TEANSACTIONS OF SECTION F. 831 



change in this relation. In two of them the effect on prices is indeterminate. In 

 two a rapid fall or rise, of short duration, is produced ; and in four a fall, 

 or rise, which may or may not he rapid, according to the character of the com- 

 modity, is produced. In the case of a necessary, such as wheat, the fall iu case of 

 an increase of supply, and the rise in case of a decrease, will be rapid because there is 

 no desire to increase, and at the same time the greatest imwillingness to diminish 

 the consumption of bread. A fall in wheat is ' taken out ' in increased consumption 

 of luxuries. 



Changes in either component of the supply-and-demand relation of most articles 

 usually affect the other by prodiicmg alterations in prices. This is especially true 

 of luxui-ies. A ' luxury ' might be defined as ' a commodity of which people 

 would, if they could afford it, gladly obtain and consume much more than the 

 supply available.' 



Changes in the supply of a large class of articles are due partly to meteorological 

 conditions, partly to the bringing of fresh portions of the earth under cultivation, 

 or to their becoming more accessible, owing to the extension of steam communica- 

 tion. 



Increase of demand, apart from changes in price, is chiefly due to increase of 

 population. 



Supply sometimes increases rapidly, owing to speculation, to an extent much 

 exceeding atcual demand, and the increased supply is absorbed comparatively 

 slowly. 



B. Changes in inoney jjrices are due to changes in the supply-and-demand 

 relation of the precious metals. 



The total mass of the precious metals is approximately constant, owing to their 

 durability. It does increase year by year, but the annual increment is usually 

 small relatively to the total mass. Unless the supply is added to year by year, to 

 an extent depending on the increase of the quantity of commodities in the world, 

 the money prices of commodities will tend to fall. Market prices will not 

 necessarily show any change, since real price may have moved in the opposite 

 direction. 



The demand for the precious metals is always strong, but is only indefinitely 

 great as regards gold. Most countries would use gold if they could, but have to do 

 without it. The natural bias in favour of gold, due to its peculiar qualities, is in- 

 tensified by the desire of the poorer countries of the world to possess a gold stan- 

 dard, under the mistaken idea that such a standard will help them to grow rich, 

 and also by the natural desire of bankers, who have great influence with Govern- 

 ments, that the standard of the country they live in should be the same as that of 

 the United Kingdom. German}' and Italy have adopted gold standards for these 

 reasons. They would have done more wisely if they had chosen silver. Italy has 

 some difficulty even in keeping all the silver she needs, and puts restrictions on its 

 free withdrawal. 



Gold being the preferred currency of all the more advanced nations, changes in 

 the supply-and-demand relation of gold are a more effective influence on money 

 prices than changes in the supply-and-demand relation of silver. Gold changes 

 work through a more powerful machinery. Nevertheless silver changes must not 

 be disregarded. Even in silver-using countries money prices, and consequently 

 market prices, are, to some extent, influenced by gold. And in like manner in gold- 

 using- countries' prices are, to a smaller extent, influenced by silver. 



If gold did not exist the silver in the more advanced countries would be a more 

 potent influence on money prices than the silver in the less advanced countries. 



Changes in money prices are small compared with changes in real prices. 



The richer of the more highly organised countries have, at present, enough gold 

 for their wants, but they have some difficulty in keeping it, as several of the poorer 

 countries are making efforts to get it. The Bank of England, the chief storehouse 

 of gold to which access is free, is often asked for it, and thus the bank's stock of 

 bullion is kept down to about the minimttm which is compatible with safety. All 

 surplus gold is, on our system, placed in a position where it can be easily got at, 

 since a very moderate excess in the bank's stock forces down the rate of discount. 



