JANUARY 26, 1912] 
used as a basis of credit; that countries 
which heretofore have been without rail- 
roads and modern facilities are enabled to 
borrow for the construction of great rail- 
way lines and public works, the full bene- 
fit of which is often for a long time post- 
poned. There is a marked increase in the 
demand for materials for this work. Labor 
is more constantly employed and at higher 
wages. The consuming power of the aver- 
age human being is greatly increased. 
Speculation is rife and this tends to raise 
prices. 
The connection between the increased 
supply of the precious metals and the gen- 
eral level of prices has been so marked and 
has appeared in so great a variety of coun- 
tries and of periods as to preclude the pos- 
sibility of mere coincidence. Of course 
certain modifying factors should be taken 
into account. The rise in prices after the 
beginning of the increase in the supply of 
gold or silver does not become manifest 
until some time has elapsed. This can be 
readily explained, because a substantial 
imerease is necessary to modify the rela- 
tion between the existing stock of the 
precious metals and the accretions. 
Again, there has usually existed a con- 
-eurrence of factors which make for in- 
creased activity and rising standards of 
living, on the one hand, and the increased 
supply of the precious metals, on the 
other. The development of gold mining 
on a large scale has followed closely after 
discoyeries and inventions. This concur- 
rence is such that while it would hardly be 
safe to generalize upon it, there is a strong 
presumption of a connection between the 
two. A somewhat similar cause of the rise 
of prices, by reason of the increased supply 
of gold among the militant countries of 
the ancient world, may be traced in their 
activities to secure the control of mines 
from which the precious metals were ob- 
tained. 
SCIENCE 
137 
The foregoing facts emphasize the im- 
portance of the so-called quantitative 
theory of money in considering the ques- 
tion of prices. To give adequate treatment 
to this theory and to estimate the ef- 
fect of the volume of money upon prices 
would prolong this paper to an undue 
length. It would manifestly be incorrect 
to state the relation of the volume of money 
in circulation to the general level of prices 
as a simple equation. The problem is 
much more difficult. On this subject Mr. 
John Stuart Mill wrote in his work on Po- 
litical Keonomy : 
The proposition respecting the dependence of 
general prices upon the quantity of money in 
circulation must be understood as applying only 
to a state of things in which money—that is, gold 
or silver—is the exclusive instrument of exchange, 
and actually passes from hand to hand at every 
purchase, credit in any of its shapes being un- 
known. When credit comes into play as a means 
of purchasing, distinct from money in hand, the 
connection between prices and the amount of the 
circulating medium is much less direct and inti- 
mate and such connection as does exist no longer 
admits of so simple a mode of expression. 
Certain modifications are necessary in 
order to harmonize the quantitative theory 
with modern conditions. Only the amount 
of money actually in circulation can have 
any effect upon prices. That hoarded or 
out of circulation for other reasons can not 
exert any influence. On the one side, ac- 
count must be taken of the variations in 
volume of transactions during periods of 
prosperity or depression and even at dif- 
ferent seasons of the year. This factor af- 
fects the demand for the medium of ex- 
change. On the other side, allowance must 
be made for the rapidity of circulation 
and the use of credit instruments which 
reinforce the monetary supply and thereby 
modify its influence upon the price level. 
There are sundry current explanations 
of the present high prices which may be 
readily dismissed as untenable if advanced 
