March 19, 1886.] 



SCIENCE. 



269 



silver has continued to fall in price since our legis- 

 lation, until it is now permanently selling at as low 

 a price as has ever been recorded, even in the excep- 

 tional period of July, 1876. The lowest point ever 

 reached in the silver panic of 1876 for a few days 

 was 46 3-4d. per ounce ; but since September, 1885, 

 it has steadily remained about or a little below 

 that point. In other words, silver has fallen about 

 eleven per cent more since the act of 1878 was 

 passed. The supposed effect of that legislation, 

 then, has never been produced, and the act ought 

 not to be retained on the ground that the coinage 

 of $24,000,000 a year can prevent the decline in 

 the value of silver. 



2. It will be said, however, by some, that this 

 decline in the price of silver is a decline relatively 

 to gold alone, and that since the values of articles 

 other than silver have also fallen, relatively to gold, 

 since 1873, we must declare that the value of gold 

 has increased, and that the value of silver has not 

 fallen. Now, no one can deny, that, when gold 

 prices fall, the value of gold is increased : that 

 has happened even when the supply of gold was 

 rapidly increasing, as in the panic year of 1857. 

 But I cannot think that there is any evidence to 

 show that the fall of prices since 1873 has been 

 due to the scarcity of gold, as has been asserted. 

 If gold has greater purchasing-power owing to a 

 fall of prices, that does not necessarily imply any 

 conclusion whatever as to the scarcity of gold for 

 the uses of trade. To say that, because prices rise 

 or fall, there is a greater or less quantity of metal- 

 lic money capable of being used, is, in my opinion, 

 to commit a grave economic error. It certainly 

 overlooks the practical business habits of the com- 

 mercial world. While impossible to offer full 

 reasons in so brief a paper in favor of my position, 

 I can at least outline my ideas in a general way. 



3. Prices at any given time are quite as much 

 the result of credit as of the quantity of metallic 

 money. As J. S. Mill said, "In a state of com- 

 merce in which much credit is habitually given, 

 general prices at any moment depend much more 

 upon the state of credit than upon the quantity of 

 money." When credit in its various forms is ex- 

 panded in a time of commercial activity just pre- 

 ceding a crisis, we all know to what great heights 

 the prices of almost all articles can be carried. 

 Purchasing-power in any form, whether money or 

 credit, is used to buy goods, and is not caused by 

 the existence of a few speculators, but by the state 

 of mind throughout the community. And we 

 know also, that, when the crisis comes, prices fall 

 irrespective of the quantity of money. Of such 

 changes, however, an objector might say that they 

 are temporary, while the fall of prices since 1873 

 has been so prolonged that it cannot be due to 



temporary causes. But varieties of credit-de- 

 vices, by which goods are exchanged against each 

 other without the use of metallic (or even paper) 

 money, continue in permanent use. I can only 

 mention one of these by way of illustration, — the 

 check system. Receiving $10,000 in money, as 

 a manufacturer of cotton goods, I deposit it to 

 my order in a bank. When I want to pay 

 B for raw cotton, I send him a check for 

 $10,000. B now owns the right to draw the 

 deposit, and he pays C by a check for $10,000 for 

 machinery ; and D and E follow the same method 

 of payment. During this procedure no money 

 has been drawn, but the deposit served as the 

 basis for transactions to the amount of, perhaps, 

 $50,000 or more. The check, as a credit-device, 

 was purchasing-power, and, when offered for 

 goods, affected prices as much as the offer of 

 gold would have done ; and, as transactions in- 

 crease with the growth of wealth and population, 

 goods are exchanged for each other without the 

 use of money by such devices as the check and 

 clearing-house system, through the aid of banks, to 

 a surprising amount. In New York alone, goods 

 are exchanged for each other annually through 

 the clearing-house, of a value much greater than 

 that of the whole national debt of the United 

 States (the sum exclusive of clearing-house bal- 

 ances, which are paid in money), without the use 

 of a single cent of money, either gold, silver, or 

 paper. This shows, briefly, how absurd it is to sup- 

 pose that the amount of gold ought to increase in 

 proportion to the increase of population or wealth : 

 for in prosperous years the clearings increase ; 

 that is, the more the goods to be exchanged, the 

 more the system is used. I cannot have space in 

 this paper to discuss this in full, nor refer to the 

 prevalence of the system on the continent of 

 Europe. 



What I wish to illustrate is, that the level of 

 prices depends, not solely on the quantity of 

 money, nor on credit, but on both combined, and 

 that a change in prices does not imply a change in 

 the quantity of money. I have referred only to 

 checks. There are many other forms of credit 

 in constant and general use, such as bills of ex- 

 change, paper money, and book credit (or 'trust,' 

 as it is sometimes called in retail buying), and 

 all have a great influence on prices. If prices 

 fall, that single phenomenon, therefore, does not 

 convince me that gold is scarce ; and I do not see 

 how it can convince anyone else. 



4. There is good evidence, moreover, to show, 

 that, in the period when it was olaimed that 

 gold was appreciating because of its scarcity, 

 there was no lack whatever of gold. This is to be 

 found in the rate of discount at the Bank of Eng- 



