supply within a certain period; secondly, the price at which that supply can find purchasers in the retail market'. In great articles, of which the supply from year to year may vary greatly with harvests, as corn, sugar, cotton, the first consideration is always the probable supply. The supply once ascertained, or supposed to be so, there is some price at which the whole may be expected to go into consumption. At lower prices it will not, at higher it cannot, be disposed of. At that point, then, the price tends to settle, and no efforts of speculation can cause a great or prolonged deviation from it. Let the cotton crop be short, and the most wide-spread destruction of credit will not beat down the price perceptibly; let it be abundant, and hoards of capital will not prevent a fall. In articles like manufactured goods, of which the supply may be regularly increased or diminished, those who regulate it consider the cost at which they can produce, and the quantity that can find consumers at that price. All intermediate speculations are corrected and controlled by these two considerations.

Of course there is continually disturbance, both from miscalculation and dishonesty. Both the yield of crops, and the means of consumers, are under or over estimated, and prices fluctuate accordingly; but at the bottom of such variations, and controlling them all, are ever working the forces which carry out the general law that has been indicated.

Retail prices, then, govern wholesale prices, and are themselves governed by the amount of incomes devoted to expenditure.

Increased Income antecedent to Depreciation.

Hence, what is called the depreciation of a currency, or a state of things in which an increased amount of it should be

1 This is in effect a repetition of Mr. Mill's exposition of the equation of demand and supply, one of the most important contributions, as it appears to me, ever made to economical science. I may add that Mr. Tooke's great work abounds with illustrations of the immense effects on prices of variations in supply. Yet the abstract treatises take little notice of this cause.

required for all purchases, cannot be effected without an antecedent enlargement in the aggregate of money incomes. For example, it cannot come to pass that A, whose income is now five hundred pounds a year, shall pay a shilling for the loaf instead of sixpence, twenty shillings for a pair of shoes instead of ten, two hundred pounds in house rent and taxes, instead of half that amount, and so on, unless he finds himself, by some means or other, enabled to expend a thousand a year where he could formerly lay out only five hundred. With income doubled, and the stock of commodities and the state of banking remaining the same, it might be expected that a double quantity of gold would be required and held in circulation.

Income and Transactions limit Currency.

The meaning of the word currency is unfortunately contested as hotly as any dogma in theology, but the settlement of the point becomes of very little consequence if it be found that the amount of gold and bank-notes kept in circulation is determined by, instead of determining, the exchanges to which it is subservient. In a country where no exchange was ever made without money, it would be clear that the currency meant simply the quantity of the gold or silver pieces used in exchange by the community. The amount of those gold pieces would be determined, partly by the rapidity with which they went from hand to hand, and partly by the number and magnitude of the exchanges effected. The rapidity of circulation being given, and the number of exchanges composing the one great exchange between producer and consumer being given also, there would be some ascertainable proportion between the amount of the currency and the amount of monied incomes. As each piece of coin would distribute to consumers much more than its own value of goods and services, from passing backward and forward and being employed more than once by the same person, it is evident that the gross amount of currency would be less than the gross amount of annual income. We

may assume that it might be one-half. If in such a case every man paid income tax, and the whole community were assessed as having ten millions of annual income, five millions of gold pieces would effect the necessary exchanges. If the income fell off, so that the aggregate of purchases for consumption fell to eight millions, five millions of sovereigns could not be retained in circulation. If it rose to twelve millions, either the currency must be enlarged, or some expedient found for accomplishing exchanges without it; such an expedient is the introduction of credit, which, as has been seen, may come to operate like gold. The introduction of credit renders it possible for the aggregate of monied income to increase enormously, whilst the currency itself either does not increase or remains actually stationary. But an increased currency cannot be kept in action except by increased money incomes, and a reduction of money incomes is necessarily followed by a reduction of the currency. We know exactly the currencies of Scotland and Ireland, where one-pound notes are used instead of sovereigns. In Scotland, with a steady increase of wealth and gross income, the currency is stationary, because a continued development of the banking or credit system performs the increased exchanges. Scotland even shows that the tendency of a credit system is to produce a continual diminution of the currency. Ireland, always at hand as an example of ill fortune, illustrates the other part of the proposition. The potato failure caused in that country a destruction or diminution of incomes in all classes, peasants, farmers, landlords, clergymen, lawyers, and traders. The aggregate of purchases for consumption was reduced in an unparalleled degree, and the currency being too abundant for the work it had to perform, fell away to the extent of nearly onethird, until there remained only enough for the languid commerce of the famine-stricken peeple. It would be easy but tedious to trace the exact steps of this process; enough has been said to show that the amount of currency (banking expedients remaining the same) does not exceed some definite proportion to the amount of incoms.

