157 APPEECIATION OF GOLD. (2.) Tlie next inrportantconsideration is the amount of transactions which have to be effected by the gold. Here it is necessary to get rid of a prevailing mis- conception. Many people have a hazy notion that the substitutes for gold can be indefinitely increased, and that the quantity of the actual metal is, in the modem world, of small importance. The error has been admirably exposed by Mr. Giifen in his work on Stock Exchange Securities, and in an essay on the Depreciation of Gold since 1848.1 He shows that the whole superstructure of credit must rest on a gold basis ; even in the wildest speculative mania on the Stock Exchange, a limit to the rise of prices is set by the amount of gold on which it ultimately rests. It may be true that 99| per cent, of the commercial transactions of this country are effected without the use of the precious metals, but the | per cent, of gold required is absolutely indispensable. It may be that if ali claims on ali the banks were presented at once not fourpence in the pound would be forthcoming, but the whole banking system rests upon that fourpence. "VVliatever economies in the use of gold are made, gold is required for three pur- poses in every country with a gold currencyâ (1.) To form the ultimate banking reserve ; (2.) To meet foreign drain ; (3.) For certain currency purposes. It is upon this third function of gold that Mr. Giffen 1 Essay II. in Essays on Finance.