34 



IV. G. Langzvorthy Taylor 



Importance 

 of credit in 

 fixing the 

 price-level. 



The discus- 

 sion of de- 

 ferred pay- 

 ments is 

 popularly 

 obscured by a 

 falsely ethical 

 tone, which 

 is quite un- 

 necessary, 



The amount of credit determines what shall be the gross de- 

 mand for the gold needed to be put into the guaranty fund. That 

 alone, of course, does not determine what shall be the value of 

 each piece of coin nor the level of prices. The latter depends 

 upon the value of gold as well as upon the demand for it. That 

 tells the miner and mill-owner how much is wanted. The cost 

 of production is the test for them as to how much they will give.^^ 

 The value of the gold, then, is determined between the demand of 

 the banker for reserves, and the answer of the miner as to how 

 much profit he can realize. Since the state of credit is what 

 influences the former, it is easy to perceive what a large part it 

 plays in fixing the value of gold. 



The influences noted, the action of gold coming in momentarily 

 and stimulating credit, that of credit, in a little longer period, 

 raising prices and calling for a larger amount of gold, are at work 

 all the time. There is no single moment when only credit is 

 asking for gold, nor one when only gold is encouraging credit. 

 These forces have been assumed as operating in isolation, in 

 order clearly to separate their duties. As a matter of fact, they 

 are active, in different degrees, at the same time, and the two 

 elements of the problem, credit and gold, are exerting their 

 different short- and long-time effects, largely simultaneously, but 

 in varying degree, sometimes more and sometimes less ener- 

 getically. 



§ 4. The way is now cleared for the preliminary discussion of 

 the topic of deferred payments, which is one of importance in 

 connection with that of the standard of value, since further 

 development of the latter is affected by conclusions as to the 

 former. There are two points of view that may be assumed in 

 any economic discussion. The one is the purely scientific; by 

 this is meant that which attempts to establish what is being 

 done — what the facts are in the case. The other is the moral ; it 

 is the more popular and involves economic discussion only on the 



'* For the principle of this analysis of value, cf. S. M. Macvane, " The 

 Austrian Theory of Value," Annals of the American Academy, vol. IX, 

 Nov., 1893. 



148 



