The transcendant importance of money, and the constant pressure of the
demand for it may be realized by comparing its utility with that of any
other force that contributes to human welfare.
In all the broad range of articles that, in a state of civilization, are
needed by man, the only absolutely indispensable thing is money. For
everything else there is some substitute--some alternative; for money
there is none. Among articles of food, if beef rise in price, the demand
for it will diminish, as a certain proportion of the people will resort
to other forms of food. If, by reason of its continued scarcity, beef
continue to rise, the demand will further diminish, until finally it may
altogether cease and center on something else. So in the matter of
clothing. If any one fabric become scarce, and consequently dear, the
demand will diminish, and, if the price continue rising, it is only a
question of time for the demand to cease and be transferred to some
alternative.
But this can not be the case with money. It can never be driven out of
use. There is not, and there never can be, any substitute for it. It may
become so scarce that one dollar at the end of a decade may buy ten
times as much as at the beginning; that is to say, it may cost in labor
or commodities ten times as much to get it, but at whatever cost, the
people must have it. Without money the demands of civilization could not
be supplied.
Money was the most potent instrumentality in the evolution of society
from a low to a high plane of civilization. It is valueless to man in
isolation. It is indispensable to man in organized society. It is as
necessary for the proprietary distribution of wealth as railroads and
steamships are to its physical distribution. The aggregate force of the
demand for money in any country depends upon the numbers of the
population; with a stationary population the demand is steady, with an
increasing population the demand increases, and in order to maintain
undisturbed the equation of supply and demand the volume of money should
be increased in at least a ratio corresponding to that of the increase
of population.
There are certain circumstances that to some extent disturb the
relations between population and money supply, such as the broadening of
the areas of population, and the multiplication of money centers. These
circumstances might render necessary a larger percentage of increase in
the money volume than would be indicated by the increase of the
population.
But under any circumstances the smallest money-increase that will
suffice to maintain the equity of time contracts is an increase
corresponding to the increase of numbers of the population.
Under conditions of unvarying demand and unvarying supply the value of
the unit of money would be unvarying. If as population and demand
increase the supply of money be proportionately increased, there is no
possibility of a change in the value of the unit of money.
The constant and unceasing effort to exchange services and all forms of
property, which have but limited command over the objects of human
desire, for money, that sole instrumentality that has unlimited command
over such objects, is, and ever will be, eager, intense, and unwavering.
With population and consequent demand rapidly increasing how do the
advocates of the gold standard expect to increase the money volume of
the country in this proportion, while the yield of gold, instead of
increasing in proportion to demand, is every day becoming less and less
capable of meeting the requirements of the arts alone?
THE QUANTITY OF MONEY IN CIRCULATION SHOULD INCREASE IN A RATIO NOT LESS
THAN THE RATIO OF INCREASE OF POPULATION.
It will be admitted that if the population of a country be increased by
any given percentage there will be a proportionate increase in the
demand for all articles that supply human needs. If the population
increases by 3 per cent., there will be needed 3 per cent. more
house-room, 3 per cent. more furniture, 3 per cent. more food, 3 per
cent. more of all things that enter into consumption. These things can
only be got by a demand first made on money. Then why not 3 per cent.
more money?
The present monetary circulation of this country including gold, silver,
and paper, is represented to be $1,700,000,000. As our population
doubles in thirty years, the rate of increase is 3-1/3 per cent.
If the money volume be not increased by a proportion at least as great
as this, the true relation between the supply of money and the demand
for it will not be maintained. The demand increasing as the population
increases, while the supply either does not increase at all or increases
in a degree incommensurate with the demand, the money volume shrinks and
the purchasing power of the unit becomes greater by reason of the
increased keenness of competition to get it. This is but another mode of
stating that the prices of all products of human labor decline. Prices
falling, business ceases to be profitable, stores and work-shops close,
and men are relegated to idleness.
THE QUANTITATIVE THEORY OF MONEY--THE VALUE OF EACH DOLLAR DEPENDS ON
THE NUMBER OF DOLLARS OUT.
