PART III 
THE RECENT HISTORICAL EXAMPLE 
S 1. Gold Prices. 
For many years before the War all the great 
Western countries and, since 1898, India, reckoned 
prices in gold, and consequently had no reason for 
distinguishing gold prices from paper prices. From 
the end of last century to the outbreak of the War 
a gradual rise of prices had been taking place because 
the demand for gold, though increasing, was not 
increasing fast enough to counteract completely the 
effect of the large annual additions to the stock 
which were being made in consequence chiefly of 
the discovery of the South African sources and their 
exploitation by the resources of modern science. If 
the War had not occurred prices now would, so far 
as we can judge the probabilities of such a hypothesis, 
have been considerably higher than in 1913, though 
not so high as they actually are. 
The War tended to diminish the value of gold, 
by enormously reducing the demand for it. Unlike 
most other important metals, gold is not used in the 
manufacture of munitions of war. Moreover, none 
or very little of it is used directly or indirectly in 
the provision of necessaries of life. So belligerents 
in difficulties could afford to do without it, and as 
it is indestructible and contains much value in small 
bulk, it was a very convenient thing for them to 
give in exchange for things which they wanted more 
urgently. Accordingly they stopped buying (i.e., 
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