174 os REPORT—1858. 
On the Laws, aceording to which a Depreciation of the Precious Metals con- 
sequent upon an Increase of Supply takes place, considered in connexion 
with the Recent Gold Discoveries. By Professor CAIRNES. 
Prof. Cairnes referred to the discussions occasioned by the recent gold discoveries 
as exhibiting, on the part of a large number of those who engage in them, a strange 
unwillingness to recognize, amongst the inevitable consequences of those events, a 
fall in the value of money. He said a strange unwillingness, because similar doubts 
were not found to exist in any corresponding case. With respect to all other com- 
modities, it was not denied that whatever facilitated production promoted cheapness, 
that less would be given for objects when they could be attained with less tronble and 
sacrifice, It was not denied by any one pretending to economic knowledge that the 
enlarged production of gold now taking place had a tendency to lower its value; but 
it seemed to be very generally supposed that the same cause-—the increased gold 
production—had the effect, through its influence on trade, of calling into operation so 
many tendencies of a contrary nature, that, on the whole, the depreciation must pro- 
ceed with extreme slowness, the results being dispersed over a period so great as to 
take from them any practical importance, and that at all events up to the present time 
no sensible effect upon prices had thence arisen. The existence of this opinion amongst 
economists was, he apprehended, to be attributed in some degree to the circumstance 
that so few had taken the pains to compare the actual prices of the present time with 
those of the period previous to the gold discoveries; but much more to the fact that 
the character of the new agency and the mode of its operation were not in general 
correctly conceived. The most general opinion with reference to the action of an 
increased supply of money upon its value was, that a depreciation of money, so far as 
it arises from this cause, is uniform, that is to say, takes place in the same degree in 
relation tofall commodities ; and that therefore prices, so far as they are influenced by 
an increase of money, must exhibit a uniform advance; and, no such uniformity being 
observed in the actual movements of prices, the inference had not unnaturally been 
made, that the enhancement, so far as it has taken place, is not due to this cause— 
that it is not money which has fallen, but commodities which have risen in value. 
With respect to this doctrine of the uniform action of an increased supply of money 
upon its value in relation to commodities, he was quite prepared to admit its sound- 
ness, provided sufficient time were allowed for the disturbances introduced by the new 
additions to be corrected. He conceived, however, that these disturbances, when the 
augmentations took place upon the scale which we were at present witnessing, were 
of a kind which did not admit of speedy correction, but might continue throughout 
the whole period of progressive depreciation ; a period, which, if he might venture to 
express an opinion on the subject, would probably extend over some thirty or forty 
years. The mode in which an increased production of gold operated in depreciating 
its value, and thus raising general prices, appeared to him to be twofold, and to take 
place, first, directly, through the medium of an enlarged money demand; and secondly, 
indirectly, through a contraction of supply. Prof. Cairnes then stated in detail the 
considerations from which he arrived at the following general conclusions :—First, 
that the commodities, the price of which may first be expected to rise under the influ-. 
ence of the new money, are those which fall most extensively within the consumption 
of the productive classes, but more particularly within the consumption of the labour- 
ing and artisan section of these. Secondly, that of such commodities, that portion 
which consists of finished manufactures, though their price may in the first instance 
be rapidly raised, cannot continue long in advance of the general level, owing to the 
facilities available for rapidly extending the supply; whereas, should the production, 
from over-estimation of the increasing requirements, be once carried to excess, their 
price, in consequence of the difficulty of contracting the supply, may be kept for some 
considerabie time below the general level. Thirdly, that such raw products as fall 
within the consumption of the classes indicated, not being susceptible of the same 
rapid extension as manufactures, may continue for some time in advance of the gene- 
ral movement, and that among raw products the effects will be more marked in those 
derived from the animal than in those derived from the vegetable kingdom. And, 
fourthly, that the commodities last to feel the effects of the new money, and which 
may be expected to rise most slowly under its influence, are those articles of finished 
