168 MONEY AND CREDIT 



spondence between the movement of general prices and the known 

 facts as to the quantity of circulation, or the money-work to be done. 

 If I am wrong, it lies in the power of induction to disprove my state- 

 ment by the facts. In truth, the quantity theory was the product 

 of the metaphysicians, and not of the men of affairs, and it never 

 has been in accord with the data of inductive study so far as I know. 

 It is true that a great increase in the supply of gold would lower 

 its value, other things remaining the same; but the effect on general 

 prices would be a simple one, such as would be produced by any 

 cheapening of the standard, like a change to a depreciated paper 

 standard. But this change in the value of the standard is a radically 

 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 deter- 

 mining the value of money (suitably defined), has an importance 

 reaching out into the field of the international movements of specie. 

 We cannot 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 Ricardian 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 im- 

 portant and practical problem of money. 



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

 and amended; 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 

 proportion that its trade bears to that of other countries. This 

 quota of gold, for instance, is retained in a country by influences 



