I have purposely excluded such gambling speculations in futures, as wheat and cotton 'corners,' etc., as irrelevant to our issue, inasmuch as although they may affect prices profoundly, they do not concern the problem in hand, which is the relation of gold to prices in bona fide industrial operations; and are therefore no more part of the subjectmatter of political economy than is any other form of mere gambling. It is true that in all industrial operations whatever, depending on future and unknown contingencies, there must always be an element of speculation if the business of the world is to be done at all; but the difference between the speculations of a wheat or cotton 'corner' on the returns of a crop already existing, and the necessary speculation in, say, the opening-up of a new mine, the reclamation of a piece of waste land, the projection of railways or canals in new countries, etc., is this, that the former is pure gambling on the results of an already completed industrial operation; the other is a necessary trade risk, which must be taken on the inauguration of every new, and therefore uncertain, industrial enterprise.

Now these new industrial enterprises in ordinary times have usually to depend on the general public to finance them, but in 'booming' times when all business men are buoyed up with hope and expectancy, the bankers themselves become more or less infected and hypnotised; and, carried away by the tide, will often set afloat great balloons of paper credit which are out of all reasonable proportion to the gold reserves in their vaults. Prices will then, of course, rise more or less all round, just as they would if each working man were given two sovereigns to spend instead of one, - but why? Not because of any increase of gold reserves which would justify it, but because of the actual industrial demands which the credits call forth and set in motion. Capitalists in many different spheres of industry give more orders to each other for all kinds of raw material, machinery, building operations, etc., which in turn give employment to more men; and all together, like an army which has been suddenly recruited in numbers, and has to supply itself with what it wants as it goes along, make so great a demand at short notice on existing sources of supply that prices for the time rise all round.

That the rise of prices in these cases is due to the actual increase of industrial demands is seen when these new industrial undertakings - sufficient time having been given them, - fail to realise the bright hopes with which they started out, and cannot pay in the products they turn out for the expenses incurred in developing them - in the purchase of land, the erecting of buildings, the stocking with machinery, the interest on loans, the wages of workmen, and what not. Then bankruptcies begin, credits falling due are not redeemed, further credit advances are stopped, the whole or part of the extra industrial army of capitalists, masters, and workmen, are disbanded, and their profits, wages, and salaries, come to an end; and with them the demands for all those kinds of commodities, services, and materials, which attended their buoyant inarch on the road to fortune. Prices then doubly fall; on the one hand from supply having by this time come up to the increased demand, and on the other from that demand having now suddenly ceased; and so left a congested supply with nothing to carry it off.

But this fall of prices is essentially due, it is to be observed, to the falling off in the demand for actual commodities, rather than to the collapse of credit, or to any appreciable difference in the ordinary amount of gold reserves in the coffers of the banks. For although the restriction of credit attends the fall of prices and is the signal for their fall, - and indeed often precipitates that fall, when a little longer extension of credit might have prevented it, - it is nevertheless not the true scientific cause of the fall, any more than the destruction of the Bastille was the real cause of the French Revolution, although in a way it heralded, precipitated, generalized, and extended it. In other words, it is the failure of the new enterprises themselves and its effects on the supply and demand of actual industrial commodities, to which the fall of prices is in strictness to be referred, and not to the restriction of the credits; as is evident from the fact that until panic sets in from the actual failure of the new enterprises to supply the goods, or of the public to buy them when produced, credit advances continue to be made by the banks.

The only sense in which credits can be said to be the cause of a rise or fall of price, so far as the Science of Political Economy is concerned, is in their normal function as part of the legitimate organized machinery of production, consumption, and exchange, where they save time (the soul of wealth) by lubricating the wheels of the industrial machine and preventing its jolting, and thus insure that the real commodities themselves will be transferred from seller to buyer with the least delay.

From all of which I think we are justified in concluding that whether it be current or future business, old or new industrial undertakings, it is only the actual business transactions, - the actual purchase and sale of actual commodities - following the ordinary laws of supply and demand, which are the true scientific cause of the rise and fall of prices, and, moreover, of the degree of that rise and fall; and not the amount of the circulating medium in use, - whether it be gold or bimetallic, - or the note issues founded on it, which unless they bear a well understood and recognised proportion to the gold, and are kept well in hand in discounting bills, become the occasion of booms and panics, and the rise and fall of prices which attend them, and which are therefore only a passing, gambling, bubble, the result of illegitimate hopes and fears, but which can have no place in a science of political economy, as such.