II

INFLATION AND DEFLATION

89

call the index number of these latter years roo,we find that, for the period of close on a centuryfrom 1826 to the outbreak of war, the maximumfluctuation in either direction was 30 points,the index number never rising above 130 andnever falling below 70. No wonder that wecame to believe in the stability of money con-tracts over a long period. The metal gold mightnot possess all the theoretical advantages of anartificially regulated standard, but it could notbe tampered with and had proved reliable inpractice.

At the same time, the investor in Consols inthe early part of the century had done very wellin three different ways. The “security” ofhis investment had come to be considered asnear absolute perfection as was possible. Itscapital value had uniformly appreciated, partlyfor the reason just stated, but chiefly becausethe steady fall in the rate of interest increasedthe number of years’ purchase of the annualincome which represented the capital. 1 Andthe annual money income had a purchasingpower which on the whole was increasing. If,for example, we consider the seventy years from1826 to 1896 (and ignore the great improve-ment immediately after Waterloo), we find thatthe capital value of Consols rose steadily, withonly temporary set-backs, from 79 to 109 (inspite of Goschen ’s conversion from a 3 per centrate to a 2f per cent rate in 1889 and a 2f per

1 If, for example, the rate of interest falls from per cent to3 per cent, 3 per cent Consols rise in value from 66 to 100.