Thus by the universal competition to get it the value of the dollar is
made to depend upon the number of dollars that are out. This is a
principle that lies at the very foundation of the science of money. The
law, stated broadly, is that the value of each unit of money in any
country at any given time depends on the whole number of units in
circulation in that country. The larger the number of units out,
population remaining the same, the less must be the value of each unit;
the smaller the number of units out, population remaining the same, the
greater the value of each.
Notwithstanding the variance sometimes found between the premises and
the conclusions of economic writers, there is no economist of repute who
does not admit this to be a fundamental principle.
On the theory I have propounded therefore 3-1/3 per cent. of
$1,700,000,000, or $56,000,000, is the minimum amount of money that
should be added to the currency of this country during the present
year.
Assuming the population of to-day to be 65,000,000 and the ratio of its
annual increase 3-1/3 per cent., the population of next year will be
67,166,600. The percentage of monetary increase to be provided for that
year should therefore be baaed on the increased number. And so on for
each succeeding year.
I have thought best to collate a variety of citations from the most
distinguished authorities on financial economy to support my contention
that, _ceteris paribus_, the value of each dollar depends on the number
of dollars in circulation.
John Locke, in his "Considerations," etc., published in 1690, said:
Money, while the same quantity of it is passing up and down the
kingdom in trade, is really a standing measure of the falling and
rising value of other things in reference to one another, and the
alteration in price is truly in them only. But if you increase or
lessen the quantity of money current in traffic in any place,
then the alteration of value is in the money.
Locke further said:
The value of money in any one country, is the present quantity of
the current money in that country, in proportion to the present
trade.
The historian, Hume, says:
It is not difficult to perceive that it is the total quantity of
the money in circulation, in any country, which determines what
portion of that quantity shall exchange for a certain portion of
the goods or commodities of that country.
It is the proportion between the circulating money and the
commodities in the market which determines the price.
Fichte says:
The amount of money current in a state represents everything that
is purchasable on the surface of the state. If the quantity of
purchasable articles increases while the quantity of money
remains the same, the value of the money increases in the same
ratio; if the quantity of money increases, while the quantity of
purchasable articles remains the same, the value of money
decreases in the same ratio.
James Mill, in his treatise on political economy, says:
And again, in whatever degree, therefore, the quantity of money
is increased or diminished, other things remaining the same, in
that same proportion the value of the whole, and of every part,
is reciprocally diminished or increased.
John Stuart Mill (Political Economy) says:
The value of money, other things being the same, varies inversely
as its quantity; every increase of quantity lowering the value,
and every diminution raising it in a ratio exactly equivalent.
And again:
Alterations in the cost of the production of the precious metals
do not act upon the value of money, except just in proportion as
they increase or diminish its quantity.
Ricardo (reply to Bosanquet) says:
The value of money in any country is determined by the amount
existing. * * *
That commodities would rise or fall in price in proportion to the
increase or diminution of money, I assume as a fact that is
incontrovertible. * * *
Ricardo further says:
There can exist no depreciation in money but from excess; however
debased a coinage may become, it will preserve its mint value;
that is to say, it will pass in circulation for the intrinsic
value of the bullion which it ought to contain, provided it be
not in too great abundance.
In this case Ricardo's illustration is the supposed case of a country
actually using one million gold pieces each containing 100 grains. He
maintains that they would be of the same purchasing power, if the
Government took out 1 grain, or even 50 grains, the quantity remaining
the same, but that if, from the grains so deducted, an additional
number of pieces were struck, a corresponding depreciation would result.
William Huskisson ("The Depreciation of the Currency," 1819), says:
If the quantity of gold in a country whose currency consists of
gold should be increased in any given proportion, the quantity of
other articles and the demand for them remaining the same, the
value of any given commodity measured in the coin of that country
would be increased in the same proportion.
Sir James Graham says:
The value of money is in the inverse ratio of its quantity; the
supply of commodities remaining the same.
