1. It is not easy to describe or imagine the exact manner in which an excess or deficiency in the ordinary gold supply affects prices, although its ultimate effect on them cannot well be doubted. As in our days the new gold generally finds its way as soon as possible to the banks, the common impression seems to be that it by so much increases the loanable funds of the banks, and therefore in the first instance causes the rate of interest to go down. This, no doubt, would be true if the new gold in its totality were deposited by its owners as capital for lending purposes, and in so far as this may be the case it indeed affords an illustration, and the only practical one, of the lowering of bank rates effecting a rise of prices. But mostly, I suppose, the gold comes to us not as lending capital, but as payment for the imports of the gold-producing countries, and if so its acting on the prices will be much more immediate and its effect on the rate of interest very slight. It is even possible that the rise of prices, caused by the increased demand for commodities from the gold countries, will forerun the arriving of the gold, the necessary medium of exchange being in the meantime supplied by an extension of the credit, so that the rate of interest perhaps will rise from the beginning. In any case the ultimate effect an increased gold supply will be a rise, not a fall, in the rate of interest (and vice versa with a lacking supply of gold), because the large mining enterprises and the buying up of gold by the non-producing counties have actually destroyed large amounts of real capital and thereby given the rate of profit a tendency to rise. This all may be the explanation of some rather perplexing features in economic history, a rise of prices even when apparently caused by a surplus of gold supply very seldom being accompanied by a low rate of interest, but generally by a high one.
End of Notes for Wicksell, The Influence of the Rate of Interest on Prices.