Segar.— The Flood of Gold. 125 



Sidgwick also writes, " An increased supply of gold not 

 accompanied by a corresponding increase in the work that coin 

 has to do (or a rise in the demand for gold otherwise caused) 

 tends ultimately to lower the purchasing-power of money 

 relatively to commodities generally." 



But the change in the purchasing-power of money is only 

 inversely proportional to the quantity when other things re- 

 main the same. If odier things do not remain the same, the 

 actual change in the purchasing-power may exceed or fall 

 short of this amount ; the increase in the quantity of money 

 would still tend to produce the depreciation in the purchasing- 

 power stated in the quantity theory as enunciated in the 

 above extracts, but the actual effect would be modified by the 

 coincident effects of the other influences. 



To be able to form some idea of the probable course of 

 prices it is necessary to consider what these influences are, 

 and what is the nature of their action. 



Other Factors influencing Prices. 



What, then, are the other factors which affect general 

 prices ? They are mainly — (1) The amount of exchange trans- 

 actions to be performed — i.e., the quantity of commodities to 

 be exchanged ; (2) the proportion of credit to cash transac- 

 tions ; and (3) the rapidity of circulation of money. Prices 

 depend on all these three factors combined with the quantity 

 of money in use, and each of these has its effect independ- 

 ently of the others, and the actual change in prices is the 

 resultant of the effects of the whole four. 



Let us consider, however, the probable magnitudes of these 

 effects. How rapidly does the amount of exchange transac- 

 tions to be performed increase ? It tends to increase with the 

 population and the development of commerce and general 

 business. This leads to a demand for additional coin which 

 is at times substantial, but which at any time is difficult to 

 estimate with any proper degree of accuracy. For our pur- 

 poses, however, this is hardly necessary. Let it suffice to 

 notice that if the other influences were constant the steady 

 increase of population and general commercial development 

 would lead to a continual fall in prices, through the spreading 

 of the money in use over a greater number of transactions. 



Coming now to the proportion of credit to cash trans- 

 actions, it must be noticed that this is comparatively a very 

 variable quantity. In good times, when business is brisk, we 

 observe generally a rise in prices. This is because the ex- 

 pansion in credit which accompanies commercial prosperity 

 more than counteracts the direct tendency of the increase of 

 business to diminish prices. In bad times these influences 

 are reversed. There is a shrinkage in credit which produces 



