PRESENT MONETARY PROBLEMS 173 



silver bill varies relatively to gold coins in proportion to the changes 

 in the value of silver bullion relatively to gold, unless the silver 

 coins, under the laws of token-money, are kept at an artificial value, 

 above the market value of the silver bullion in them, by some method, 

 more or less direct, of redemption in gold. When silver bills are 

 offered in the exchange market, they are simply offers for the sale of 

 so much silver to be paid for in gold. If then the treasury of the 

 silver-using country buys the bills in certain emergencies of the 

 exchange market, it is paying gold for silver; or, in other words, it 

 is to that extent redeeming amounts of silver in gold. 



Stripped of its enveloping mystery, the only way in which the 

 new proposals for Mexico and China can establish stability of ex- 

 change is to establish the gold standard. For that purpose, if the 

 silver coins in common use are to be rated in gold above the market 

 value of the silver content of the coins, the only way in which parity 

 in daily business or in the exchanges can be maintained is by creating 

 a gold reserve large enough to redeem coins at par, or buy exchange 

 at par, if no direct redemption is allowed. The whole operation, 

 therefore, harks back to the principles regulating the value of such 

 money as token-coins, bearing a seigniorage, or paper money which 

 has no value in itself. The worship of quantity as a regulator of 

 value of money may do for those who are unwilling to test their 

 theories by the facts; but inevitably one is obliged to admit that 

 other forces are far more potent than quantity. 



VIII 



The Value of Paper Money 



I have said that the pivotal problem in the whole field of money 

 is the theory of prices or the value of money. How true this is 

 may be seen by the recurrence of this issue in each of the problems 

 noted in this paper; and in the last one which I shall take up it 

 again reappears. What regulates the value of those forms of money 

 which circulate at a rate above their content is a question which 

 forces itself to the front whenever we study a case of paper money. 

 In times past it has been sufficient to explain the value of paper 

 money by referring its rise or fall to an increase or diminution of its 

 quantity. This blind reliance on quantity as the main force con- 

 trolling the value of money cannot now, with our knowledge of the 

 facts, be consistently held. 



The amount of notes which a merchant can put out, provided he 

 redeems them promptly, is limited only by the extent of his transac- 

 tions. So it is with a nation. Given a certain set of business opera- 

 tions, as many notes can be kept in circulation as are needed by the 



