Credit Money and the Precious Metals. 243 



collapse of credit with the downfall of the Baring firm 

 implies this. No doubt the fact that the seller of the 

 demonetised commodities remits other credits in payment 

 of his gold debt, rather than the actual metal, lessens the 

 strain on gold, and, therefore, to some extent controls its 

 value. But, making allowance for these influences, what I 

 wish to point out is that the periodical demonetisation of the 

 commodities represented by particular credits does counter- 

 act the influence of credit money on prices. And it has 

 even a very special influence in depressing prices ; for the 

 monetisation of commodities by the issue of credit money 

 against them tends to call additional commodities into exist- 

 ence, thus increasing the supply. On the other hand, their 

 demonetisation, on the expiration of the currency of the 

 credit instruments drawn against them, is, practically, 

 according to Sir Thomas Farrer's own argument, a contrac- 

 tion of the currency. Thus we have an expanding currency 

 calling goods into existence, and a contracting currency 

 when the goods come to be sold for gold money. So that 

 the influence of credit in assisting gold as currency, and 

 therefore lowering its value, tends to cease and to leave the 

 gold without a partner in the presence of an enlarged supply 

 of commodities when they are sold. The world is, of course, 

 richer in proportion to the increase of commodities ; but 

 clearly in such circumstances the increase of wealth tends 

 to go to the gold owner. 



With reference to this point, there is a noteworthy 

 passage in Sir Thomas Farrer's treatise. " If," says Sir 

 Thomas Farrer, " prices of goods fall, not by reason of any 

 change in the measure of value, but by increased abundance 

 of the things sold, what considerations of justice or of 

 convenience are there which call for an alteration of the 

 measure of value ? " The reply is, that the measure of 

 value is also the ultimate medium of payment, and if the 

 distribution of commodities is to continue in a given pro- 



