous that if all the dollars in the world were made to circulate ten times where they now circulate once prices would thereby be multiplied by ten. It also appears ridiculous that sub- stitutes for money — everything from greenbacks and bank notes to pay scrip and poker chips — should have the same effect upon prices as has gold itself. All de- rive their value from gold and are in some way and form redeemable in gold. The values of each and all go up or down with gold. They are, in reality, only promises to pay gold or something else that is accept- able in lieu of so much gold. All are reducible to gold or to terms of gold. Gold is the only money of ulti- mate redemption ; the only kind of money that has no, credit fiat in it; the only kind that is worth as much without its stamp as with it; the only kind that has value strictly according to the bullion or material in it. How strange, then, that, simply by multiplying CONCLUSION 209 make-believe dollars, shadows of real dollars, we can change the value of genuine gold dollars! Whether we pay in bank notes, bank checks, ordinary promis- sory notes, "I. O. U.'s" or poker chips, we really do not pay at all but, instead, through some kind of a promise, suspend payment, or rather, offset one pay- ment against another. If, as is often the case, our creditor accepts bank notes and checks, because he can pass them on to his creditors, the final payment is only further suspended while the "promise money" per- forms some work in cancellation that it can perform easier than can money of ultimate redemption, which must have real value and an appreciable weight. Why carry and cart real gold around to settle 100 debts when 98 of them can, by bookkeeping in clearing houses, banks, stores and shops, be made to cancel each other. Do goods or dollars lose or gain appreciably in value because they circulate or exchange infrequently rather than frequently? Does the value of horses appreciate according to the number of times they are swapped? Goods have been, and can again be, exchanged by barter. It is a very uneconomic process. The device of a common measure or standard of value as a medium of exchange is much more economic. But most eco- nomic of all, in the nine-tenths of our transactions where it can be used, is this bookkeeping or cancelling- off process. Exchange by means of gold is, perhaps, 10% cheaper than barter. Exchange by bookkeep- ing devices is, perhaps, 1% cheaper than by trans- ference of actual gold. It seems safe to conclude that it is only within these limits, and practically only with- 210 GOLD SUPPLY AND PROSPERITY in the limits of saving by bookkeeping devices, that the value of gold money can be changed by the substitu- tion of bank notes and credit currency for gold. The abolition of these forms of money could not add more than say 5% to the value of gold for less than 5 cents per dollar would pay the cost of transporting gold so quickly from one place to another that it would actu- ally settle ten debts where it now settles one. As this theory is, perhaps, new, it may be further and negatively explained by saying that if we should penalize the use of bank notes and checks and other forms of currency to the extent of 1%, we would al- most prohibit the use of substitute money and would drive people to the use of actual gold money, in nearly all transactions where paper currency is now used. Then, if we should penalize the use of gold by 10% we would drive people back to barter in some form. That is, rather than pay a fine of 10%, they would make nine-tenths of their exchanges without money of any kind, just as country pedlers now often give so many pounds of sugar, rice, coffee or starch, or so many yards of calico or sheetings, in exchange for so many dozen eggs or pounds of butter. It is safe to say that the check stamp tax reduced the use of checks, for less than $5 payments, by 50% and, for less than $1 payments, by 75%. This tax averaged less than 1% on such transactions. If a 10-cent stamp were required on every dollar of money of any kind, every time money was used, it is probable that money would al- most cease to be used. That is, money in most ex- changes is a labor-saving device to the extent of not more than 10%. It would, of course, greatly incon- CONCLUSION 211 