32 



IV. G. Langzvorthy Taylor 



Abundance 

 of credit con- 

 stitutes a 

 demand for 

 gold, and lack 

 of gold is a 

 stimulus to 

 credit 

 economies. 



However, 

 lack of general 

 credit is a 

 stimulus to 

 gold mining; 

 revival of pros- 

 perity often 

 appears in that 

 way. 



upon that level within any such short period. Nevertheless, it 

 will provisionally be assumed that every creditor and debtor is 

 exposed to prejudice by pulsations in the markets for the precious 

 metals. 



§ 2. It is not to be denied that there is some compensation 

 between the movement of credit and the supply of gold, or that 

 credit may be, to a certain extent, substituted for gold ; but those 

 are financial details. Nor is it to be gainsaid that in very long 

 periods there may be, in a sense, an influence of gold upon the 

 amount of credit, for an incentive to credit economy may arise 

 from lack of that metal ; during such periods, undersupply of it 

 may stimulate saving methods in finance and in the loan organiza- 

 tion. But there is no adequate compensation between the amount 

 of gold going into the supplies offered for money or for other 

 uses, and the bulk of credit. 



In fact, if there is a reciprocal influence between gold and 

 credit determining the quantity of the two with respect to each 

 other, it works rather the other way : gold is principally wanted 

 under the modern money system, not for the purpose of carrying 

 on exchanges but for the filling up of the reserves and as a guar- 

 anty fund. The extension of the market and of business organi- 

 zation, which creates additional loans, calls for corresponding 

 metal for use in the idle cash, so that credit is the chief de- 

 terminant in the demand for gold. That which is applied in the 

 arts constitutes less than one-quarter of the total raised." 



In a sense, perhaps, there is a compensatory action between 

 credit and gold, for, when the former is contracted steadily, and 

 there is a prolonged fall in prices below what might be called, 

 if it could be determined, the natural value of the latter, then 

 there is a stimulus to the production of the metal, investment in 

 its mining goes on, and an apparent attempt to compensate for the 

 contraction of credit by additional production. In the long run, 

 the supplies arrive in a pulsatory manner — ^^they are pumped up, 

 as it were, by the recurrent contraction of credit. That efifect 



"In 1905 apparently 18,211,419 ounces of gold were raised, and 14,151,000 

 ounces of that were coined. 



146 