Increase in Aggregate Income precedes Depreciation.

Hence it arises, that every depreciation of currency follows upon some extension of the amount which individuals have to spend for consumption. A depreciation of one-half means that nominal prices are doubled; that is, that twice as much of the currency is given for goods and services as before. If the same amount of goods and services are disposed of, the aggregate of incomes actually spent must have been doubled. In a country like California or Australia, this duplication of the sum total of incomes, as estimated in money, may take place rapidly. The new gold becomes income almost as soon as it is found. The miners lay it out at once and largely on articles of consumption, which, not being proportionably increased in supply, are sold at increased prices. The incomes of the dealers, and of all persons who render services to the miners, are proportionably increased. The alternative which everybody has of going to the diggings, enables him to obtain an equivalent if he does anything else which the diggers require; and very nearly the whole mass of exchanges made for consumption comes to be made with consumers who have succeeded in obtaining the enhancement of income. As long as this enhancement of income goes on, the supply of commodities and services remaining short, prices will continue to rise, and more gold being wanted for each exchange, the currency will go on augmenting in volume and sinking in value. The movement will not cease, until the aggregate of income has become great enough to enable prices to be paid which will require the whole of the gold in the currency.

But the action of new gold upon incomes in a country like England, where the sources of income are so varied, and commercial relations so vast, multifarious, and complicated, must be very different. It must be gradual, irregular, and productive, while it lasts, of changes the most momentous. Moreover, the currency of England does not, as in a rude country, bear a

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large, but a small, proportion to its income. Credit performs so large a part of the business of exchange, and so large a proportion of the incomes is paid and spent from month to month, week to week, and day to day, that we may safely set down the currency as being no more than equal to one-fifth or one-sixth of the annual incomes. The incomes annually spent in England and Wales cannot be less than four hundred millions, while the currency of coin and notes equal to coin is not more than seventy millions. The gold in circulation scarcely exceeds forty millions. In order, then, to sustain a gold circulation of eighty millions, which would be necessary if gold were depreciated one-half, the spending income of the whole community must be raised to double what it is at present. Some of the incomes being absolutely fixed, and others nearly so, the enhancement must be all the greater, in those which are as it were most nearly in contact with the new gold. In any case, the revolution to be thus accomplished must be more momentous than almost any peaceful change of which history contains a record1.

The slowness of the process of depreciation has been noticed by Mr. Fullarton in the following passage:-" It is in these causes only we have to seek for an explanation of that very striking phenomenon in the history of prices, the exceedingly slow and gradual process by which the great revolution of prices which followed the discovery of the South American mines was effected; and, what might seem still more unaccountable, the tardy reluctance with which the first downward impulse was given to prices in France, even under the overwhelming pressure of the assignats." It was not, in fact, till the year 1570, sixty-eight years after the first considerable shipment of specie from South America by Ovando, forty-nine years after the capture of Mexico, and twenty-eight years after the mines of Potosi had been at work, that any very sensible effect was produced on the general prices of commodities in England; nor have we any evidence to show that the advance commenced in France, in Spain itself, or in any other country of Europe, at a much earlier period. It is likewise an authentic fact, attested by Mr. Arthur Young, that in May, 1791, after the assignats had been for eight months in circulation, and after many hundred millions of them had been issued, the prognostics of enormous depreciation which had been pronounced by M. Decretot and M. Condorcet, "were not verified;" that the expected rise of commodities had not taken place; that corn