124 Transactions. — Miscellaneous. 



great supply of and small demand for these articles, but to 

 some other and more general cause, which must be capable of 

 explaining how commodities in general should at one time 

 have prices so greatly different from those at another. 



Influence of Money- supply on Pkices. 

 Now, it is quite certain that, other things being the same, 

 a change in the quantity of money in circulation affects prices. 

 " That commodities would rise or fall in price in proportion to 

 the increase or diminution of money I assume as a fact which 

 is incontrovertible," wrote Ricardo, supposing implicitly, of 

 course, that other conditions remained the same. Mill, his 

 disciple, followed in similar strain: "The value of money, 

 other things being the same, varies inversely as its quantity, 

 every increase of quantity lowering the value, and every dimi- 

 nution raising it in a ratio exactly equivalent." And, again, 

 " Let us suppose that to every pound, or shilling, or penny 

 in the possession of any one another pound, shilling, or penny 

 were suddenly added. There would be an increased money 

 demand, and, consequently, an increased money value or price 

 for things of all sorts. This increased value would do no 

 good to any one — would make no difference, except that of 

 having to reckon pounds, shillings, and pence in higher num- 

 bers. It would be an increase of values only as estimated 

 in money, a thing only wanted to buy other things with, 

 aud would not enable any one to buy more of them than 

 before. Prices would have risen in a certain ratio, and the 

 value of money would have fallen in the same ratio. It is to 

 be remarked that this ratio would be precisely that in which 

 the quantity of money had been increased. If the whole 

 money in circulation was doubled prices would be doubled ; 

 if it was only increased one-fourth prices would rise one- 

 fourth — there would be one-fourth more money, all of which 

 would be used to purchase goods of some description. When 

 there had been time for the increased supply of money to 

 reach all markets, or (according to the conventional meta- 

 phor) to permeate all the channels of circulation, all prices 

 would have risen one-fourth. But the general rise of price 

 is independent of this diffusing and equalising process. Even 

 if some prices were raised more and others less the average 

 rise would be one-fourth. This is a necessary of the fact that 

 a fourth more money would have been given for only the 

 same quantity of goods. General prices, therefore, would in 

 any case be a fourth higher." And, once again, " That an 

 increase of the quantity of money raises prices and a diminu- 

 tion 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." 



