II. — Statistical Inquiry into the Iniliicncc of Credit upon the Level 



of Prices'^ 



BY MINNIE THROOP ENGLAND 



Without going into a detailed investigation of the relation be- 

 tween gold and prices, it is assumed that, in the long run, the 

 quantity of gold extant determines the general level of prices. 

 The short-time, violent fluctuations appear to be independent of 

 gold supplies. The task is to determine the relation between 

 credit and these short-time fluctuations. It is the question, "Does 

 business create money, or money create business ?" Now it is 

 well known that during every period of prosperity there is a large 

 increase in the amount of credit instruments in use and also an 

 advance in prices ; during periods of depression there is a con- 

 traction of credit and a fall in prices ; but a careful analysis of 

 both credit and prices is necessary in order to determine their 

 causal relations. 



The short-time fluctuations which form the familiar crisis 

 cycles of rising then falling prices are, in this discussion, ascribed 

 entirely to changes in the relation of credit to goods. The sta- 

 tistics submitted in the following pages bear out this position. 

 When a rise of prices occurs it is preceded by an expansion of 

 credit as evidenced by the increase in the clearings and loans of 

 the banks. The contraction of credit, either absolute or relative, 

 it is held, causes a fall of prices. This is. apparently, not in har- 

 mony with Professor Laughlin's views as set forth in his well- 

 known Principles of Money. It is true that he speaks of "the 

 general rise of market prices caused by abnormal credit," yet in- 



^The writer wishes to acknowledge the many helpful suggestions and 

 valuable criticisms received from Professor W. G. L. Taylor in the prep- 

 aration of this article. 



University Studies, Vol. VII, No. 1, January 1907 



41 