venience us to return to barter and we would not, with such a tax, make half as many exchanges, ,either with or without money, as we now make. Wall Street transactions would probably decline 90 or 99%. On an average commodities are now, perhaps, ex- changed three times on their way from producer to consumer. A 2% money tax would probably reduce the exchanges made with money 33% ; a 5% tax, 67%, and a 10% tax, 90%. On this supposition, it is obvious that the use of money, in any and every form, can add only about 10% to the value (price) of goods and that the use of notes and checks can influence prices only to the extent of 1%. More than this price, the com- mercial world will not pay for the privilege of using money. Incidentally, it may be mentioned that this 10% appears to fix the limit of control or monopoly that the "money power" possesses. If it could corner all of the gold on earth, as "Coin" Harvey feared it was doing, it could only "hold us up" for 10%, and for only 2 or 3%, in most transactions. Our tariff trusts would not look at 10% privileges. The most of them demand and get the privilege of charging us from 20 to 200% more than competing goods sell for outside of our tariff walls. It is true, as we have seen and as Professor Laugh- lin, one of the great opponents of the quantity theory asserts, that "no very great quantity of gold is needed — a quantity which bears no definite relation whatever to the amount of the community's transactions." . This fact, however, as has been shown, does not mean that the value of a gold dollar in exchange can get very far from the value of the bullion in it, as determined by the 212 GOLD SUPPLY AND PROSPERITY cost of production which, ordinarily, is roughly ex- pressed by the supply of gold above ground. Professor Laughlin expresses the opinion that it is as absurd to suppose that an increase in gold will affect the prices and stimulate industry as that the multiplication of railway cars will stimulate commerce. At the present moment the multiplication of cars and tracks in the west would greatly stimulate commerce. The cases, however, are not parallel. The quantity of goods to be transported does not shrink and swell with the num- ber of cars to move them, as does the aggregate price of goods with the number of dollars to measure them. We would come nearer to obtaining the parallel if we should say that we would double the car loads of goods to be transported if they made the cars only half as large and had twice as many of them. The Hon. George E. Roberts, director of the Mint, exposes the error of Professor Laughlin when he "speaks of the monetary demand for gold as though it were a fixed demand which could be satisfied, and being satisfied, could take no more." Mr. Roberts says : "This is an error. The demand for gold at a given level of prices may be satisfied, but with open mints new supplies have a power to force their way into monetary use by diluting and lowering the value of the whole stock, thus forcing a higher level of prices. This is the essence of the quantity theory. The precise method by which it will make a place for itself in mone- tary use may be easily shown." Mr. Horace White shows us clearly how new gold makes a place for itself and how, in doing so, it operates to raise prices. CONCLUSION 213 In view of all the facts, it is reasonably safe to con- clude, even against the authority of many leading econ- omists and with the full sanction of but few of our liv- ing economists, that the quantity theory of money — gold alone being real money — is substantially true, and that prices are affected in direct ratio as to the quan- tity of gold. We must not, however, forget that the natural course of prices is downward and that a part of the increasing supply of gold goes to offset this de- cline. Otherwise the increase causes prices to advance. That prices have advanced very materially, during periods of great gold production, there is no question. Professors Jevons and Cairns and Messrs, Tooke and Newmarch credited the rise from 1850 to 1855 (22% in the United States) to the gold discoveries in Cali- fornia and Australia and the depreciation of gold caused by the increased supply (or lowered cost of produc- tion). The recent great rise in prices began in 1896 or 1897. The rise