$1000, if the average price of each is two dollars, there will be a demand for $2000. It is obviously impossible to know what the demand will be before the price of each commodity is determined. That demand once revealed and made effective by the offering of goods for the standard commodity on this basis will become an element of the total demand and will affect its value, and through that value prices, and through these the monetary demand again. The proportion of the monetary demand to that from other sources makes no difference in the valuation process or in the fundamental character of the value of the standard commodity for purposes of ordinary consumption. The utility of the standard commodity for these purposes is the basis of its utility for monetary purposes. The latter could not exist without the former and for all time continues to have vital relations with it.

If the prices of the commodities exchanged are determined by comparisons of their values with that of a standard independently determined by its supply and demand, in which its use for ordinary purposes of consumption is a fundamental factor, then the total value of the monetary supply is not independent of the number of units in circulation, as is stated in the second of the above propositions, but is proportional to that number, being equal to the product of it and the value of the unit. Furthermore, the number of units in use for monetary purposes is in the first instance a result of the level of prices established by the above mentioned comparisons, and enters into the determination of the value of the unit in the succeeding period of time only to the extent that it constitutes an increase in the demand for the bullion of which it is composed.

The statement that the value of the unit equals the total value of the goods exchanged for standard coins divided by the number of units they represent is an identical proposi

tion which has no significance, if the second of the above propositions be not true, and is objectionable in so far as it leaves the impression that the value of the unit is derived solely from the demand for it for monetary purposes and is independent of the supply and demand for bullion.

The chief objections to the quantity theory may, therefore, be summarized as follows:

1. It underestimates the importance of the bullion value of the standard commodity and incorrectly explains the relation of that value to the value of the standard coins.

2. Its statement of the relation of the quantity of money to its value is incorrect and misleading.

3. Its explanation of the sources of the value of the monetary unit being incorrect, it fails to recognize the existence of secondary standards and consequently correctly to explain the value of inconvertible notes.

4. It may be added that on account of these errors it has given support to a widespread belief in the efficacy and importance of changes in the volume of the circulating medium which is erroneous and dangerous.

REFERENCES

This subject is ably and exhaustively treated in Laughlin, chs. vii, viii and ix. For other criticisms of the quantity theory see Miss Hardy, "The Quantity Theory of Money and Prices," Jour. of Pol. Econ., March, 1895; Mitchell, "Quantity Theory of the Value of Money," ibid., March, 1896; Willis, "Credit Devices and the Quantity Theory," ibid., June, 1896; Hazell, "Quantity Theory of Money from the Marxist Standpoint," ibid., December, 1898; Scott, "The Quantity Theory," Annals, March, 1897; Farrer, Studies in Currency, ch. v; White, Money and Banking, bk. II, ch. xvii; and Schoenhof, The History of Money and Prices.

For statements and defense of the quantity theory see Johnson, Money and Currency, chs. ii, iii, vi, xiii; Kinley, Money, ch. viii; Walker, Political Economy, §§ 169-175; Money, chs. iii-viii; and “The Quantity Theory," Quart. Jour. Econ. v. Ix; Nicholson, Money and Monetary Problems, chs. v-vii; Mill, Political Economy, bk. III, chs. viii and ix; and Kemmerer, Money and Credit Instruments in their relation to general prices.

CHAPTER V

THE ELEMENTS OF THE MEDIUM OF EXCHANGE

IN Chapter II the currencies of modern times were analyzed into their constituent elements and their general characteristics pointed out. We shall now consider each element separately, beginning with the metallic.

1. The purpose and importance of coinage.-Metals nowadays serve the purposes of money chiefly in the form of coins. Originally doubtless, and occasionally in historic times, they were used in a crude state, the requisite amount being weighed out on the occasion of each exchange or passed from hand to hand in quills or other crude receptacles capable of being used as instruments of measurement. The great advantages of coins, however, led to their universal use in very early times, and at present their manufacture constitutes a business of no small magnitude and of great social significance.

A coin may be defined as a piece of metal or combination of metals bearing a stamp indicative of its weight and fineness, and other devices designed to render counterfeiting difficult, to prevent clipping and sweating, and sometimes to serve educational, artistic, or patriotic purposes. The explanation of their universal use may be found in the fact that, in order to transact business rapidly and accurately, it is absolutely necessary that the money metals should be put up in accurately labelled packages of convenient size and weight, so that any amount, large or small, can be transferred from one person to another or from one place to another without the waste of time and danger of error

which weighing the metals or measuring them in any other way would involve. If gold and silver in its pure state had to be weighed in every transaction, commerce on a large scale, in which rapidity and accuracy are essential and even slight losses in each exchange ruinous, would be impossible. A properly made coin always contains a fixed amount of metal of an invariable degree of fineness, and is so marked that we may know its exact weight and contents at sight without resort to the scales or the melting-pot. In making exchanges, therefore, it is only necessary to count and handle them, processes which may be performed very rapidly if their denominations, sizes, and weights are conveniently arranged.

Among the prime considerations in the manufacture of coins are honestly and accuracy. Inasmuch as they must pass from hand to hand throughout the length and breadth of the land and among rich and poor, learned and ignorant, those who understand their nature and those who do not, and must be accepted by everybody at the value represented by the devices placed upon them, absolute confidence in the honesty and accuracy of their manufacture is essential. If the stamp placed upon the coins were false, for example, people would soon discover the fact, and refuse to accept them, or, if compelled by law, protect themselves by refusing to sell their goods and services or by raising their prices. In any case commerce would be seriously obstructed and perhaps entirely destroyed. Inaccuracy in their manufacture is almost equally harmful. Two coins of the same denomination and made from the same metal should be exactly equivalent to each other in weight and fineness. Otherwise the superior coins would soon be culled out and melted up and the currency be constituted exclusively of the inferior ones. Moreover, the process of exchanging coins for each other simply for the purposes of gain in

terferes with their legitimate use and obstructs commerce.

Owing in part at least to its great importance, the right of coinage has been considered from very early times as the prerogative of the sovereign. Throughout Europe, however, during the Middle Ages it was frequently granted to petty princes and free cities, and in consequence very much abused. In order to make the money received go very much farther than it otherwise would in the payment of debts and the purchase of commodities, debasement was frequently practised; that is, baser and cheaper metals were substituted for a part of the gold and the silver, the old weight and name being retained. Another method employed to accomplish the same end was the reduction of the weight and the size of the coins. These practices were equivalent to a partial repudiation of debts, and so far as the sovereign possessed and exercised the right of fixing prices, they also amounted to the levy of a tax upon the merchants with whom these sovereigns dealt. In partial justification, or at least explanation, of this abuse, it should be said that the laws of value were unknown to the royal personages of the Middle Ages, and that they generally believed that they possessed both the right and the ability to fix the value of money arbitrarily. The debasement of coins and the diminution of their weight, therefore, were not considered as criminal acts, but as the exercise of a sovereign right and a sovereign power. Not until commerce was developed to such an extent as to make its importance understood by kings and princes did the voice of the merchant class make itself heard in protest against these practices, and correct ideas regarding the nature and functions of money become a part of the common knowledge of business men and other well-informed people. The process consisted in the gradual withdrawal of the right of coinage from all private persons, and in the development