It does not act, for example, as an unusually plentiful harvest in all the great corn-producing countries does, which by making food cheaper for the great masses of a population leaves them more to spend on all other things, and so makes trade brisk all round; for on the hypothesis with which Mr. Pigou starts out, the gold which passes to the one country from the other, is not, as in the case of the harvest, due to a fresh supply of gold over and above that in the countries before. Nothing having been altered, therefore, in the organic relations of the industries of the two countries, which would in any way alter the scale of prices in either, the mere passage of gold from one to the other would have no more effect on their respective price lists than the movements of a fly over the skin of a patient would have on the condition of the vital organs beneath. For this, it would be necessary that some great new gold mine or mines should be discovered which would flood the whole world with their products, and so, like an unusually abundant harvest, would make gold as plentiful as, say, silver is now.

But even then, be it observed, it would have little effect on prices until it found its way into the pockets of the great masses of men, as was the case with the original Californian and Australian mines, where the men themselves picked up the gold from the ground with the simple utensils used for washing it out; and by this addition to what might be called their wages, created so great a demand for every article within their reach that prices rose to unprecedented heights, - first in the vicinity of the mines, and then, as the gold was passed on in enlarging circles, wider and ever wider, until the whole world felt the effects of it. It raised prices in the same way as if each man in the world were presented with an extra coin for every one owing to him when his salary, or wages, or profits, fell due; but as it would operate equally on the weaker of Mr. Pigou's two nations as on the stronger, it would be as broad as it was long; and nothing would be altered in any way from what it was before. And if before the inundation of gold one of these nations was so superior to the other in everything that there was no reason why they should trade at all, so would it be after it.

But from the moment that gold required the use of expensive machinery to extract it from the deep-lying quartz, it went, not into the hands of the workmen (who would have raised prices by the abundance of it in their possession) but into the hands of the capitalists, who either put it to their credit accounts at the bank, or used it as additional capital for the further working of their business: but who, in either event, would no more have dreamed of increasing the wages of the miners by reason of their magnificent profits, than the wealthy coffee planters of India or Ceylon would dream of increasing the wages of their coolies. And, the consequence has been, as we see, that although millions of fresh gold are thrown every year on the market, it is questionable whether it alters prices a jot. Indeed I am told on the authority of the great bankers and the officials of the Mint, that the world could absorb at least one hundred millions of newly mined gold every year before prices would be affected by it.

The excess would be distributed among the banks in amounts varying according to the necessities of their business, or be hoarded by peasants and despots, or used up as a commodity for purposes of luxury or ornament.

And now we have to see what would become of that part of it deposited in banks. It would be used by the proprietors of the banks primarily to strengthen their own credit by adding to their reserves where these were deficient, or to add to these reserves, in order to meet the legitimate demands for temporary money accommodation in all progressive industrial communities. But given that the bank reserves were sufficient already, the mere emptying of this excess of gold into their vaults, or the taking of it out again, would have little more effect on general prices, - so long, that is to say, as it did not exceed the amount estimated above, - than if it were so many-sacks of coal. The only effect would be that discount rates on loans would be easier than usual for the time being, and until the temporary excess above requirements had been passed on and distributed to other nations where gold was more in demand, and where it yielded more profit to the banks than its retention at home would do.

For banks are essentially private institutions, in the same way as the Stock Exchange and the business of money lending are private institutions, and to imagine that because they have a temporary excess of the commodity, gold, in which they deal in their vaults, this is going to alter appreciably the general price level of bread, meat, coals, calico, and all other things, merely because it is the medium of exchange, is as absurd as to imagine that an excess of one or other of these things is going to alter appreciably the general value of gold. But to imagine, as Mr. Pigou and the orthodox Political Economists do, that when gold is in excess in one nation owing to its industrial supremacy over another in all things, (and not merely owing to the discovery of new mines), it will, when getting rid of its excess of gold send it back again to that other nation - which by the hypothesis has now lost to its superior the business which can alone create a demand for more gold, - is the supremest absurdity of all.