Torrens, in his work on Political Economy, says:
Gold is a commodity governed, as all other commodities are
governed, by the law of supply and demand. If the value of all
other commodities, in relation to gold, rises and falls as their
quantities diminish or increase, the value of gold in relation to
commodities must rise and fall as its quantity is diminished or
increased.
Wolowski says:
The sum total of the precious metals is reckoned at 50 milliards,
one-half gold and one-half silver. If, by a stroke of the pen,
they suppress one of these metals in the monetary service, they
double the demand for the other metal, to the ruin of all
debtors.
Cernuschi says:
The purchasing power of money is in direct proportion to the
volume of money existing.
Prof. Francis A. Walker, in his work on "Money" (page 57), says:
The value of money in any country is determined by the amount
existing.
Its [money's] power of acquisition depends not on its substance,
but on its quantity. [Paulus, author of the Pandects, sixth
century.]
Professor De Colange, in the American Cyclopedia of Commerce, article on
"Money," says:
The rate at which money exchanges for other things is determined
by its quantity. * * *
Supposing the amount of trade and mode of circulation to remain
stationary, if the quantity of money be increased, its value will
fall, and the price of other commodities will proportionally
rise, as the latter will then exchange against a greater amount
of money; if, on the other hand, the quantity of money be
reduced, its value will be raised, and prices in a corresponding
degree diminished, as commodities will then have to be exchanged
for a less amount of money. * * *
In whatever degree, therefore, the quantity of money is increased
or diminished, other things remaining the same, in that same
proportion the value of the whole and of every part is
reciprocally diminished or increased.
A curtailment of the volume of money in a country will, _ceteris
paribus_, increase the value of the money of that country. All the
authorities agree that this law applies to all forms of money, whatever
the material; so that it applies to paper money with precisely the same
force that it applies to metallic money.
Mr. Stanley Jevons, in his work on "Money and the Mechanism of
Exchange," says:
There is plenty of evidence to prove that an inconvertible paper
money, if carefully limited in quantity, can retain its full
value. Such was the case with the Bank of England notes for
several years after the suspension of specie payments in 1797,
and such is the case with the present notes of the Bank of
France.
Mr. Gallatin said:
If in a country which wants and possesses a metallic currency of
seventy millions of dollars, a paper currency to the same amount
should be substituted, the seventy millions in gold and silver,
being no longer wanted for that purpose, will be exported, and
the returns may be converted into a productive capital, and add
an equal amount to the wealth of the country.
In his Proposal for an Economic and Secure Currency Ricardo says:
A well regulated paper currency is so great an improvement in
commerce, that I should greatly regret if prejudice should induce
us to return to a system of less utility. The introduction of the
precious metals for the purposes of money may with truth be
considered as one or the most important steps toward the
improvement of commerce and the arts of civilized life; but it is
no less true, that with the advancement of knowledge and science,
we discover that it would be another improvement to banish them
again from the employment to which, during a less enlightened
period, they had been so advantageously applied.
Mr. J. R. McCulloch, in commenting on the principles of money laid down
by Ricardo, says:
He examined the circumstances which determine the value of money
* * * and be showed that * * * its value will depend on the
extent to which it may be issued compared with the demand. This
is a principle of great importance; for, it shows that intrinsic
worth is not necessary to a currency, and that provided the
supply of paper notes, declared to be a legal tender, be
sufficiently limited, their value may be maintained on a par with
the value of gold, or raised to any higher level. If, therefore,
it were practicable to devise a plan for preserving the value of
paper on a level with that of gold, without making it convertible
into coin at the pleasure of the holder, the heavy expense of a
metallic currency would be saved.
It appears, therefore, that if there were perfect security that
the power of issuing paper money would not be abused; that is, if
there were perfect security for its being issued in such
quantities, as to preserve its value relatively to the mass of
circulating commodities nearly equal, the precious metals might
be entirely dispensed with, not only as a circulating medium, but
also as a standard to which to refer the value of paper.