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192 A TEEATISE ON MONEY bk. m

their speculation may take, it is almost sure, directly orindirectly, to raise prices. This is the main issue. It isthis : when the gold comes to the country it is known,and people expect that prices will rise. Now if a persondoubting whether to borrow for speculative purposes hasa reason to believe that prices will rise, he is willing totake a loan at 3 per cent., which before he would not havetaken at 2| per cent., and consequently the influx of goldinto the country by making people believe that priceswill rise increases the demand for capital, and raises,therefore, in my opinion, the rate of discount.” 1

“ Having this extra supply, lenders lower still morethe rate which they charge for loans, and they keep onlowering it till a point is reached at which the demandwill carry off the larger supply. When this has been donethere is more capital in the hands of speculative investors,who come on the markets for goods as buyers, and so raiseprices. . . . This then is my account of the way in whichthis extra supply of the precious metals would bring pricesup. Having been raised they would be sustained becausethe methods of business remaining stationary, if a man withan income of £1000 keeps on the average £12 in his pocket,and if there is more currency in the country so that hisshare is increased from £12 to £14 ; then what was boughtby £12 would in future be bought by £14. ...” 2

The emphasis here is on “ speculation ”, whichlends a false colour ; though in the first quotation,investment seems to be suggested. On the whole Iam inclined to think that uppermost in Marshall’smind was the idea that what raises prices is thecreation of additional purchasing power, but that in

1 Gold and Silver Commission, No. 9981, Official Papers, p. 130. Thereseems here to be some perplexity in Marshall’s mind as to whether the newgold raises or lowers the rate of discount. Before the Indian CurrencyCommittee he makes the chronological sequence clearer : “ The new cur-rency . . . increases the willingness of lenders to lend in the first instance,and lowers discount; but it afterwards raises prices and, therefore, tends toincrease discount ”—( Official Papers, p. 274; my italics). But here it ishigher prices which increase discount, whereas in the passage quoted aboveit is the demand for capital due to the expectation of higher prices whichdoes so.

2 Gold and Silver Commission, No. 9686, Official Papers, p. 51.