The interest rate fell to 3.1 in 1858 and 2.5 in 1859, rates which were doubtless below the normal. In 1860 a rise began again, the rate being 5.5 in 1861 and 6.7 in 1866, the next panic year. Thereafter there was an immediate decline, the rate for 1867 being 2.3 and for 1868 1.8. Then followed a slight advance of the rate until 1873, when the average rate was 4.5 per cent. Here set in a gradual decline of prices due to a relative decrease in the supply of gold, the supply not increasing so rapidly as the demand. It was accompanied in London by a constant tendency of the rate of interest to fall, although there were occasional advances caused by the expansion of credit. The average market rate in London in 1894 was 1 per cent., and in 1895 .8 of one per cent. per annum. After 1895 the effect of the new gold from South Africa began to be felt in England, and the interest rate again began an upward journey. Prices of commodities in England between 1896 and 1902 rose something like 25 per cent., and the rate of interest rose from eight-tenths of 1 per cent. in 1896 to 4 per cent. in 1903.

I need not take your time to go over the statistics of the New York market. Since 1897 prices in the United States, according to the statistics of the Bureau of Commerce and Labor, have risen some 25 per cent. You will know what has happened to the rate of interest. In 1897 commercial (double name sixty days) paper sold in New York around 31⁄2 per cent. There were only fifteen weeks during which it rose above 31⁄2 per cent., and it never went above 41⁄2 per cent. For sixteen weeks it did not rise above 3 per cent. In 1898 the rise of prices began and the rate of interest followed suit. It touched 5 per cent. during nine weeks, and 6 per cent. during seven weeks. In 1899 it reached 5 per cent. during twelve weeks, and 6 per cent. during thirteen weeks. It averaged over 4 per cent. throughout the year. In 1900 and 1901 it averaged about 41⁄2 per cent., sinking below 4 per cent. during only a few weeks each year. In 1902 the rate never fell below 4 per cent. The rate was 5 per cent. and higher for fourteen weeks, and 6 per cent. plus commission for twelve weeks. In 1903 the rate continued between 5 and 6 per cent. throughout the year. There was a decline in 1904, but the rate closed the year at 42. This decline in 1904 was the natural sequence of the break in the stock market in 1903 and the resultant loss of confidence among

business men. The loanable funds withdrawn from Wall street sought employment in the world of industry and trade, and a decline in the rate of interest was inevitable.

Conjecture with regard to the future course of prices and the interest rate must take into account the fact that during the last seven years great commercial nations have been continuously at war, and that in consequence a normal expansion of credit has been impossible. Since 1895 the gold holdings of the great banks of the world, including the national banks of the United States, have increased by over one billion dollars; but much of this new gold, instead of being given employment in the world of trade and industry, has been hoarded in banks to provide for the extraordinary contingencies of war, both actual and possible. Not until the world's peace is comparatively assured, will credit take wing and bring all the new gold into potential contact with goods and securities. Concerning the precise effect upon prices and the rate of interest, we can only speculate; but that prices must tend upward and the money market be subject to violent disturbances, we can be reasonably certain.

We now come to the third part of my subject. Will the gold supply of the world continue to increase at the present unprecedented rate? Is the production to be $400,000,000 this year, $450,000,000 next year, and one-half a billion in 1907? If such a deluge of gold awaits us, it is impossible to escape the conclusion that the purchasing power of gold must suffer a great decline and the civilized world pass through an era of wild speculation in the stocks of corporations and in the prices of commodities. Fortunately there are some good reasons for hoping that no such future is in store for us. Gold mining is an industry in all essential respects like other industries. Its output tends to increase when the value of the product is rising, and to decline when the value of the product is falling. That the production of any ordinary commodity tends to decrease when its value is falling, is a truth well understood by all business men, but its applicability in the case of gold is not clearly seen. As we have seen, the value of gold seems stable, so that it does not occur to the average man that the profits of gold mining are affected in any way by changes in the value of gold. He sees clearly enough that the profits of iron mining de

pend upon the prices of iron, or of copper mining upon the price of copper; but the profits of gold mining seem to him to depend upon the quantity of gold mined and to vary as that quantity varies. The owner of a copper mine has his eye upon the price of copper; the farmers of Iowa, Nebraska, and Minnesota are interested in the price of wheat; it is upon these prices that their profits depend, but the gold miner studies no market report. He will find the price of gold published in no paper. Is he not, therefore, engaged in a most unique industry, in one the profits of which are independent of market fluctuations?

Curiously enough, the gold miner is more interested in prices, though not consciously, than any other purchaser. He is interested in all prices, for the value of his product varies with every change in the price of goods in general.

