During this period there was a large and general fall in the gold price of commodities accompanied by great economic depression. Sir Robert Giffen (then Mr. Giffen) stated in January, 1879 that the fall in gold prices was largely due to the greatly increased demand for gold in recent years and to the actual insufficiency of the current supply of gold for the current demand of the gold-using countries. Other authorities attributed the fall to increased and cheaper production, to the opening of new countries to trade, to the increased facility for transport and the reduction of rates, as well as to increased industrial competition which tended to reduce profits. As is generally the case, the truth lay midway, as was seen in subsequent years.

The position, however, was getting serious and there was a long and continued depreciation in the countries adopting the gold standard. In 1885 a Royal Commission was appointed in England to enquire into the extent, nature and probable causes of the depression prevailing in the various branches of trade and industry. While making recommendations, the Commission made the following statement; -

"We expressed in our third report the opinion that this fall in prices, so far as it has been caused by an appreciation of the standard of value, was a matter deserving of the most serious independent inquiry; and we do not, therefore, think it necessary to investigate at length the causes which have brought it about. But we desire to give it a leading place in the enumeration of the influences which have tended to produce the present depression."

This recommendation, of course, led in the following year to the appointment of a Royal Commission "to inquire into the recent changes in the relative values of the precious metals, shown by the decrease in the gold price of silver." For all practical purposes this Commission was really one appointed to investigate the merits or otherwise of bi-metallism. The majority of the commission, seven out of twelve members, was really of opinion that appreciation of gold meant only an increase in the price of gold, due to causes primarily affecting this precious metal. "There cannot be any question," said the majority," that the gold price of many, and probably most, commodities have fallen during the last fifteen years. In relation to these commodities it may, no doubt, be said that gold has appreciated. That is another mode of expressing that their price is lower. It may, however, also without inaccuracy be said that in relation to gold these commodities have depreciated. Which is the more accurate expression in any case will depend upon whether the altered relation of the commodity to gold has arisen from some change which has affected gold, such as diminished supply, or some increase of demand owing to its use for purposes for which it was not formerly employed, or whether this alteration is connected with a change affecting the commodity, such as an increased supply or diminished demand. It may, however, have arisen partly from one or partly from the other, so that the true explanation of the fall in prices may be that there has been both appreciation of gold and depreciation of commodities. It is only in so far as the fall in prices is due to circumstances affecting the standard of value that it comes within the scope of our inquiry. A fall in the price of commodities which results from an increase in their supply or a diminution in the cost of their production or transit does not appear to us to be of itself an evil; and, if it were so, it is one foreign to the subject which is referred to us for consideration and report."

The majority summarised their conclusions as follows:

We think that the fall in the price of commodities may be, in part, due to an appreciation of gold, but to what extent that has affected prices we think it impossible to determine with any approach to accuracy. We think, too, that the fall in the gold price of silver has had a tendency operating in the same direction upon prices, but whether this has been effective to any, and if so to what, extent we think equally incapable of determination. We believe the fall to be mainly due, at all events, to circumstances independent of changes in the production of, and demand for, the precious metals, or the altered relation of silver to gold. As regards the fall in the gold price of silver we think that although it may be due in part to the appreciation of gold, it is mainly due to the depreciation of silver."

It is admitted that between 1873 and 1886 gold prices fell largely and that a considerable change was effected in the purchasing power of gold. The causes that led to the change may be briefly summed up as follows: (1) Reduction in the cost of production of certain commodities; this reduction caused all these commodities to fall and produced a change in relative prices, but would have had no effect on the general price level if the quantities produced had not been increased. (2) There was also a great reduction in the cost of transportation. This would also have had no effect on the general price level unless it led to an increase in the quantities of commodities produced, or to an increase in the number of exchanges. (3) The reduced cost of production and the reduction of cost of transport did in fact cause changes in the relative advantages of different countries in the international trade of the world, which had the effect of altering the internal scale of prices and wages in the countries affected. (4) There was an increase in the quantities of the commodities produced and an increase in the number of exchanges, both causes tending to bring about a fall in the general price level. (5) There were additional demands for gold due to the substitution of gold for the silver standard in certain countries. (6) There were additional demands for gold due to changes from inconvertible paper to a metallic gold standard. (7) There were special demands for gold due to the great development of the United States of America. This cause is to some extent identical with that stated in (3). (8) There was some reduction in the yearly-production of gold.

The majority of the Commission rejected any idea of returning to the old bi-metallic arrangements. They favoured the creation of a more extended demand for silver and recommended the removal of the duty on silver plate and the use of small notes based on silver. Negotiations with other nations with a view to increasing the use of silver were also recommended. In any case conditions in England were not imperious enough to necessitate a change in the standard; hence gold remained the standard of value.

The fundamental defect of Commissions and others that have spoken or written about gold or silver was that, while they considered silver was depreciating in value, gold was always looked upon as having an unchangeable value.