2i6 POPULAR SCIENCE MONTHLY. 



different economic process from that by which prices are said to be 

 influenced only by changes in the quantity of the media of exchange 

 actually offered for goods. One or the other must be wrong. 



V. Prices and the International Movement of Metallic Money. 



The settlement of the theory of prices, or the principles determining 

 the value of money (suitably defined) has an importance reaching out 

 into the field of the international movements of specie. We can not 

 properly formulate the methods by which the shifting of specie and 

 goods act upon each other in international trade without having 

 previously reached a definite conclusion upon the theory of prices. 

 Thus the examination of and agreement upon the theory of prices 

 will largely determine the statements made concerning the relation 

 between the shipments of specie and the level of prices within a 

 country. 



With the Eicardian formula, derived from the experience of Eng- 

 land in the early part of the last century, writers have attempted to 

 solve this problem by using the quantity of money in a country as 

 the force regulating the general level of prices; if gold is exported, 

 prices must fall; if gold is imported, prices must rise. In brief, the 

 originating cause of a change in the general level of prices, so far 

 as international trade is concerned, is the shipment of specie. The 

 movement of goods is a consequence of the change of prices brought 

 about by the addition or subtraction of specie. That is, the quantity- 

 theory has been relied upon to solve this highly important and practical 

 problem of money. 



The original statement of Eicardo has, of course, been added to 

 and emended; but, in the main, it is intended to show that any one 

 country obtains a part of the world's circulation of specie in the pro- 

 portion that its trade bears to that of other countries. This quota of 

 gold, for instance, is retained in a country by influences working auto- 

 matically on the price level through changes in the quantity of gold 

 within that nation. If gold is withdrawn, prices fall, exports of goods 

 are increased, and in due time the gold begins to return until the 

 country's quota of gold reaches an equilibrium adjusted to the relative 

 demands of other countries. The movement of goods forms the vari- 

 able in the process which aims at a correction of the quota of gold, 

 whenever the equilibrium has been disturbed. The shipment of gold 

 is the initial cause; the movement of goods is a consequence. 



In support of this view — the orthodox view — it is held that gold 

 will flow wherever its exchange value is highest. The flow of gold 

 will make it abundant in the receiving nation, and thus, because it is 

 cheap, will raise general gold prices there; or, vice versa, will lower 

 prices in the countries from which gold is taken. The possession of 



