Rensselaer Republican, Volume 21, Number 15, Rensselaer, Jasper County, 13 December 1888 — THE OUTFLOW OF GOLD. [ARTICLE]

THE OUTFLOW OF GOLD.

N. Y Buo. The state of semi-panic into which our stock market was thrown on Friday by the shipments of gold to Europe is not at all creditable to the intelligence of the operators. The extreme prooability of such shipments was indicated by various facts, to which I called attention several weeks ago, namely, the diminution of our wheat exports, the decline in the value of our railroad stocks, and the strained condition of European finances. The Bank of England raised its rate of discount to 5 per cent, as far back ai the 4th of October for the avowed purpose of counteracting the demands upon it for gold to send to South America. During the first three weeks thereafter the measure seemed to be having the desired effect. The bank gained in that period £>oo,ooo in gold, and. what was remarkable, discount in the Open market, which usually follows the bank rate at an interval of 1 point, remained 2 points below it; The phenomenon was ascribed by the London financiers, and apparently with good reason, to the- manipulation of bankers who had engagements to ship gold to South America, but delayed them until they .had completed their preparations. This failure of the bank to control the money market was the subject of much adverse criticism, and even so conservative a journal as the Economist recommended its governors to adopt the policy of the great London joint stock institutions, and, by allowing interest on deposits, to attract to itselfthe money which now competes with it for employment and lowers tfie rate 6T interest. Time, however, vindicated the wisdom of the bank governors. At the end of the three weeks the outflow of gold from the bank recommenced, and by Thursday last had amounted to £2,000,000 more than the previous gain of £SO »,- 000 which, as the total stock of the bank was only £20,000 0 K), was a serious matter. Then the London money brokers for the first time put up their rate to 4 per cent., or the normal 1 per cent, below the bank rate, and simultaaneously therewith their correspondents here commenced shipping gold to them. An effort was made for a little while to explain the e shipments by saying that there was no profit in them over remittances by bills, and that they were exceptional in their nature, but as they were followed by other and larger shipments it began to be seen that the explanation was insufficient, and that Europe meant serious business. How any one could for a moment believe that experienced bankers wpuld engage in such operations when they involved no profit and even a loss, I can not imagine. Still less can, I comprehend the reasoning of those who argue that the drain of gold which has just commenced will not last long. They remind me of the antediluvians, who, when the first drops of the forty days’ rain fell, thought there was not going to be much of a shower. The tide of gold has been running this way so long that the return current will have to last equally long to restore the equilibrium. Had it not been for our exports of breadstuff's and the purchase of our securities on foreign account, it .WQuldhave we have had a poor wheat crop and our railroad securities are becoming less desirable, we must pay our European debts in gold. The unwillingness to admit that gold shipments are due to the operation of so simple a law of trade, and the effort to explain it away as exceptional in its nature, betrays the influence still exerted among us by the ancient fallacy in regard to the importance of the precious metals which Adam Smith exposed in his “Wealth of Nations.” It vas for centuries commonly supposed that the prosperity of a country was to be measured exclusively by the quantity of these metals it possessed, and the export of them was regarded as a calamity to be averted, if no other measures were efficient, by fines and penalties. The idea that gold and silver are merchandise, and when sent abroad in exchange for other merchandise or in payment for merchandise previously bought an fulfilling their natural function as much as when they are used for the same purpose at home, has not yet fully been made into the mind of the mercantile word. Hence the alarm of last week and the attempts to quiet it which I have mentioned. There is, indeed, a certain justification for attaching importance to gold shipments and for a fall in prices when they occur, just as there is reason for watching the thermometer and putting on warmer clothing when it descends toward freezing point. Gold being money in itself, and being, besides, the element wh ch gives permanent value to paper money founded upon it, a diminution of its quantity at any given point and the increase of that quantity at another point’ indicates that prices have been too high at the one and too low at the other, and that the inequality is being’’adjusted. So long as Europe could buy merchand se and make investments afore profitably, here than she could at home, her share of th<world’a gold stayed with us. and more was added to it" That she now begins to take gold back from us indicates that she can do better with it elsewhere and, that prices are to fall here and rise there until the movement ceases. In the 1

