The representative. [volume] (St. Paul, Minn.) 1893-1901, 1900-05-31
| nection between prices ana tho medium

nection between prices and tho medium
Of exchange.
According to the Richardian formula
accepted by the early economists, th,
connection subsisting between prices
and the volume Of money in circulation
Is direct and constant. Each moves
with the other. AS the one (the money
volume) increases the other (the aver.
age price OF goods) increases, and In
versely. Expanding the money volume
thus produce the same effect upon the
sea level Of prices as is produced upon
the level Of water in lake by the
melting Of snow in the mountains and
the swelling of the streams by which
the lake Is fed; while diminishing the
money volume lowers the general level
OF prices exactly as drafting OF water
from the lake. lowers the level Of the
lake. Says John Stuart Mill (Prin-
ciples, book ILL.,, chapter Will, section
y: II the whole money in circulation
was doubled, prices would be doubled.
II 1t was only increased one-fourth.
prices would rise one-fourth. :
The value OF money, other things being
the same, varies inversely as to its
quantity: every increase in quantity
lowering the value, and every diminu-
ton raising 1t in a ratio exactly equiv
alent." After explaining that the RAJ
pidity of the circulation Of the money
must be taken into account, he clinches
the nail with the statement, THAT an
increase in the quantity OF money raises
prices, and diminution lowers them,
Is the most elementary proposition in
the theory Of currency, and without it
we should have no key to any of the
Others ,oe,
Upon this theory Sound money" men
today heap scorn and ridicule. On ex-
animation, however, it is found that
the crux Of their criticism lies in the an
parent disregard, by the above formula,
OF the existence and vast Importance of
credit as medium of exchange in mod
ern industry. Credit, we are told. rep
resented by pass and check books, bills
OF exchange, and other devices of mod
ern banking, now does some 80 per cent
OF the work supposed by the uniformed
to be done by money Hence fluctua-:
lions in the volume OF actual money
can produce but an inconsiderable effect
at best upon the average of prices.
: The influence of credit upon prices is
greatly exaggerated. It's volume may
be 20 times greater than that of money,
but its rapidity of circulation is but
that of money.
Yet Mill appreciates the Importance
OF credit as factor in the determine
ton of general prices. He says (book
Ill, chapter XII, section 81; I'm a state
OF commerce In which much credi. is
habitually given, genesabsprices at any
moment depend much more upon the
state of credit that upon the quantity
of money"
Doubtless the quantity theory is some
times stated in terms too narrow tn
cover the field, the influence Of credit
being overlooked. It may be stated thus:
The average of general prices tend to
vary directly as the total volume of the
medium OF exchange (rather than
as the total exchange medium
Increases, average prices tend CORES
pondingly to increase, and as it
they tend to diminish. In
this total volume Of the medium of ex-
change we may now include all moneys,
hard or soft, credit instruments of all
sorts, even private media of exchange
represented by clearing house certifi-
Gates, checks issued by company stores,
and whatever in any way functions as
an exchange medium. II, now, the vol
lme of this total exchange medium can
be controlled the movement OF average
prices can be correspondingly control
led. True, trusts tend to force certain
prices up; the expansion of industry
Ind improvement of processes to force
hem down. Yet control of the total
of exchange medium can domi-
nate all other influences. Is such con-
;rol possible?
Certain factors of the exchange med
UNI are now subject to social control.
Gold is freely coined by the government
IN request. The volume of bullion that
nay in any year be presented for COIN
lge is dependent upon the accidents of |
discovery, the profits of mining and the |
demands of the arts. The present price |
Use Is, in fact, largely due to currency |
nfiation" by the free and unlimited, |
oinage" Of gold at a fixed fiat value |
or the benefit of the bullion owner. |
The volume Of bank notes is determined, |
It it's lower limit, by the profits of bank
circulation, and at It's upper by the total |
'olume of available government bonds. |
The volume of bank credit is dependent |
argely upon the unstable and abstract
nifty called Confidence" while the
olume Of private money, though steadi-
Y encroached upon with the advance of
is confined within highly
Indefinite limits. A veritable anarchy
hus exists as to the volume Of certain
important factors of our medium of ex-
hange and, hence, of the total volume
that medium ITSELF Yet one of the
actors is of right and by custom sub
ect to the control Of the people through
AZ /