Credit Money and the Precious Metals, 247 



ing a fall of prices is itself checked by the very scarcity of 

 gold which is the primary condition inducing the fall. 

 Credit money does not imply the effective action of the 

 principle of compensation ; because credit money does not 

 •expand as gold money contracts, but, on the contrary, 

 other things remaining equal, tends to contract in some 

 ratio with the contraction of gold money. In this respect, 

 though I have spoken of credit money as a kind of poly- 

 metallism, it is fundamentally different from true bi-metal- 

 lism based on the bestowal of full liberatory power on the 

 two precious metals ; because, if the theory be sound, true bi- 

 metallism implies the effective action of the principle of 

 compensation under the assumed conditions, a monetary 

 strain on one metal being instantly and automatically 

 counteracted by a corresponding inflow of the other. The 

 precious metals would be equal and competing monies, 

 permanently exercising their liberatory functions in their 

 •own right independently ; whereas, credit money has, at 

 the best, only a temporary currency, and its power is to 

 some extent derivatory from the full legal tender, gold, to 

 which it is, therefore, subservient. 



II. 



To summarise, we have seen that circulating credit 

 implies the monetisation of commodities in a fixed ratio, and so 

 far resembles bi-metallism as to be describable as poly-metal- 

 lism ; that within certain limits it affects prices, according to 

 the quantitative theory, by proportionately increasing the 

 volume of money for the time being ; that its circulation is, 

 however, limited — a circumstance due to the fact that it is 

 not legal tender — and that it does not circulate, for instance, 

 amongst consumers of commodities ; that the commodities 

 represented are demonetised, not merely in periods of panic 

 when credit collapses, but periodically as the instruments of 

 credit approach maturity ; that the commodities have then 