in this country, according to the Dun's index numbers, from July 1, 1897, to December 1, 1906, was 49.3% (from $72,455, July 1, 1897, to $108,172 De- cember 1, 1906). According to Bradstreet's index num- bers the rise for the same period was 52%, though it exceeded 55%, from July 1, 1896, to December 1, 1906. Comparing Dun's average for the year 1897, ($75,502) with his December 1, 1906, figures there has been a rise of 43.3%. In England the rise began in 1895. In Feb- ruary, 1905, Sauerbeck's index numbers stood at 60.0. On November 1, 1906, it was 78.6, showing a rise of 31%. From the average for 1896 (61) to November 1, 1906, there was a rise of 29%. Apparently, then, prices 214 GOLD SUPPLY AND PROSPERITY have risen about 30%, in England, and 50%, in this country, from the low points of about ten years ago. As there are interfering factors in this country — not- ably the tariff and the trusts — it is probable that the rise that can be fairly credited to the depreciation of gold is about 30%, or an average of 3% a year. 4. High interest rates follow rising prices. So much has been said on this subject on previous pages that but little need be added here. When prices are rising rapidly — say at the rate of 5% a year, as at present in this country — there is a great demand for money to invest in property which is appreciating in value and to produce the things men want to buy, while they are relatively cheap — in the opinions of purchasers. Production is stimulated and active and those who are benefiting by the rise in prices become great consumers of goods. Everybody is busy at what appears to be rising wages and salaries. Hence all spend freely and the game goes merrily on. Orders are . placed far in advance of actual needs ; mills and facto- ries cannot produce fast enough; they are being ex- tended and enlarged as rapidly as possible; new ones are being built — all of which makes more work for all ; railroads are unable to transport the goods offered and are increasing their rolling stock, trackage and terminal facilities, as rapidly as the material and labor market will permit; merchants can sell goods as fast as they can obtain them and, as they gain rather than lose by carrying goods in stock, do not hesitate to order liber- ally at market prices; house builders are active for houses are rising in value and purchasers are anxious to buy early and get as much benefit as possible from CONCLUSION 215 the rise; lumbermen, brickmakers, glass, nail, paint, carpet, stove and furnace makers, carpenters, masons, plumbers and painters are all busy: farmers are get- ting higher prices for their products and are building new houses, barns and fences; they are also spending freely, especially for pianos, carriages and automobiles ; land is appreciating in value and farmers are getting hold of all the land they can carry, often mortgaging • their holdings to get more money to buy more land; real estate speculators are doing likewise in the city; bankers are loaning freely at high rates and are rapidly growing rich; nearly everybody is either growing or feeling rich; theatres and other amusement places are well patronized; lawyers, doctors and other profes- sional men are well employed; marriages are numer- ous ; the birth and death rates are high, to the benefit of doctors, nurses, coffin makers and undertakers; al- most everywhere industry is growing, business is active and credit is being extended. These are normal conditions during prolonged periods of rising prices, or at least during the first decade or two of them. Of course human nature will not stand the strain of too much prosperity and men will often over-speculate and get so far ahead of their means, and of the economic "procession," that their unsound structures will sometimes break down and prices, industry and speculation will halt, until eco- nomic conditions catch up. At such periods — likely to be comparatively short, if prices are tending rapidly upwards — many men who have become too 'reckless in speculation or too extravagant in living lose titles to property. Soon, however, the wheels of industry will 216 GOLD SUPPLY AND PROSPERITY again begin to turn, confidence will be restored and all who survived the "halt" in business will soon again be on the highway to wealth. Capital