MICHIGAN ACADEMY OF SCIENCE. 117 



XoAv, greatly as The world's output of gold has increased since 1896, 

 as indicated by the rejiort of the director of the United States mint, 

 the force availalile. throngli bank credits, for the exchange of connuodi- 

 ties has increased vastly more. Thai the gold output has increased the 

 l>er capita circulation in the United States from less than |28.00 in 

 1896 to about §;>5.00 at the pi'esent time, is in itself significant, but 

 Avhen we consider liow greatly this is augmented, by means of bank 

 credits, it becomes much more significant. Not everyone is familiar 

 with the fact that for every dollar in cash deposited in a bank the 

 bank may safely lend at least five dollars. This is because banks do 

 not lend money so much as credit. Probably not more than 10% of 

 a bank's loans is made in money. What borroAvers want is not money 

 but a light to draw money. So instead of taking the money from the 

 bank they dejjosit it to their credit. Banks, in this way, as is some- 

 times said, "manufacture credit." They enable the community to use 

 money to the best advantage: they make a little money do a gTeat 

 deal of money-work. While, therefore, the per capita circulation in 

 this country has not increased over 50% since 1896 the money-force 

 available for etfecting exchanges has increased by five times that 

 amount. The commodities to be exchanged have not increased so much. 

 To use a phrase of Francis Walker the money-work to be done has not 

 increased as fast as the money-thing, and consequently prices have 

 lifted. 



But there is no reason to suppose that this advance in prices Avill 

 continue indefinitely. Gold was excessively high in value in 1896, and 

 gave large returns to its producers. Now, it is a familiar fact that 

 labor and cajiital are constantly attracted from less profitable to more 

 profitable industries. It was more profitable to produce gold in '96 

 than to ju-oduce wheat or raise cattle, and so capital and labor turned 

 to the production of gold. (toUI production went on at a prodigious 

 rate while that of wheat and other foodstuffs did not. Moreover, be- 

 cause of the large returns, from the mining and refining of gold, the 

 inventive genius of our engineers and chemists was directed towards 

 finding better and cheaper methods of producing it. and the result is 

 our modern cyanide }n'ocess. 



But mining is an industry especially responsive to the law- of dimin- 

 ishing returns. Ore must be sought on lower and lower levels, thus 

 increasing the cost of producing it. This, together with the present 

 diminished value of gold, will induce labor and capital to forsake the 

 search for gold and enter oilier and more profitable fields of production. 

 The result will be a diminished outjiut of gold and a fall in the price 

 of other commodities (which is the same as a rise in the value of gold). 



All this, however, takes time, and meanwhile we must submit to high 

 prices, unless we can find some means of averting them. It would, of 

 course, make little difference, so far as the cost of living is concerned, 

 whether prices are high or low, whether they go up or go down, if only 

 wages, salaries, interest and the like, moved in the same direction and 

 with the same degree. Real wages, salaries and other incomes would 

 then remain unchanged. 



But this never occurs. Wages and salaries are slow to respond to 

 the changing value of money. The April number of the Atlantic 



