dollars' worth of coins are used four times, they would perform the same amount of work as four thousand dollars' worth used once only during the day. If, therefore, we consider a unit of time, such as a day or a week, the demand for standard coins will depend upon the rapidity of their circulation as well as upon the total value of the goods exchanged. The use of the word simultaneously in our proposition concentrates attention on the goods to be exchanged at the same time, and it is obvious that the same coins cannot do two pieces of work at once.

Another point to be carefully noted is the fact that the prices of goods are a factor in the determination of their total value, and consequently of the monetary demand for the standard commodity, equally important with their quantity. If the average price of each of the thousand commodities had been two dollars instead of one, two thousand instead of one thousand dollars' worth of coins would have been required to accomplish their exchange. The determination of prices is, therefore, antecedent to the determination of the monetary demand for the standard commodity. This statement reveals a relation between this source of demand and prices which requires further elaboration, since it is frequently misunderstood.

In a previous chapter we have shown that prices are the numerical expression of the ratio between the value of the conventional unit of any good and of that amount of the standard commodity fixed by statute as the unit of values. We have now shown that one element in the determination of the demand for the standard commodity, and hence in the determination of its value, and hence in the determination of prices, is the amount needed for monetary purposes, and that into that amount prices also enter as a determining factor. This looks like reasoning in a circle, but the arrangement of these various influences in their proper order

as regards time of operation will show that in reality it is not. At a given date, for example, the values of each class of goods and of the standard commodity have been determined by the various elements entering into the supply and the demand of each one, including in the case of the standard commodity the demand for it for monetary purposes. Prices are the numerical expression of the values thus determined. In the next period of time, that is, in the one immediately succeeding that just considered, these prices will enter into the determination of the monetary demand for the standard commodity, either increasing it or decreasing it or maintaining it as before, and in this way together with all the other influences affecting its demand, help to determine its value, which, when thus determined, will play its usual rôle in prices. The starting point in this process of action and reaction is the value of the standard commodity for ordinary purposes of consumption, since, as we have already shown, a valuation based upon these uses must necessarily have preceded its use either as a standard of value or a medium of exchange. In the process of time this valuation has been greatly changed by its monetary uses and it is constantly being so changed, but this fact does not alter the fundamental character of its demand for ordinary purposes of consumption or justify the neglect of this demand in the consideration of the processes of valuation.

In this connection it is well to remember that the monetary demand for the standard commodity, while very real and very potent, is peculiar in that it may be arbitrarily modified by the substitution of credit currency for it in the medium of exchange and by changes in the regulations pertaining to bank reserves. The former process has been illustrated in a preceding paragraph; of the latter our own history furnishes many examples. Between the years 1863

and 1879 government notes not redeemable on demand in coin were the chief element of the bank reserves of this country. After the resumption of specie payments in 1879 coin was again used, but even up to the present time greenbacks and gold and silver certificates are available for that purpose. If Congress should pass a law, as it might, forbidding the use of anything except gold coin for this purpose, the demand for gold would be largely increased. If it should supply an additional amount of greenbacks and permit them to be held as reserves, a considerable diminution in the demand for gold would result. A change in the limitation at present established by law on the amount of reserves banks must hold or in the places at which they are permitted to keep them might very materially affect the demand for this metal.

The use of gold as a store of value is often mentioned as one of the sources of its demand. By this is meant its employment in hoards for the purpose of preserving and safeguarding property. This is certainly one of its uses, but one continually diminishing in importance and in normal times of no great influence. Other means of preserving and safe-guarding property, such as its use for production purposes through the various processes of loan and investment, are far superior and are now-a-days generally employed. In times of uncertainty and distrust, however, this use of gold may become important and a disturbing element of considerable significance.

2. Supply of the standard commodity.-The supply of every commodity, regardless of its uses, is subject to conditions some of which are peculiar to itself, and to this rule gold and silver, the sole standard commodities in use at the present time among civilized peoples, are no exceptions. From the point of view of durability these metals stand at the head of the mineral kingdom. On this account, in pro

portion to the amount annually produced, the quantity in existence tends to accumulate more rapidly than that of other commodities, the loss from wear and tear and actual destruction in the process of consumption being relatively small. In consequence of this fact the amount of these metals in the world at the present time is very great, the process of accumulation having been going on for many centuries. The form, too, in which a very large proportion of it exists, plate, jewelry, bars, coins, etc., is such that its transfer from one use to another can be very easily made.

The supply of either of these metals, which in connection with the demand determines their value, is the amount offered for sale at a given time, and not the entire mass accumulated through the centuries; but the existence of this mass constitutes a potential supply which exerts a steadying influence on its value, since any change tends to cause a transfer to or from this mass to the market. If the market value of the metal tends to rise, coin, plate, jewelry, etc., may be melted and sold as bullion, thus increasing the supply, and in the opposite case, bullion may be transformed into coin, plate, jewelry, etc. and the market supply diminished. These changes in supply to a degree counteract the tendency of the market price to change and thus contribute toward stability of value. The portion of this mass, which exists in the form of coin, may be very easily moved to the bullion market, little or no change in form or fineness being required, and bullion may be transformed into coin at the mints of some countries without any cost to the owner and with very little loss of time.

Another consequence of the durability of the precious metals and of the consequent steady increase in the mass accumulated has doubtless been a gradual fall in their value, at least since the discovery of the mines of South America

in the sixteenth century. There can be little doubt that their supply as compared to the demand for them at the present time is greater than at any other period in the world's history. The same statement could probably be made concerning most other commodities. This is but another way of saying that the wants of people are better supplied now-a-days than ever before. It is, however also probable that the degree of decline in the value of the precious metals has been greater than in most other commodities. The evidence of this is the tendency of prices to rise. A comparison of the recorded prices through long periods of time of a commodity like wheat, reveals this tendency, as does also a comparison of the averages of the prices of groups of commodities.

3. The value of secondary standards.-Secondary standards have already been described as discounted or depreciated notes which, in accordance with Gresham's law, have taken the place of coin in the medium of exchange, not only as hand-to-hand money, but as a basis of other elements of the currency. We shall now consider the chief causes and consequences of the difference in value between these notes and the primary standard in existence at the time.

Being actual or implied promises to pay, these notes are credit instruments and their value is subject to the laws governing such instruments. The most fundamental of these is the result of the loan feature which characterizes them. When a government issues such notes it is really forcing a loan from the people, a loan of the services and commodities for which it gives the notes in payment. When, in the ordinary processes of commerce, a person receives these notes in payment for goods or services, he is in reality making a loan, since what he has obtained in return for his property is a promise to pay the standard commodity, which promise is not redeemable on demand