18 FOREST FINANCE 



measure of value getting shorter in its effect, the number of units of value 



(or dollars) equalling a capital or a product increase necessarily. 

 I.— Gold. 



The world's production of gold (the money of the leading nations) has 

 increased and continues to increase at an alarming rate. This increase has 

 had the tendency, unavoidably, of cheapening gold, or of reducing its power 

 to purchase other goods. 



If man were actually to realize the enormous increase of the production 

 of gold, the decline of its purchasing power would be more patent — it would 

 become acute. 



A commodity (gold is a commodity like silver or iron or wheat, after all) 

 drops in value at a time when it is known (or supposed) to be produced in excess 

 of the demand; — ^not at a time when it actually happens to be excessively 

 produced. 



In the case of gold, in the author's opinion, mankind has not begun to 

 realize the enormous increase of the supply; and it is far from anticipating a 

 still more gigantic increase of the supply in the near future at a time when 

 new technical and chemical methods of "gold making" come into play. 



A demoralizing "slump" in our entire monetary system is unavoidable as 

 soon as gold can be produced at a greatly reduced expense of labor. The 

 knowledge of a slight over-production causes the price of cereals and cotton 

 and lumber to decline perceptibly; similarly, the knowledge of a slight excess 

 production of gold must cause its depreciation. 



In the past decades, this depreciation has been prevented by a number of 

 countries rapidly adopting the gold standard and accumulating gold in their 

 treasuries. 



In the future, this depreciation must be marked. If the purchasing power 

 of gold decreases at the rate of 2% per annum (and the author anticipates a 

 more rapid decline), the consequences will be: 



a. for the possessor of bonds, mortgages, life insurance policies, etc., 



a heavy loss of capital as well as of interests. 



b. for a "country of bondholders", and therefore pre-eminently for 



European countries, heavy losses; 



c. for "countries of stockholders", and countries rich in pastures and 



forests and farms, a decided superiority over others not so blessed. 



A man owning 4% bonds rated at par will do well — if he desires to remain 

 equally wealthy — to consume not over J^ of the interests obtained and to re- 

 invest the other \^ with a view to counterbalancing the tendency of gold to 

 depreciate. 



Conclusions. 



A man owning $100,000 cash in 1908 is less wealthy than the man 

 owning the same amount in 1898. 



A man who has let out, in 1898, $100,000 and who has consumed in the 

 meantime all interest derived therefrom, is getting less wealthy. He should 

 have saved a portion of the interest actually obtained adding it to the original 

 $100,000. 



