Total.

719,653,927 22,467,063

$8,171,237,897 $499,358,809 $1,530,614,076 $6,141,265,012 $816,266,721

gold certificates. The people of the United States prefer paper money to gold, so long as the paper money is as good as gold, and not much gold is used in ordinary business.

It should be noticed that Federal Reserve notes have become the principal paper money of the United States, although a considerable volume of national bank notes is still in circulation.

Summary.-Paper money is of three kinds: redeemable, non-redeemable, and bank-notes. These look very similar, but are worded differently. The United States now has no non-redeemable paper money. During the Revolutionary and Civil Wars our experience with paper money was such that we are not likely to repeat it. Banknotes are issued by national banks and by Federal Reserve Banks. The Federal Reserve notes are designed to give us an elastic currency, that is, a currency which rises and falls to meet the conditions of demand. All the money of the United States is as good as gold.

TOPICS FOR DISCUSSION, DEBATE, AND SPECIAL REPORTS I. What paper money in less denominations than one dollar has the United States issued? Under what circumstances was this money issued?

2.

Give a history of issues of paper money during the Civil War. 3. Investigate the experience of the Confederate States of America

in reference to paper money.

4. Compare the National Bank notes and the Federal Reserve

notes.

5. Get the opinion of a business man, a lawyer, and a banker on

the Federal Reserve notes.

CHAPTER XVIII

MONEY AND PRICES

The Quantity Theory of Prices. According to the quantity theory, prices vary directly with the amount of money in circulation. An increase in the volume of money will raise prices, a decrease will lower prices. This theory is accepted with the modification that other things being equal, it is true. Rapidity of circulation is an item to be considered. Two countries may have the same amount of money in circulation and there may be the same number of exchanges to be made, but if the money of one country circulates more rapidly than that of the other, it is doing more work, which is equivalent to its having a larger amount of money and has the same effect on prices. Instruments of credit, like checks and drafts, may also take the place of money to a greater extent in one country than another and in the same country at different times.

Effects of Changes in the Volume of Currency.—Any changes in the amount of money in circulation will be reflected in prices. Inflation inflicts an injury on creditors, as `debts can be paid in less purchasing power and contraction injures the debtors. Inflation tends to promote speculation and gives rise to a fictitious prosperity for a time. With prices rising there is a rush to buy and to manufacture, but this leads to overproduction in some lines of goods and a reaction must come, which frequently results in a panic. Inflation seriously affects the purchasing power of returns from investments as well as pensions

and insurance. If all prices were to rise with the same degree of celerity, less harm would be done, but prices do not rise uniformly. Prices of goods rise quickly, then profits and rents rise, but wages and salaries lag behind.

Contraction, or deflation of the currency, leads to a slowing down of industry and a difficulty in securing credit. It works harm to the debtor classes as they must pay more in purchasing power than they received when their debts were contracted.

The Multiple Standard. To enable debts to be paid with equal purchasing power, despite changes in the value of money, several plans have been suggested. The simplest of these is a multiple standard. If a number of articles in common use be selected and their prices ten years ago be found and compared with their prices now, it would be easy to show how much money would now be required to equal the purchasing power of a certain amount of money ten years ago.

The following table illustrates the principle of the multiple standard:

in

Inflation and Contraction. There are several ways which the amount of money may be so increased as to be considered inflation of the circulating medium. Even though a country be on a gold standard, it is possible that

the opening of new and rich gold mines may lead to a rapid increase in the number of gold coins and consequently a rise in prices. Such a condition actually occurred when the mines in California and Australia were first opened. Such an inflation seldom lasts long, as the richer veins are soon exhausted and the expense of production returns to the old level. There may be inflation of metallic money in case the coin value is less than the metallic value and such money is coined in large quantities, and the inflation of paper money is familiar to all.

Contraction is the opposite of inflation. Contraction of gold coins might be caused by a failure of the mines to produce the amount of gold needed. Contraction in paper money may be the result of the withdrawal of some of the paper money from circulation.

Index Numbers.-Changes in prices may be indicated by index numbers. Index numbers may be found in a very simple way. The prices for any given time may be taken as base prices and changes in prices reckoned in relation to base prices. For example, take a ton of iron, a pound of cotton, a bushel of potatoes, and a bushel of wheat.