will soon be in as great demand as ever and prices and interest rates, after a temporary decline, will proceed on their upward course. But there is another reason why interest rates should be high when prices are rising. When money is shrinking in value interest rates should be high to make up, or partly make up, the losses on the princi- pals of loans. To illustrate: suppose that prices are rising 10% a year. This means that the purchasing power of money is declining about 10% a year. Sup- pose, then, that $100 were loaned for one year at 5%. At the end of the year the lender would have $105 ; but with this $105 he could buy only about as much as he could have bought with $95, at the beginning of the year. In reality, he has received no interest at all but has, instead, paid $5 to the man for holding his $100. The man with money to loan cannot afford to do busi- ness in this way. He is usually as wise as are his neighbors and fully able to protect his own interests and to get all his money is worth, either by buying real property, investing in bonds and stock or by loaning on notes or on call. Besides, economic conditions are such as to make it easy for him to get high rates. As a matter of fact, while the profits of money lenders — bankers and their depositors, etc. — will fall behind, during the first few years of rising prices, they will soon be as high, and perhaps a little higher, than the average of profits in other industries. Thus, at the present time, after ten CONCLUSION 217 years of rising prices, banker's profits, in Europe and America and probably elsewhere, are greater than ever before. They will probably continue high for some time after other profits begin to decline. Of course money interest is not the same as real, or commodity, interest. Interest is so seldom paid "in kind" that most of us think of interest only in terms of money. Economic conditions tend to maintain the natural or commodity interest at a normal rate and to overcome, or partially overcome, fluctuations in the money rate, due to appreciation or depreciation of the money itself. Natural conditions, then, tend to equal- ize profits in various industries, at least of all who have savings and accumulations. This new theory of money rates is accepted and explained so well by Professors Fisher and Clark, and Messrs. Root and Goodbody, that further explanation here is unnecessary. It has also been discussed at some length in the "Introduction." The fact that money rates are high, when prices are rising, is admitted by Messrs. Vanderlip and Warner and by Professor John- son, while Mr. Vanderlip and Professor Johnson make clear some of the practical reasons therefor. Mr. White thinks that more dollars or fewer dollars have no material effect upon interest rates while Messrs. Roberts and Branch affirm that more money means lower interest rates. The tables of interest rates presented by Professor Fisher and the course of interest rates, as shown by the tables and charts, indicates clearly that money rates tend to rise and fall with prices. We have seen that wholesale prices in the United States have risen 218 GOLD SUPPLY AND PROSPERITY about 50% during the last 10 years, about 30%, or 3% a year, of which is probably due to the depreciation of gold. From 1897 to 1906, inclusive, the interest rate rose from 3.7% to 5.7%. If the normal rate of interest is 4% the average rate in 1906 was nearly 2% above normal. That would mean that money lenders were getting rather more than half of the benefits from ris- ing prices. By the end of 1906, with rates averaging about 7%, the money lender was taking all the bene- fits. When this condition exists not only speculation but legitimate industry refuses to proceed, until lower rates prevail. It is, therefore, fair to assume that money rates cannot be maintained, for more than a few months at a time, much above 6% without bringing about a reaction in business. Of course, if the price level should begin to rise more rapidly a higher rate of interest might be maintained. While it is improbable that time money will average much below 6%, for any year in the near future, it is also improbable that it will average much above this rate. While discussing this subject mention should be made of the somewhat remarkable prediction