ities of silver flowed into Europe. The great rise of
prices that occurred was explained by the keenest thinkers of that day
along the essential lines of the quantity theory, tho there were many
monetary fallacies current at that time. The experience in England
during the Napoleonic wars, when the money of England was inflated (by
the forced issue of large amounts of bank notes) and prices rose above
those of the Continent, led to the modern formulation of the theory by
Ricardo and others about 1810. The discovery of gold in California
and Australia in 1848-50 greatly increased the gold supply, and gold
prices rose throughout the world. Between 1870 and 1890 the production
of gold fell off while its use as money increased greatly, and prices
fell. A great increase of gold production has occurred in the period
since 1890. In part the rising prices since 1897 are explicable as the
periodic upswing of confidence and credit, but in the main doubtless
they are due to the stimulus of increasing gold supplies.[10] These
are but a few of many instances in monetary history, which, taken
together, make an argument of probability in favor of the quantity
theory so strong as to constitute practically an inductive proof.

[Footnote 1: The old-fashioned miser, however, withdraws his hoarded
gold for the time from its usual monetary function as an indirect
agent and treats it as a direct good yielding to him psychic income by
its mere possession.]

[Footnote 2: See on kinds of income, Vol. I, p. 26 ff.]

[Footnote 3: See secs. 1 and 2 of this chapter; also Vol. 1,
especially pp. 31-38 and 353-355.]

[Footnote 4: This means actually gratuitous, for any real difficulty
in getting metal to or from the mint operates as a cost in the
conversion of bullion into money, or _vice versa_; e.g., the gold may
be in Australia and the mint in London.]

[Footnote 5: See Vol. I, pp. 138 ff. and 361 ff.

FIG. 1. GOLD PRODUCTION OF THE WORLD, 1493-1914.

The changes in gold production here shown have bearings not only
upon problems of money, but in some respects upon nearly every modern
economic problem. Compare in the present connection this figure with
Figure 3, in Chapter 6, Section 4, showing changes in index numbers of
prices.

[Illustration: FIG. 1. GOLD PRODUCTION OF THE WORLD. 1493-1710.
AVERAGES FOR PERIODS BEFORE 1870]]

[Footnote 6: This formula is presented by E.W. Kemmerer in "Money and
Prices" (2d ed., 1909), p. 15 ff.]

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