results, it is estimated that there are 1,720,000,000 tons of ore in that section. The whole matter resolves itself into a question of working costs, but under any circumstances the Transvaal production will continue to be on an enormous scale for many years to come.

The South African Mining Journal in a recent issue refers to the great varieties of estimates as to the life of the Rand which have been made in recent years. In conclusion, the article observes: "To summarize all these prophecies, and without quoting a number of other forecasts, we arrive at the following: 1901-Mr. Hammond says the Rand will last until 1926. 1902-Dr. Hatch and Mr. Leggett say until 1944. 1904-The Loan estimates that authorities say until 1934. 1911-Dr. Hatch indicates a life until 1950, and in the same year Mr. Hull prolongs the period by about 15 years. Mr. Boustred then put the date of exhaustion at A.D. two thousand and something. Next the Chamber of Mines gives evidence, which is interpreted in some quarters as meaning that the Rand will be of a very minor importance after 1940, and Mr. Mathers informs the world that the Rand will be productive until 2008. We do not propose to analyze these various prophecies such action would be as futile as the prophecies themselves. It is now admitted that Mr. Hammond's 1901 estimate was based on false premises. The former chief consulting engineer of the gold fields did not reckon on working costs being reduced to the extent they have been. We firmly believe that long before the date of exhaustion determined by other authorities has been reached it will be generally admitted that these other authorities also did not base their estimates on correct assumptions. Who at this date will make so bold as to say what changes in the economic aspects of the industry may not be effected before the end of the present decade? And since every little improvement, every little reduction in working costs, must have a hugely important influence on millions of tons of ore, who can limit or determine the productive era of the Witwatersrand? In any case, the death of the Rand is not going to be a sudden affair. The decline will be very gradual and protracted."

VII

THE STANDARD QUESTION: THE CONTROL OF PRICE LEVELS

Introduction

In this chapter we are concerned only with the standard of deferred payments.' It has been noted that this function of money was of later origin than the others, being necessarily delayed until the development of contractual relations and the institution of credit had given rise to time obligations. Consequently, in the early periods of monetary history the question of deferred payments was of minor importance. Today, however, it is the paramount issue in monetary discussion. The standard, gold, no longer serves extensively as a medium of exchange, and as a common denominator of value for a given moment of time it gives rise to no real problems. It is, practically speaking, only as a standard of deferred payments that we have at the present time a monetary problem at all, so far as gold is concerned.

It has been noted in chapter i that an ideal standard of deferred payments should be absolutely invariable, like a yardstick, and that in practice we should choose for such standard a commodity as nearly stable in value as possible. The evils of a fluctuating standard of deferred payments manifest themselves through changing price levels. Obligations payable in money that are entered into at one price level may be payable at a future date when the level of prices may be substantially lower or substantially higher. If lower, the borrower finds that he has to repay a greater purchasing power than he received, or, what is more to the point, he finds it more difficult in consequence of lower prices (and wages) to repay his loan than would have been the case at the former level of prices. If prices have risen, the lender does not receive back a purchasing power equivalent to that given at the time of the loan.

While the greenback and silver movements in the United States found their popular support partly, perhaps mainly, in the desire for a larger supply of money, they also involved, as has been noted, the injustice to debtors caused by an appreciating standard of deferred 1 See discussion of standards, pp. 96–97.

payments. At the present time the situation is reversed, the agitation over the high cost of living being a result of the losses suffered by creditors owners of bonds and other long-time investments-in consequence of rising prices; though accompanying this, of course, is the inequity that results from the failure of salaries and wages to advance with like rapidity. Former eras of high prices have also given rise to discussion of the question of deferred payments though perhaps in a less definite way so far as the general public has been concerned. The public attitude toward the control of prices, however, is shown in the various historical attempts in almost every country to fix the prices of staple products and to punish violations of the law by fines, imprisonment, and even death.

Students of money have long given the control of price levels their close attention, and numerous devices have been suggested for procuring a stable standard of deferred payments. The first phase of the discussion centered around the choice of such a standardwhether it should be the precious metals or some other commodity, such as wheat (corn), or whether labor might not serve as the measure of future payments. In the second place, the argument for bimetallism, at least on the "scientific," as distinguished from the popular, side, was mainly that it would give us a less variable standard for deferred payments. A third device was that of the tabular standard, first proposed by Mr. Jevons in the seventies' after a long period of rising prices, and discussed by economists more or less continuously ever since. Finally, we have a variation of the tabular method of control known as the compensated dollar. First suggested by Williams in 1892, it has again been independently advanced with much refinement and elaboration of detail by Professor Irving Fisher. The plan has been the subject of much discussion and has had a wide though not universal indorsement by economists.