made in 1889, by Mr. Charlton T. Lewis. In his paper on "The Normal Rate of Interest," read before the Actuarial Society of America in October, 1899, he made the fol- lowing prophesy: "The evidence is strong that the tide has turned, and that the industrial and commercial experiences of half a century ago are about to recur on a vaster scale." He holds that interest rates rise and fall with the tide of general business and that, in fact, the profits of CONCLUSION 219 business fix the rate of interest. He asserts, though, that the returns from capital invested for interest aver- age much higher than do those from capital invested in production enterprises. He says the hopes of future profit on the part of "sanguine adventurers in industry" are so seldom realized that it is an "economic law" that "the rate of interest under all fluctuations, maintains a level materially higher than the average increase of capital." Dr. Lewis said that there are small and large fluctuations in interest rates, the smaller ones affect- ing call rates, mainly, and the larger ones time money rates. Each movement is "much disturbed by local and temporary influences, especially by wars, legisla- tion and commercial crisis. Yet each can be traced with distinctness, on large averages, as an event in uni- versal history." Interest rates, he said, fell "through- out Christendom" for 30 years after 1815; then rose for more than 25 years; then declined from 1872 to 1897. He prophesied that "history will date the turn of the great tide in the year 1897" and that "a conservative provisional estimate of the permanent average yield to be expected hereafter from invested capital for many years would perhaps fix it at about 5%." He repudiated the theory that "abundance of money in itself makes interest low" and said that "the most marked and general rise of rates ever known was in progress for the 20 years after the discoveries in California and Australia." He also repudiated the theory that "increased wealth and economic progress of themselves lower interest rates." "All experience," he said, "proves that the demand for capital finds its 220 GOLD SUPPLY AND PROSPERITY supreme stimulus in the expectation of productiveness. This expectation is excited chiefly by discovery and invention." Believing that the drowsy period of indus- try ended in 1895 to 1897 and that a new era of inven- tion and enterprise then began, he predicted that "if the world's peace is maintained, there is not in pros- pect any check to the gradual rise of interest." Dr. Lewis did not discus the causes that produce industrial activity and inactivity and, apparently, did not see clearly the connection between prices of com- modities and profits or between prices and changes in the standard of value. Nowhere is there a suggestion that interest rates (money rates) are affected by either small or great changes in the standard of value. His conclusions were based entirely upon what he believed to be an economic law of periodicity in industry. No- where is there a suggestion that the great changes that occurred about 1850 and about 1896 were the result of increasing supplies of gold. Had space permitted liberal extracts from this and another paper of Dr. Lewis on interest rates would have been printed in an appendix to this book. The prescribed limit of the book has already been reached. The following table, giving the average rates of interest paid by "commercial borrowers" in different cities, is from the Boston News Bureau of January 30, 1907: CONCLUSION 221 INTEREST RATES FOR 1906 % 1st .% 2d % 3d % 4th Av. for quarter quarter quarter quarter year Baltimore 5.45 5.45 5.625 5.875 5.60 Boston 5.55 5.55 5.75 5.95 5.70 Chicago 5.20 5.35 5.55 6.70 5.70 Cincinnatti 5.25 5.50 5.75 6.00 5.625 Detroit 5.45 5.70 5.30 5.35 5.45 I^>s Angeles 5.25 5.75 5.80 6.60 5.85 New Orleans 6.00 6.125 6.375 7.00 6.375 New York 4.955 5.152 5.597 6.946 5.655 Philadelphia 5.75 5.75 6.00 6.00 5.875 Seattle 7.00 7.00 7.00 7.00 7.00 St. Ivouis 5.50 5.55 5.65 6.00 5.675 Average 5.575 5.717 5.854 6.311 5.864 5. High interest rates mean low prices for bonds. With money rates continually above 5% and averaging nearly 6%, most men who have surplus money will not keep it invested in bonds or other obli- gations drawing fixed and low rates