246 Mr. Faraday on 



is a critical point when the volume of credit money feels the 

 pull of real money, and its elasticity is checked. A familiar 

 demonstration of this was the borrowing of French and 

 Russian gold by the Bank of England during the recent 

 Baring crisis in order to prevent a contraction of credit 

 money. There is a proportion of reserve which bankers, in 

 practice, find it necessary to hold, and, therefore, admitting 

 that credit money does substitute gold and affect general 

 prices as an effective addition to the volume of money, its 

 own volume, and therefore its effect on prices, is still con- 

 ditioned by the abundance or scarcity of gold. The relation 

 varies according to the facilities of communication and 

 transport, or according to the rapidity of circulation or 

 greater intensiveness in the working of gold, for it is not 

 denied that an increase in the number of exchanges effected 

 by a given piece of gold in a given time may be equivalent 

 in its effect on prices to an increase in the quantity of 

 gold. But, so far as the theory goes, it is sufficient for 

 those who contend that the fall of general prices has 

 been due to a scarcity of gold, resulting from diminished 

 out - put from the mines and increased demand for 

 the metal as money and as the basis of credit in consequence 

 of the demonetisation of silver, to establish the fact, that the 

 volume of credit money has a relation to the volume of 

 metallic money of continuous and international liberatory 

 power. This being admitted, the question becomes simply 

 whether the vast diminution in the volume of the ultimate 

 measure of value, brought about by the establishment of 

 gold mono-metallism, has been made good by the more 

 intensive working of the units composing that volume, due 

 allowance being made for the increase of population and 

 the vast increase of commodities which, in themselves, 

 demand increased distributive work from those units. 

 What I wish to bring out clearly is that, granted a relative 

 absolute scarcity of gold, the influence of credit in prevent- 



