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Published online by Cambridge University Press: 22 April 2013
Some years have now elapsed since I had the honour of addressing you from this chair. In the paper which I then read to you I urged on our younger members the necessity of studying finance, and especially of endeavouring to form a just estimate of the value of money, and of the rate of interest which will obtain in the future, so far as that future forms an element in our calculations. Without this knowledge we shall build with insufficient materials, and in the absence of its thoughtful application to our daily work, and to our periodical investigations and valuations, we shall rear a fabric which, although it may last during our lives, and look to all appearance as if it were carefully and substantially built, will certainly, before its time, show symptoms of decay, and finally fall about the ears of too confiding policy-holders.
* It is doubted by some whether Bimetallism would affect the rate of interest, and Mr. Gibbs, who argued that “the rate of interest depends not upon the quantity of gold in the world, but upon the briskness or slackness of business,” quoted the well-known opinion of John Stuart Mill, that “the rate of interest bears no necessary relation to the quantity or value of money in circulation. The permanent amount of the circulating medium, whether great or small, affects only prices, not the rate of interest. A depreciation of the currency, when it has become an accomplished fact, affects the rate of interest in no manner whatever. It diminishes, indeed, the power of money to buy commodities, but not the power of money to buy money.” But Mill also says that “the whole increase of currency in the first instance swells the loan market.” … “An increase, therefore, of currency issued by banks tends, while the process continues, to bring down, or keep down, the rate of interest.” And he adds, “A similar effect is produced by the increase of money arising from the gold discoveries, almost the whole of which is, when brought to Europe, added to the deposits in bank, and consequently to the amount of loans—and, when drawn put and invested in securities, liberates an equivalent amount of other loanable capital.” Mill insists at greater length on the effect of such addition to the currency on the rate of interest; but I think that I have quoted enough for my purpose, for I apprehend that no Bimetallist will deny that the effect of creating a double standard, and thereby adding largely to the currency, will, so far as our internal arrangements are concerned, be the same in kind, if different in degree, as if there were other great discoveries of gold, and a large addition in that metal made to our currency. It is difficult to ascertain what amount of silver exists in the state of bullion, or what amount would be mined in consequence of the premium offered by free coinage; but, unless there were a large and long-continued addition to the currency, I presume that the anticipations of Bimetallists would be entirely falsified, it being one of their contentions that the rehabilitation of silver would make good that contraction in the gold currency which they allege is at present experienced.