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We shall proceed to illustrate this proposition more fully. And in doing this, the reader will remark a great difference between the class of questions which now occupy us, and those which we previously had under discussion respecting Values. In considering Value, we were only concerned with causes which acted upon particular commodities, apart from the rest. Causes which affect all commodities alike, do not act upon values. But in considering the relation between goods and money, it is with the causes that operate upon all goods whatever, that we are especially concerned. We are comparing goods of all sorts on one side, with money on the other side, as things to be exchanged against each other.

Suppose, everything else being the same, that there is an increase of the quantity of money, say by the arrival of a foreigner in a place, with a treasure of gold and silver. When he commences expending it; (for this question it matters not whether productively or unproductively,) he adds to the supply of money, and by the same act, to the demand for goods. Doubtless, he adds, in the first instance, to the demand only for certain kinds of goods, namely, those which he selects for purchase ; he will immediately raise the price of those, and so far as he is individually concerned, of those only. If he spends his funds in giving entertainments, he will raise the prices of food and wine. If he expends them in establishing a manufactory, he will raise the prices of labor and materials. But at the higher prices, more money will pass into the hands of the sellers of these different articles; and they, whether laborers or dealers, having more money to lay out, will create an increased demand for all the things which they are accustomed to purchase ; these, accordingly, will rise in price, and so on until the rise has reached everything. I say everything, although it is of course possible that the influx of money might take place through the medium of some

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new class of consumers, or in such a manner as to alter the proportions of different classes of consumers to one another, so that a greater share of the national income than before would thenceforth be expended in some articles, and a smaller in others; exactly as if a change had taken place in the tastes and wants of the community. If this were the case, then until production had accommodated itself to this change in the comparative demand for different things, there would be a real alteration in values, and some things would rise in price more than others, while some perhaps would not rise at all. These effects, however, would evidently proceed, not from the mere increase of money, but from accessory circumstances attending it. now only called upon to consider what would be the effect of an increase of money, considered by itself. Supposing the money in the hands of individuals to be increased, the wants and inclinations of the community collectively in respect to consumption remaining exactly the same; the increase of demand would reach all things equally, and there would be a universal rise of prices. We might suppose, with Hume, that some morning, every person in the nation should wake and find a gold coin in his pocket; this example, however, would involve an alteration of the proportions in the demand for different commodities; the luxuries of the poor would, in the first instance, be raised in price, in a much greater degree than other things. Let us rather suppose, therefore, that to every pound, or shilling, or penny in the possession of any one, another pound, shilling, or penny were suddenly added. There would be an increased money demand, and, consequently, an increased money value, or price, for things of all sorts. This increased value would do no good to any one; would make no difference, except that of having to reckon pounds, shillings, and pence in higher numbers. It would be an increase of values only as estimated in money, a thing only wanted to buy other VOL. II.


things with ; and would not enable any one to buy more of them than before. Prices would have risen in a certain ratio, and the value of money would have fallen in the same ratio.

It is to be remarked that this ratio would be precisely that in which the quantity of money had been increased. If the whole money in circulation was doubled, prices would be doubled. If it was only increased one fourth, prices would rise one fourth. There would be one fourth more money, all of which would be used to purchase goods of some description. When there had been time for the increased supply of money to reach all markets, pr (according to the conventional metaphor) to permeate all the channels of circulation, all prices would have risen one fourth. But the general rise of price is independent of this diffusing and equalizing process. Even if some prices were raised more, and others less, the average rise would be one fourth. This is a necessary consequence of the fact that a fourth more money would have been given for only the same quantity of goods. General prices, therefore, would in any case be a fourth higher.

The very same effect would be produced on prices if we suppose the goods diminished, instead of the money increased; and the contrary effect, if the goods were increased, or the money diminished. If there were less money in the hands of the community, and the same amount of goods to be sold, less money altogether would be given for them, and they would be sold at lower prices; lower, too, in the precise ratio in which the money was diminished. So thạt 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.

This, it must be observed, is a property peculiar to money. We did not find it to be true of commodities

generally, that every diminution of supply raised the value exactly in proportion to the deficiency, or that every increase lowered it in the precise ratio of the excess.

Some things are usually affected in a greater ratio than that of the excess or deficiency, others usually in a less; because, in ordinary cases of demand, the desire, being for the thing itself, may be stronger or weaker; and the amount of what people are willing to expend on it, being in any case a limited quantity, may be affected in very unequal degrees by difficulty or facility of attainment. But in the case of money, which is desired as the means of universal purchase, the demand consists of everything which people have to sell; and the only limit to what they are willing to give, is the limit set by their having nothing more to offer. The whole of the goods being in any case exchanged for the whole of the money which comes into the market to be laid out, they will sell for less or more of it exactly according as less or more is brought.

§ 3. From what precedes, it might for a moment be supposed, that all the goods on sale in a country at any one time, are exchanged for all the money existing and in circulation at that same time ; or, in other words, that there is always in circulation in a country, a quantity of money equal in value to the whole of the goods then and there on sale. But this would be a complete misapprehension. The money laid out is equal in value to the goods it purchases; but the quantity of money laid out is not the same thing with the quantity in circulation. As the money passes from hand to hand, the same piece of money is laid out many times, before all the things on sale at one time are purchased and finally removed from the market; and each pound or dollar must be counted for as many pounds or dollars, as the number of times it changes hands in order to effect this object. The greater part of the goods must also be

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counted more than once, not only because most things pass through the hands of several sets of manufacturers and dealers before they assume the form in which they are finally consumed, but because in times of speculation (and all times are so, more or less) the same goods are often bought repeatedly, to be resold for a profit, before they are bought for the purpose of consumption at all.

assume the quantity of goods on sale, and the number of times those goods are resold, to be fixed quantities, the value of money will depend upon its quantity, together with the average number of times that each piece changes hands in the process. The whole of the goods sold (counting each resale of the same goods as so much added to the goods) have been exchanged for the whole of the money, multiplied by the number of purchases made on the average by each piece. Consequently, the amount of goods and of transactions being the same, the value of money is inversely as its quantity multiplied by what is called the rapidity of circulation. And the quantity of money in circulation is equal to the money value of all the goods sold, divided by the number which expresses the rapidity of circulation.

The phrase, rapidity of circulation, requires some comment. It must not be understood to mean, the number of purchases made by each piece of money in a given time. Time is not the thing to be considered. The state of society may be such, that each piece of money hardly performs more than one purchase in a year; but if this arises from the small number of transactions-from the small amount of business done, the want of activity in traffic, or because what traffic there is, mostly takes place by barter-it constitutes no reason why prices should be lower, or the value of money higher. The essential point is, not how often the same money changes hands in a given time, but how often it changes hands in order to perform a given amount of

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