Money as a Medium Exchange Barter Trading is too Clumsy Large-Scale Production requires a Medium of Exchange Recognition and measurement of changes in the value of money. Classification of Money Stabilization of the Price Level The Value of Money or General Level of Prices Where The Unit of Account is a Fixed Quantity of Bullion, Uncoined or Coined. The value of money or general level of prices where the unit of account is a coin of which the issue is limited. The value of money or general level of prices where the unit of account is a bank-note or currency note. Causes of Change in the General Price Level Possible Occasions of Inflation Ways of Dealing with Risk: Transfer To Specialists Choice Criteria Under Risk Hedging The origin and the functions of money Money, when its use has grown habitual The early history of money Currency in the hunting state Currency in the pastoral state Articles of ornament as currency Currency in the agriculture state Manufactured and miscellaneous articles as currency The invention of coining Qualities of the material of money Utility and value Protability Indestructibility Homogeneity Divisibility Stability of value Cognisability Legal Tender The Greenbacks - The Fluctuating Premium on Gold The Greenbacks - The Effects of Greenbacks Upon Wages Rent - Urban Rents Rent - Farm Rents Interest and Loan Capital Purchasing Power of the Principal of Loans The Rate of Interest Profits Profits in Agriculture Statistical Evidence Regarding Profits The Production and Consumption of Wealth Production Consumption Cost of the Civil War Greenbacks and Expenditures The Greenbacks and Receipts Contraction and Inflation of the Legal Tenders Passage of the Resumption Act The Struggle for Resumption The Purchasing Power of the Dollar Measurement of Changes in the Purchasing Power of Dollar Results of Changes in the General Price Level Buying Problems of the Consumer What is Good Buying? The Principles of Foreign Exchange The General Price Level Price Policies Price Flexibility Price Leadership Price Discrimination Special Pricing Practices Postage Stamp System Policy Implications

Circumstances under which there may be a decided increase in means of payment or total purchasing power without a corresponding increase in the actual goods and services available in the market may be seen by noting some of the possible causes or occasions of inflation. It is clear that if the purchasing power of spenders within a given market increases without any increase, or not in proportion to the increase, in the goods and services in that market the prices of these goods and services are bound to be pulled up. An increase in prices is not only a part of the rules of the game but a necessary device if the goods are to be distributed among those offering to exchange money for them. Three possible occasions of inflation under the present monetary system may be noted: gold inflation, paper inflation and credit inflation. In a gold standard country any amount of gold bullion may be taken to the mint and exchanged for coins, certificates, or other money at the rate fixed by law. Any circumstance therefore such as the opening of extensive gold deposits or an extensive inflow of gold from other countries to balance international debits and credits may have an inflationary influence. Gold is a metal of such durability and is used in such ways that the stock on hand is very large in proportion to the annual output and has therefore great stability of value. At no time has the discovery of even the richest mines resulted in an annual output greater than from 3 to 5 per cent of the world's stock. Ordinarily also with the ordinary trade relations the inflow of gold into a country or its outgo is checked by forces which the movement itself sets into operation. Such debit and credit relations however as were established between the United States and other countries during and following the World War, or such activities as those of a country that is attempting to build up a large gold reserve may lead to a marked and continued inflow of gold into a country or withdrawal from another of a large part of its supply. To grasp the possibilities of gold inflation in raising prices one need only assume that every one by the gift of some kind fairy comes into possession of a considerable amount of gold bullion which can immediately be changed into readily acceptable media of exchange. The purchasing power of each individual is immediately expanded beyond the confines of his money income derived from earnings or ownership and he will expand his demand upon the market accordingly. But unfortunately if there has been no corresponding increase in the goods and services available a rise in price is inevitable. In the past the inflationary effect of new gold discoveries has been slow and gradual. Demand for gold for industrial and monetary purposes has increased as the supply increased. The slow upward movement of prices observable after 1900 is usually ascribed to gold inflation as is to large degree the sharp upward movement in the United States after 1917 when our position as a gold-producing and creditor nation gave us a large proportion of the world's stock. The later downward trend was likewise ascribed to the building-up of gold reserves by European countries and the too successful sterilization of the gold reserves of the United States. In order to vivify the results of gold inflation it is necessary to imagine an alchemist successful in turning grosser