of interest, divi- dends or income. If they have money invested in this way they will, when they realize that rates are rising and are likely to be high for a long time, withdraw from fixed investments, where they realize only from 3 to 5%, and reinvest in stocks or titles to property that will participate in advancing prices and that promise a net return of 6% or more. Another reason why they will be dissatisfied with yields of only 3 or 4% comes from the fact that, when prices are rising at the rate of 5% a year and the pur- chasing power of money is, therefore, decreasing 5% a year, an investor is really losing more on the principal of his investment than he is gaining in interest or divi- dends. He cannot, then, when prices are rising, afford 222 GOLD SUPPLY AND PROSPERITY to invest at as low rates as when prices are stable or falling. Nor will he have to do so. Opportunities for greater income will present themselves on all sides. Gradually investors will drop their low-rate invest- ments to invest in titles and property yielding high rates. This is, in fact, just what investors have been do- ing for five or ten years. This is why high-grade bonds and stocks all over the world have been declining, while the prices of low-grade bonds have changed but little and the prices of low-grade stocks have risen rap- idly. What have heretofore been considered gilt-edge securities and perfectly safe investments have, in fact, proven to be the most unsafe of all; while many low- grade stocks and bonds have not only proven safe, be- cause there has been no shrinkage in values, but have, in many cases, both advanced in price and returned handsome incomes. Gradually but surely, during the past few years, the rate of income on bonds, mortgages and preferred stocks has been rising. Where the normal rate on gov- ernment and municipal bonds was less than 3%, a few years ago, it is now fully 4%. It would undoubtedly be above 5% were not many classes of investors com- pelled to invest in certain kinds of securities. Per- haps one-third of all money invested is restricted in this way. Savings banks, insurance companies and many trustees, etc., can invest only in well-tested high- grade securities. For this reason the process of ad- justment to higher interest and income rates is very slow. It is, however, none the less sure. By shrink- age in prices of old bonds and by higher rates of inter- CONCLUSION 223 est on new bonds, mortgages and preferred stocks, the readjustment will, in time, be complete. That the prices of bonds are declining all over the world is beyond question. Very few, however, realize the extent of the decline, or that the greatest decline has been in the highest-grade bonds. Take some of the world's government bonds! British consols have long been considered "the invest- ment index of the world." They have declined from 114 to 86 in ten years. After allowing for the change in the rate of interest from 2^ to 2y z fo the decline is over 20 points, or about 2% a year. This loss has nearly equaled the income from these bonds during the last eight or ten years. Thus the investor has really given back, in loss of purchasing power, nearly all he has taken from Great Britain in interest. The following table of bonds, either issued or guaranteed by the British Government, is from Moody's Magazine of October, 1906. These bonds constitute what is termed the "gilt-edged mar- ket" and comprise all securities in which trustees may legally invest the funds committed to their charge. The quoted prices are for about September 20, of the years mentioned. 224 GOLD SUPPLY AND PROSPERITY PRICES OF BRITISH INVESTMENT BONDS. Highest 1906. 1905. 1904. 