Part 22

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. * * *