143. THE NATURE AND PURPOSE OF THE MULTIPLE STANDARD"

BY DAVID KINLEY

The unit of measure under the tabular standard is the aggregate price at a given time of a long list of articles, a definite quantity and quality of each being chosen, just as is done in making a table of index

I

Jevons gives credit for suggestions along this line to some English writers as early as 1830.

2

Adapted from Money, pp. 276-77. (The Macmillan Co., 1904.)

numbers. A table of the prices of these articles is made when the debt is created, and again when it is to be paid. If we call the sum of the prices of the articles at the creation of the debt 100, then the amount of money to be paid is to the amount borrowed as the sum of the prices at the time of payment is to 100. That is, the debt is really regarded as consisting of as many units of the tabular standard as the money loaned would buy at the time the debt was incurred. The amount of money which will buy these units when the debt is due is what the debtor pays. For example: If, on the first of January, A borrows $1,000 payable in one year, he finds the number of units of the tabular standard which $1,000 will buy on January first. Suppose this number is ten. He then gives his creditor a note for ten units of the tabular standard, and on the first of the following January reference is made to the price list then existing, to determine how much money the units of the tabular standard will then command. He may find that $990 will buy the same quantity of the goods used in making up the table as $1,000 would buy the year before. In that case the debt is settled by the payment of $990.

Of course it would be necessary to have some means of insuring the accuracy of the prices quoted in making up the tabular standard. This would be done by creating an official commission, whose duty it would be to publish at stated periods, say weekly or monthly, changes which have taken place in the prices of commodities entering into the table. With these prices in hand, it would be an easy matter for an individual to find out what his debt was worth in money at any date. If the tables included all articles sold at the time, in the proportion in which they are offered for sale, and if the amount of each article in the table were scaled down so that the price of the whole should become that of a unit of money, the tabular unit would become what we have called the composite commodity unit. The aim of the tabular standard of deferred payments is, therefore, to return at the time of payment as many such composite commodity units as the money borrowed enabled the borrower to secure at the time the loan was made. The debtor, by this method, would return the same income in goods as he received.

144. INDEX NUMBERS AND LEADING PRICE TABLES' An index number or relative price of any given article at any given date is the percentage which the price of that article at that date is of the price of the same article at a date or period which has

▪ Bulletin of the United States Bureau of Labor Statistics, VII (1902), 195–214.

been selected as a base or standard. This base or standard varies in the different series of index numbers which have been presented to the public. In the London Economist's index numbers the average price for the years 1845 to 1850, inclusive, is taken as the base; in those calculated by Mr. Sauerbeck the average for the eleven years, 1867 to 1877, is taken; in Soetbeer's index numbers the average for the four years, 1847 to 1850, is used, while in the United States Senate Finance Committee's statement of relative prices the price for the year 1860 is taken as the base or standard. In order to secure the index number or relative price for any article at any date in the period covered, the price of the article for that date is divided by the price at the date, or by the average price for the period selected as the base. The quotient obtained shows what percentage the price at the given date is of the base or standard price and is called the index number or relative price. For example, the percentage for flour in 1885 in Mr. Sauerbeck's series of index numbers is 63, meaning that the average price of flour in 1885 was 63 per cent of the average price of the same article during the base period (1867–77). This base being always 100, a fall of 37 per cent is indicated.

These percentages having been made in the case of each separate article included in the particular scheme under consideration, and for each year of the period covered, a series of total index numbers or relative prices for each of the years covered is usually constructed by adding together the index numbers of all the articles for each year and dividing the result by the number of articles considered, thus securing an average of the same.

One of the best known price tables is that of the London Economist, which has been published annually since 1863. It is based on the price quotations of twenty-two commodities, as follows: coffee, sugar, tea, tobacco, wheat, butcher's meat, raw cotton, raw silk, flax and hemp, sheep's wool, indigo, oils, timber, tallow, leather, copper, iron, lead, tin, cotton wool, cotton yarn, cotton cloth. The prices used are wholesale quotations, mainly from firms engaged in trade in the London and Manchester markets.

The most widely known series of European index numbers, aside from those of the London Economist and Mr. Sauerbeck, is that of Dr. Adolph Soetbeer. These index numbers were first published in 1886 and were based on the prices of the Bureau of Commercial Statistics of Hamburg. To the prices secured from this source Dr. Soetbeer added those of several articles, such as potatoes, meat, etc.,