2 2o POPULAR SCIENCE MONTHLY. 



but the amount of silver coins of the one nation which must be given 

 to buy a stated sum of gold coins of the other nation. The 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 sales 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 exchange 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 busi- 

 ness, 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 re- 

 appears. 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 controlling the 

 value of money can not now, with our knowledge of the facts, be con- 

 sistently held. 



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

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

 actions. 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 



