_Fluctuation of standards._--In the study of the precious metals as the standard of prices, it is necessary to remember that the value of these metals, like that of all products of labor, is subject to considerable fluctuations. The very fact that gold and silver are durable metals, not easily consumed or readily worn away, tends to make the increased product in a series of years less and less valuable. While the ordinary increase in product may be provided for by increased demand through extended exchange, the very improvements in the machinery of exchange, especially the extension of general credit, operate in the opposite direction.
It is certain that the value of gold and silver within one hundred years after the discovery of America, when European nations took possession of accumulations among the inhabitants of Central and South America, diminished to a little more than one-fourth of the value previous to that discovery. It is estimated that the value of gold since the discovery of 1849, in California, followed by the opening of mines in Australia and South Africa, has been reduced to little more than three-fifths of its value in 1850. This estimate is based upon careful comparisons between what an ounce of gold in 1850 would buy of some hundred staple products, and what the same ounce of gold will buy today of the same hundred products. The test is a somewhat uncertain one, from the fact that many products are much more affected by improved methods of production than others, and changes of habits and customs among the people greatly affect the prices by changing demands. The combination of a large number of products being less likely to be affected than any one, the comparison is worthy of some confidence. Nevertheless, it is possible for two different persons, making different selections for comparison, to arrive at very diverse results. If the selected articles are those of ready manufacture where improved methods have most largely entered, the value of gold will seem to have increased; if, on the other hand, the selected articles are raw materials, in which the law of diminishing returns gives greater cost of production, the value of gold will seem to have diminished.