present case the attractive v 'field is at« distance from Europe, that isi in South America; but, the' road to that country lies through Europe, gold takes its first journey thither. It is commonly said that the object of the raising-of the rate of discount, by the b ink of England is to prevent gold leaving the country, and this form of speech does much to keep alive the old superstition which Adam Smith denounced. As in all superstitions, so in this, there is a grain of truth. The bank of England does indeed raise its rate of discount when- gold is drawn from it. keeps the rate stationary when its stock of gold is stationary, and lowers it when gold flows freely into its vaults. Hence it looks as though the maintenance of the supply of gold was the principal object sought, whereas the principal object is getting for money the highest amount of interest that people can be made to pay. When gold is withdrawn the governors of the bank infer that money will be less in supply and therefore probably dearer. At all events, they try it od, but, as we saw in October, not always with immediate success. When gold comes back into the bank’s vaults it indicates that money is not so much wanted in trade, and therefore do not change their terms. To repeat my illustration of the thermometer, gold plays' the part of the mercury in that instrument. When the mercury contracts we make up more fire or put on more steam until it expands to a comfortable point. If it goes too high we cool off the room, and if it is just right we let the heating apparatus alone, A child or savage might conclude that the sole object of our operations was to keep the mercury

at a certain level, whereas the mercury is only an indicator, and what we are seeking is that degree of warmth or coolness in the air which makes it apparent. There is a further ill-defined alarm in some minds that the loss of gold by the present outflow may, in conjunction with the continued coinage of silver dollars, put gold to a premium, and thus lead to hoarding it in this country. It is vaguely imagined that such a result would in some mysterious way cause a stringency in the money market, and so create a panic. In answer, it is sufficient to remark that the moment money goes to say, 6 per cent, per annum, the cost of hoarding gold will also be 6 per cent, per annum a rate which would speedily eat up any possible profit which could be derived from the operation. In case of a panic, too, gold would buy stocks and property on such favorable terms that no sane man could withstand the temptation to pay it out. It is possible, as I have often remarked, that there may be before long a small premium on gold, but that premium would not prevent it from being held by the banks as a part of their reserve and as a basis for loans and discounts. It was so all through the war, even when gold went to 300 or thereabouts, and it would more certainly be so with gold at a premium of less than 1 per cent, which is all that we have to fear for a long while yet. ■ . The fact is that the present outflow of gold is no more a legitimate ground of alarm than,the shipment of wheat would be when we had plenty of it and other wheat-consuming countries wanted it. We have an abundance of the metal in our bank vaults and in those of the National Treasury, besides the $30,000,000 that we produce from our mines every year. We can not eat it nor drink it nor wear it, and when we pay our debts with it we stop interest on them. Parting with it is necessarily accompanied by a decline in prices, but they can not go below their level in other parts of the world; when that level is reached the outflow of gold will cease, and not before. I am prepared to see very considerable shipments of gold during the next few months, and I am not at all worried at the prospect. Matthew Marshall. The report of the Commissioner of Internal Revenue contains facts which show that the Old Roman is not the only person in the United States who uses snuff*. The Commissioner says that the consumption of snuff for the fiscal year covered by his report was no less than 7,436,989 pounds! There is no doubt that a large part of this prodigious volune of the piquant powder was used as an olfactory stimulant by the male sex, but another large portion of jt was used by the female snuff dippers who are to be! found in some quarters of the South. The use of snuff for “dipping” appears to be peculiar to the Southern States where it is largely practiced in secret as well as openly, especially by poor women. Dipping is done with a small brush, which is first wetted, then dipped in snuff, and applied to the gums, for the purpose of brightening the eyes and improving the complexion. Though it may fail to accomplish these ends, it retains a strong hold upon its practitioners. - The Excitable Hoosiers, New York Bun. It appears from various trustworthy annrrgn th nt Qpnnral Harrison “attended church quietly” last Apparently there is sincere and general disappointment that he didn’t go to church with a brass band, a fish-horn corpsand a flambeau club. Can’t Indiana take even its religion quietly? Misaonri has a debt of $17,000,000.