The relation of the gold miner's profit to general prices can be made clear by illustration. Let us suppose that a man owns a gold mine in Colorado from which he is getting an ounce of pure gold a day. This gold, if we make a slight deduction for the expense of shipment, purification, etc., may be supposed to yield him $20. How is he concerned about the prices? Let us suppose that when he opened his mine the prices of food, powder, tools, etc., were such that his expenses were $10 a day. His daily profit, therefore, was $10. Suppose that during the course of three years prices rise fifty per cent. His daily expenses are now $15 and his profits have been reduced one-half. If prices go on rising, his profits will go on decreasing until a time will come when he will abandon the gold mine as no longer profitable, even though in any one day he is able to get as much gold from it as before. A fall of general prices would produce the opposite effect upon the miner's profits; he would find his expenses growing less and, therefore, his profits increasing. A rise of prices would lessen the amount of gold which he could lay by and also lessen its value to him, for its purchasing power would be reduced; a fall of prices would give him double satisfaction: it would enable him to increase the daily increment to his store of gold and would also add to its purchasing power.

Since all gold miners must be affected the same way as our single miner by changes in the level of prices, it is clear that a rise of prices must lessen the profits of gold mining, and that a fall of

prices must increase his profit. The industry of gold mining, like all industries, is carried on under diverse conditions; some mines are very profitable, while others barely pay the cost of operation. At all times mines are being worked which yield only the ordinary rate of profit, and these are the ones first to be abandoned when prices rise. These mines may be called the "marginal" mines, and the cost of mining gold in these is the cost with which the value of gold tends to conform. As the value of gold falls-that is, as prices rise the expenses of gold mining increase, and marginal mines are abandoned. The world's output of gold being thus diminished, the rate of increase in the world's stock of gold receives a check, and the downward tendency of its value is also checked. On the other hand, when prices are falling because the demand for gold is outrunning the supply, poorer mines are brought within the field of profitable operation and a gradual but steady increase of the annual output sets in. Furthermore, since falling prices are often accompanied by a depression in many industries, the attention of men is more than ordinarily directed to the profits of gold mining, and prospectors go out in unusual numbers in search of new mines. As a result, a fall of prices is usually followed, not only by an increased output from old mines, but by the discovery of new fields of gold, the yield from which finally so augments the supply that the value of gold begins to fall and the prices of goods rise.

Evidently if we only knew what profits were now being made in all the gold mines of the world, it would be an easy matter to discover the marginal mines, and determine how the production of gold would be affected by any further uplift of the general price level. If we should discover that most of the gold now taken from the earth was got out at a cost of $10 an ounce, we should have reason to expect a continuation in the recent large output, even though present prices nearly doubled. Unfortunately we have not the figures necessary for such an estimate. I learn from our director of the Mint that the dividends upon the Rand property in South Africa amount to about 30 per cent. of the product. About 40 per cent. of the great Treadwell mine in Alaska is distributed in dividends. The Oriental Consolidated Mining Company in Korea is also said to be making net profit of 40 per cent. Mr. Roberts is of the opinion that the quartz mines of California and

Cripple Creek average much less than 40 per cent. This is a phase of the subject in which further investigation is necessary, and the results of that investigation must be of tremendous consequence to bankers as well as to business men.

In the past the production of gold has been in great cycles, as our theoretical consideration of the subject would lead us to expect. And these periods of increasing and decreasing production have been attended by corresponding cycles of rising and falling prices. Unless men find some new way of getting gold from the earth, or discover mines where gold can be quarried like iron or coal, we have good reason for expecting that the present era of abundant and cheapening gold will be succeeded by one of relative scarcity, and that the course of prices in the future is destined to be like that in the past, now falling for twenty years or more, and now rising.

THE FINANCIAL OUTLOOK

ADDRESS DELIVERED BY FRANK A. VANDERLIP, VICE-PRESIDENT OF THE NATIONAL CITY BANK OF NEW YORK CITY, BEFORE THE ILLINOIS BANKERS' ASSOCIATION, AT THE LOUISIANA PURCHASE EXPOSITION, ST. LOUIS, MO., OCTOBER, 1904.

It has seemed to me especially fitting to attempt to review, in the briefest manner, a few of the figures illustrative of our material progress, and to try to draw some deductions from them. In order to get a setting for our comparisons, let us for a moment glance back at conditions during the last ten years. We will remember that we were, ten years ago, just emerging from the depression of the panic year of 1893, and that we were facing a great political and economic conflict over the silver issue. The whole world was filled with distrust in regard to the future of our standard of value, and the chilling shadow of that distrust was falling heavily on our commerce and finances.

Then came the definite verdict of the people, declaring for a sound currency, and following that began an unexampled era of prosperity such as no other country, in any age, has ever known. The expansion went beyond all the experiences of men of affairs.