1896 86'A 89H 88% *113H 102 104 104% 12&U 88% 94% 93 i2sy t 108 109 111% 130% 107 109 109 144^ 123 128& 124& 159 100% 100 96 112% 9% 99 96 111% 98^ 100% 97 107 J* 97 98 95 120 93 96 95 124« 76 79 78 H24K 123 127 123% 164 i British Consols 2% Met. Consols 3% I,ondon County 3 I^eeds 4 Liverpool 3% Manchester 4 New South Wales 3'A Queensland 3% Canada 3 Cape 3% I 107H 111*4 110 115% 111 104 106 102% 1906 % Decrease or Increase Since 100% 94% 101% 111% 128 99% 118% 105% 78% 93% 103% 99% 119 119% 108% 96% 102J4 133 102% 74 92 99 99% 106 109% 100 1905 1901 1896 1.9 — 1.0 — 1.7 4.6 5.0 — 1.4 + 0.2 3.0 — 3.4 — 3.1 1.7 2.4 — 2.3 3.0 2.2 2.1 — 1.2 + 6.0 — 2.3 — 2.6 2.7 1.6 — 7.6 9.1 — 5.9 + 1,0 — 2.5 — 3.1 — 2.3— 2.3 ■ 4.2 ■3.4 — 3.7 — 1.2 + 0.7 — 2.4 2.7 2.3 — 4.6 1 -12.8 4.3 — 5.2 — 1.9 — 8.6 + 4.2 — 3.9 + 0.6 — 1.0 5.2 +22.3 +14.3 +10.2 +49.3 +20.0 +26.6 +11.4 +16.0 + 7.5 +16.5 +15.0 +11.5 — 0.5 — 3.8 227 228 GOLD SUPPLY AND PROSPERITY RAILROAD Int. & Gt. Northern 1st 6s.. 1919 Iowa Central 1st 5s 1938 Kan. City Southern 1st 3s.. 1950 Lake Erie & Western 1st 5s. 1937 Lake Sh. & M. So. 1st 3%s.l997 Lehigh Val. of N. Y. 1st gu. 4J4s 1940 Long Island gen. 4s 1938 Unified 4s 1949 Louisville & Nashv. gen. 6s. 1930 Unified 4s 1940 Manhattan Ry. cons. 4s 1990 Min. & St. L. 1st cons. 5s. 1934 Mo., Kan. & Texas 1st 4s.. 1990 Missouri Fac. 1st cons. 6s.. 1920 Mobile & Ohio gen. 4s 1938 Nash., Chat. & St. L. 1st cons. 5s 1928 N. Y. C. & H. E. ref. 3%s.l997 N, Y., Chic. & St. L. 1st 4s. 1937 N. Y., Ont. & W. ref. 1st 4s. 1992 Norfolk & Southern 1st 5s. 1941 Norf. & Westn. 1st cons. 4s. 1996 Northern Pac. pr. In. ry. & 1. g. 4s ; 1997 Ore. RK. & Nav. cons. 4s.. 1946 Ore. Sh. Line 1st cons. 5s. 1946 Penna. Co. gu. 1st 4%s 1921 Penna. RR. 1st real est. 4s. 1923 Peoria & Eastn. 1st cons. 4s. 1940 Reading. Co. gen. 4s 1997 Rio Grande Westn. 1st 4s. 1939 St. L. & San. Fran. gen. 5s. 1931 Refunding 4s 1951 St. L., Iron Mtn. & Southern — Gen. cons. & land gr. 5s. 1931 Unifying & refunding 4s. 1929 St. Louis Southwn. 1st 4s.. 1989 St. P. & Sioux City 1st 6s. 1919 St. P., M. & Man. 1st cs. 6s. 1933 San. Ant. & Aran Pass 1st gen. 4s 1943 Southern Ry. 1st cons. 5s.. 1994 Term. RR. Assn. of St. L. 1st cons. 5s 1944 Texas & Pacific 1st 5s 2000 Toledo & Ohio Cent. 1st 5s. 1935 Tol., Peo. & Westn. 1st 4s. 1917 Tol., St. L. & Wn. 1st 4s.. 1950 1896 115 ft 9954 90 (c) 113 74% 93 99 8254 83 63% (a) 103% 85 103 § 70 85% 82 (») 109% 108 73% (a) 73% 92 (e) 72% (e) 66 127 122 54 8754 102 8434 105 75 ( 63 Vanderlip, Frank .A.: Influx of Gold Means Prosperity. . .113-119 Value: Defined, 45; Intrinsic *T Wages: Statistics of, 76; and Gold, 153, 182, 240; On Rail- roads 241, 250 Walker, Francis A.: On Quantity Theory 41, 205 Wall Street Journal: On Gold 195 Warner John De Witt: Some Gold Problems 151-155 White, Horace: How Gold Operates 143-149 Williams, Geo. Fred. : Quoted » x World's Gold Production: by A Selwyn-Brown, 53-74; by Hutchens 54 IN PRESS American Railways as Investments By Carl Snyder Their history, territory, great groups and allies, who own and run them, stability of traffic, earnings and surplus. Their capitalization, condition, recent im- provements, resources, future, range of market prices, yield to the investor, etc. This is a work designed for the Investment Banker and Broker and more especially still, for the general investor himself. It is prac- tical, not theoretical, and presents a compara- tive and historical analysis of nearly 100 of the important railway companies of America. Price, $3.20 net; by mail, $3.40. The Moody Corporation 35 NASSAU STREET NEW YORK The Art of Wall Street Investing By JOHN MOODY This is a practical Handbook for investors, treating the subject of Wall Street Investing in a sensible and original manner. It is the first modern attempt to cover the subject in an attractive and popular form, and in such a way as to be of interest to the individual in- vestor as well as the more expert banker and broker. "The book deals in a clear, popular and en- tertaining way in the methods, terms and phases of Wall Street Investing, giving rules for analyzing railroad securities and state- ments, and explaining syndicates and reor- ganizations." — The Wall Street Journal. "It is lucid, original and sound. I should think it ought to find use as a text-book in University and College Departments of Eco- nomics." — Prof. E. Benjamin Andrews. "It is a book of great interest to business men and investors in general. Mr. Moody de- votes a chapter to 'get-rich-quick schemes,' which will be an eye-opener to those guileless ones who are ready victims of the great army of sharpers that infest the land." — Buffalo Courier. SYNOPSIS OF CHAPTERS. I.— Satety and Security. II.— Bonds and What They Represent. III.— Stocks and What They Are. IV.— Ana- lyzing Railroad Securities. V. — Industrials and Tractions. VI. — Investments vs. Speculation. VII. — " Get-Rich-Quick" Schemes. VIII. — Reorganizations and Syndicates. IX. — The New York Stock Exchange. X.