substances into gold. No such feats of the imagination are necessary in the case of paper inflation. No imaginative fiction could surpass what has actually happened many times in history in this line. Paper inflation seems to be the almost inevitable concomitant of a prolonged or extensive war or of one waged by a newly formed government as the union of the American colonies under the Continental Congress and the confederacy of southern states. Paper inflation in itself can not occur if the gold standard is maintained and the redeemability of paper into gold. But newly formed governments may not possess gold reserves and cessation of gold payments often marks the outbreak of hostilities between older ones. The extensive issue of irredeemable paper whether government paper or bank note currency issued as a loan to the government is a method of paying off debts and making new purchases that is too tempting to be avoided by most governments that are hard-pressed as to ways and means. The revenues of the government are normally derived by taxation and borrowing. As the purchasing power of the government increases that of citizens declines. A lesser market demand is exercised for civilian needs and a greater for public purposes. But in time of war obstacles arise to increases in taxes and loans. The government has within its reach through its monetary powers an easy way of meeting its fiscal needs. By incurring merely the costs of printing it can go upon the market with money indistinguishable from any other and buy the labor and supplies needed. Thus is accomplished what was suggested earlier: I, or total money income, increases while R, or goods and services, remain the same. But if the issues of paper are great enough, the result is inevitable. Prices rise; the purchasing power of the pecuniary unit shrinks; new, issues larger than before are deemed necessary and as fiscal needs grow greater the appalling currency situation of post-war Austria, Germany, or Russia may result in which money almost ceased to perform its functions and hampered rather than facilitated calculation and exchange. The truth is that economic results of wholesale issues of paper by the government to meet its fiscal needs are the same as if all individuals should attempt to expand their purchasing power by doing the same. In the latter case the process would be called "counterfeiting" and the product "counterfeit" money. Legally and morally it is quite different from the government issue. But the effect upon market prices will be the same whether the paper is turned out by the government from its printing presses to meet its fiscal needs or turned out by individuals illicitly to meet theirs. Paper inflation need not be feared in times of prosperity and peace. Its occasion is war and the accompanying financial pressure. Credit inflation upon the other hand has two dangerous aspects; it may occur at the very height of a period of prosperity and, furthermore, quite different from an issue of irredeemable paper, it may occur in the guise of an ordinary and necessary credit transaction. Credit in its essence gives to an individual goods, or power to purchase goods, now whereas without it he would be obliged to wait. When buying goods and services on the market, I may be using claims acquired some considerable time in the past and saved until the present. Or I may be using means of payment recently acquired. That is, I may be spending past income or present income. In both cases however the money income represents presumably net value added to goods and services. Income however may be earned but not yet received. If I am paid at the end of the week or month and it is now the middle I presumably have income due but not yet received. If I wish to use this income earned but not yet received as purchasing power I must have credit. The wage- or salary-earner may buy "on credit" at the grocery or dry goods store promising to pay when the income is received; the debt is shown by an account on the creditor's books. Similar is the action of the business man, manufacturer or wholesaler, who having carried on his part of the productive process sells a bill of goods. If he sells for cash he has means of payment which he can utilize on the market. But if, as is likely, he sells on time, he has income earned but not yet received. If he is to spend it now he must obtain "credit" at a bank or similar financial institution. He must "discount" the note or acceptance or borrow on his own note backed by the record of "accounts receivable" and receive cash or a deposit credit against which he can draw checks. Thus it is made possible that income earned but not received may become means of payment on the market. A third possibility exists. Not only may income earned but not yet received through "credit" exercise "demand" on the market but future income, income as yet unearned but expected to be earned may also. The wage- or salary-earner may buy in excess of the income he will receive at the end of the week or month. He may buy promising to pay from income to be earned several weeks or months ahead. The business man may secure extensions of credit which enable him in effect to spend now what he expects to earn some time in the future. The fact of the matter is that credit in its present forms is distinctly a modern device. Its use to facilitate production and exchange while maintaining a constant ratio between I and R is not yet completely under control. Close and careful study is still necessary.