760 



SCIENCE 



[N. S. Vol. XXXVII. No. 959 



E of cash, which would naturally be impos- 

 sible to calculate directly; now MV stands for 

 an estimate of these expenditures obtained by 

 a searching analysis of available financial 

 data ; that is, the evaluation of E is indirect. 

 The same is true of M'V and E'. And the 

 elements P and T are likewise found by dili- 

 gent compilation and discussion of commer- 

 cial data instead of by direct quest among 

 the buyers and sellers. Such a change of as- 

 pect is found constantly in the correlation of 

 theoretical and experimental physics. An 

 equation is set up by a series of definitions or 

 demonstrations. No amount of data can 

 prove the equation; its validity is a priori. 

 But the need of an experimental verification 

 of the equation is none the less great; for in 

 the applications to practical problems it is 

 precisely such experimental data which must 

 be used in the equation; and unless proper 

 means of evaluating the terms of the equa- 

 tion are found, the importance of the theory 

 is nil. 



The author examines in lucid detail the 

 various interrelations of the six elements 

 which enter the equation of exchange. He 

 comes to the conclusion that normally the ele- 

 ment P may be regarded as passive, as the ef- 

 fect of the other elements, and that normally 

 the ratio M'/M of deposits to circulation 

 tends to constancy. He then goes on to an 

 exhaustive discussion of what happens in 

 transition periods where prices are rapidly 

 rising (or falling) and where a certain amount 

 of abnormality enters (Chap. IV.). The use 

 of the word normally in the statement that 

 normally the ratio M'/M tends to constancy 

 seems rather unfortunate. The ratio M'/M 

 has increased more or less steadily" for the 

 United States from 3.1 in 1896 to 4.8 in 1912, 

 and according to the author's estimate* for 

 the whole gold-standard world the ratio will 

 increase from 1.25 in 1911 to 2.25 in 1926. 

 Thus the whole period of thirty years must be 



•In the table on p. 304 the value 7.77 for M' 

 for 1904 seems to upset the steadiness; but this 

 number should obviously be 5.77. 



* American Economic Eeview, September, 1912. 



regarded as abnormal. With this use of the 

 word it might well be that most periods are 

 abnormal. We would not dispute that in the 

 cycles between successive crises there should 

 be certain periodic variations of the ratio, and 

 that sudden changes in the world's gold pro- 

 duction should bring about other erratic varia- 

 tions, and it is these two things that the au- 

 thor seems chiefly to have in mind; but it 

 seems evident that a certain seciilar increase 

 in M'/M should be expected to accompany 

 normal advances in banking facilities and the 

 attendant increase in use of these facilities by 

 the public." 



The refined quantity theory of money is con- 

 tained in the equation (1) where all the ele- 

 ments except P are considered as independent 

 variables; it is a much cruder theory which is 

 based upon the assumed constancy of M'/M. 

 No careful reader of Fisher's work will fall 

 into any crude errors or attribute such errors 

 to the author; but there are enough careless 

 readers, who may seize upon the phrase 

 " quantity theory of money " and be led into 

 useless discussion forgetful of the develop- 

 ments of Chaps. VIII. and XII., that we 

 could wish the author had made less of the 

 " normal " dependence of M' on M. Those 

 who will but observe that in the equation of 

 exchange for 1896 the term M'V was about 

 six times as great as MV, and in 1912 about 

 twelve times as great, will see the great danger 

 and instability introduced into the system by 

 making the preponderating term depend upon 

 the small one. 



The ascription of the rapid rise of prices 

 during the past fifteen years to the great flood 

 of gold has become increasingly popular of 

 late, particularly since the impressive sym- 

 posium on the subject in the first volume of 

 Moody's Magazine. A facile argument may 

 be constructed, namely, that the more gold we 

 have relative to other possessions the less val- 

 uable is any given amount of it to us and the 



' A leading trust company says that now ten 

 women have a check account where only a few 

 years ago only two had one, and uses this fact to 

 attract further accounts. 