— Wall Street Phrases and Methods. The volume is handsomely printed and bound in red cloth, being uniform in size with " The Pitfalls of Speculation. " Price per copy, $1.00 net. Bumail,$l.lO. The Moody Corporation Publishers 35 Nassau Street New York City Bond Interest Tables Pocket Edition Price per copy, in flexible leather, 50c. Special prices for quantities Table showing the interest accruing each day on a $1,000 Bond from one day to six months at 3, 3%, 4, 4%, 5, 6 and 7 per cent. In- valuable to bond dealers, brokers, etc. By means of this interest table a banker, bond dealer or investor can see at a glance the exact amount of interest which has accrued on his bond on any date between the coupon or in- terest payments. Inasmuch as it is constantly necessary for dealers and others to figure ac- crued interest, especially when putting through quick transactions, it will be seen that this little table is a great convenience and an im- portant time saver. The Moody Corporation Publishers 35 Nassau St., New York City Moody's Magazine A Monthly Review for Investors, Bankers and Men of Affairs Edited Ay Byron W. Holt Moody's Magazine entered, in 1906, upon its third volume. It circulates among investors in all English-speaking countries. Its edi- torial and contributed pages discuss, authori- tatively and impartially, all topics of finances and economics which have a bearing upon In- vestments. Its Studies in Value are a dis- tinctive feature; its Investment and Corpor- ation News are unequaled for convenience and completeness. 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These seven years embrace the most important period -in America's financial and industrial history, and no banker's, financier's or student's library is complete without these seven volumes. They constitute an encyclopaedia of modern finance and industry. Price for the set, in red cloth, $30.00 net EXPRESS CHARGES PREPAID The Moody Corporation Publishers 35 Nassau St., New York City The Pitfalls of Speculation By THOMAS GIBSON This book deals exclusively with marginal speculation and analyzes in a clear and simple manner the causes of failure, in speculation, with a suggestion as to the remedies. While 80 per cent, of the public speculators fail in their ventures, the writer contends that the errors may be corrected and the pitfalls avoided by careful study and clear understand- ing of the machinery of the exchanges. In the introduction the writer says: "-I do not pretend that any prescription can be written to insure success nor that a majority of the public traders will ever succeed, but I do maintain that many individuals capable of clear reasoning and the directed exercise of such reasoning, are sim- ply moving in the dark thru a lack of understanding as to what makes and breaks prices. More fallacies superstitions and distorted logic are connected with speculation than with any other business on earth." Until the late Charles H. Dow, the founder of "The Wall Street Journal," began to write of such matters there was no literature extant on the art of speculation with especial refer- ence to the position of the speculator of mod- erate means. Mr. Dow's efforts were news- paper articles, not intended for book publica- tion. Since Mr. Dow, no writer has appeared to treat of these matters with anything ap- proaching the knowledge of the subject, the breadth of view and the common-sense treat- ment that Mr. Gibson devotes to it. SYNOPSIS OF CHAPTERS. I. — Introduction. II. — Ignorance, Over Speculation, etc. III.— Manipulation, IV. — Accidents. V. — Business Methods in Speculation. VI. — Market Technicalities. VII. — Tips. VIII.— Mechanical Speculation. IX— Short Selling. X,— 'What 500 Speculative Accounts Showed. XI. — Grain Specu- lation. XII. — Suggestions as to Intelligent Methods. XIII. — Conclusion. The volume is handsomely printed and bound in green cloth, being uniform in size with " The Art of Wall Street Investing." Price, . per copy, $1 .00 net. By mail, $1 .10. The Moody Corporation Publishers 35 Nassau Street New York City Smith's Financial Dictionary BY HOWARD IRVING SMITH Recently Issued Cloth. 543 Pages. 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