PRESENT MONETARY PROBLEMS. 213 



and not on goods, is widespread, and much discussion is probably 

 before us on this point. 



The relation of credit to the theory of prices is not so clear : some 

 think that all the money, plus all the credit (whatever that may be), act 

 primarily to fix the level of prices; but any sane person will see at a 

 glance that the forms of credit, such as bills, drafts, etc., arising from 

 the movement of the wheat crop, have no effect on the price of that 

 crop — the price having been made antecedent to the creation of the 

 forms of credit which came into existence only because of the actual 

 ales of wheat. Does a farmer wait until he sees how many wheat 

 bills are drawn before fixing the price of his wheat? Evidently not; 

 and the popular conception needs thorough criticism.* 



When men speak of ' our expansion of credit,' they have a very 

 vague and general idea in their minds. The definite and distinct 

 forces at work are covered with darkness; and, when a revulsion of 

 trade comes, the results are accepted as coming from some undefined 

 and mysterious force which can only be felt, but not explained. It 

 remains the duty of the economic thinker to outline with scientific 

 exactness the forces uniting in the upward wave of over-trading, and 

 to state with equal definiteness the causes of the receding movement. 

 Principles must be sought for which will explain the differing actuali- 

 ties of each special crisis. 



IV. Theory of Prices. 

 Only after the honest student has come to a satisfactory conclusion 

 in regard to the nature of money and credit is he in a position to dis- 

 cuss with profit the pivotal problem of this field — the theory of 

 prices. Perhaps I may be criticized for treating here the present mone- 

 tary problems from too theoretical a point of view; and it may be 

 urged that I should have presented the practical problems confront- 

 ing each leading nation, and discussed their relations to the several 

 monetary systems actually in use. But I must respectfully insist that 

 the moment any practical problem in any existing monetary system 

 is taken up, one is instantly faced by the difficulty of agreement upon 

 the terms in use, and in fact upon the simplest monetary principles 

 involved in the examination of each case. Every practical reformer 

 in the field of money is in fact using some theory of prices, true or 

 false, in all the premises laid down in his propositions. One might as 

 well go into practical engineering without a knowledge of thermo- 

 dynamics as to discuss practical monetary schemes without first settling 

 basic monetary principles. But, unfortunately, the thinking, even 

 among so-called economists, is to-day unsettled on so pivotal a ques- 



* For a full discussion of credit, see my ' Principles of Money,' Chap. IV. 

 (1903). 



