| 1 | 2 | 3 | 4 | |
|---|---|---|---|---|
| Calendar Years | Dun's Prices with base in 1910 | R. R. Gross Receipts, reduced to base of 1910 | Composite Index, R. R. Gr. Rcts. multiplied by Prices. (Column 1 × column 2.) | Net Income[312] of the United States in billions of dollars: 100:30.5::(3):$ |
| 1890 | 76.5 | 39.8 | 30.8 | $ 9.3 billions |
| 1891 | 81.5 | 42.0 | 34.2 | 10.4 |
| 1892 | 75.6 | 43.5 | 32.8 | 10.0 |
| 1893 | 77.3 | 42.9 | 33.2 | 10.1 |
| 1894 | 71.5 | 38.1 | 27.2 | 8.3 |
| 1895 | 68.0 | 40.7 | 27.8 | 8.4 |
| 1896 | 63.8 | 40.6 | 25.9 | 7.9 |
| 1897 | 62.2 | 42.4 | 26.4 | 8.0 |
| 1898 | 66.4 | 45.1 | 29.9 | 9.1 |
| 1899 | 72.3 | 49.6 | 35.8 | 10.9 |
| 1900 | 78.1 | 54.0 | 42.1 | 12.9 |
| 1901 | 80.6 | 59.4 | 47.8 | 14.6 |
| 1902 | 84.0 | 62.6 | 51.3 | 15.6 |
| 1903 | 83.1 | 70.1 | 58.2 | 17.7 |
| 1904 | 84.0 | 70.3 | 59.0 | 18.0 |
| 1905 | 84.0 | 76.4 | 64.2 | 19.6 |
| 1906 | 88.1 | 85.0 | 70.5 | 21.5 |
| 1907 | 94.0 | 92.9 | 86.3 | 26.6 |
| 1908 | 92.4 | 81.8 | 75.6 | 23.0 |
| 1909 | 99.0 | 91.7 | 91.0 | 27.6 |
| 1910 | 100.00 | 100.00 | 100.0 | 30.5 |
| 1911 | 98.1 | 99.0 | 97.0 | 29.6 |
| 1912 | 104.1 | 106.9 | 111.0 | 33.8 |
| 1913 | 101.7 | 112.5 | 114.0 | 34.8 |
| 1914 | 102.5 | 104.5 | 107.0 | 32.6 |
| 1915 | 106.0 | 110.0 | 116.0 | 35.4 |
| 1916 | 125.0 | 129.0 | 161.2 | 49.2 |
CHAPTER XIV
THE VOLUME OF TRADE AND THE VOLUME OF MONEY AND CREDIT
In the argument so far I have said nothing of the reverse relationship, the dependence of the volume of money and the volume of credit on trade. The two are indeed interdependent. Interdependence suggests circular theory, and is often a phrase to cover circular reasoning.[313] In the case of the relation under discussion, however, I have, I trust, already abundantly protected myself against the charge of circular reasoning by denying that either volume of money and credit on the one hand, or volume of trade on the other hand, is a true cause at all. Both are mere abstract names, designating highly heterogeneous individual occurrences, which, individually are cause or effect. In general, both volume of money and credit, on the one hand, and volume of trade on the other hand, are results of common causes, which are the veræ causæ of economic phenomena—values, psychological phenomena. The whole thing is to be explained immediately and primarily in terms of social relationships and mental processes,—in terms of social values.
To show that increasing trade tends to increase money and credit is not difficult. If one may venture a hypothetical illustration—and the sort of hypothetical illustrations, like the dodo-bone case, of which quantity theorists are fond make one hesitate to do so—let us assume a communistic community, isolated from other markets, with a developed system of production, including an extensive use of gold in the arts. Let the communistic régime gradually pass over to an individualistic régime. Assume that the inhabitants are acquainted with the use of gold as money, and that their government is willing to coin it freely. As individualism spreads, and trade grows, will not more and more gold be taken to the mints? I am not here concerned with the principles determining the apportionment of gold between the money employment and the arts. It is enough to show that expanding trade tends to increase the volume of money.
Assume that the money supply meets difficulties in its expansion. Is there not at once an incentive to extend credit? The seller finds his customers unwilling to buy for cash, in amounts as great as before. In order to sell as much as before (assuming that the use of credit is known, to avoid trouble with historical origins), he extends credit,—which, when practiced generally, lightens the strain on the money supply.
I have so far said nothing of the case where there are stocks of the money metal to be got from outside markets. But if a country is expanding its trade, does not money come in? The quantity theorists would, indeed, admit this, in general, though their reason is a bad one, namely: that expanding trade lowers prices, and lower prices make the market attractive to foreign buyers, who then send in money for the goods. I shall later discuss this aspect of the theory.[314] For the present, I merely interject the question as to the probability of an expansion of trade when prices are falling. Increasing stocks of particular goods may well mean lower prices for these goods and if they be articles of export the lower prices may well increase the export trade, and bring money in. But this increase in stocks of articles of export is very different from total trade within the country; and lower prices in articles of export are very different from a generally lower price-level.[315]
Will expanding trade in a country increase credit? I come here to one of the striking features of Fisher's doctrine—a feature in which I think he is fundamentally true to the quantity theory. He finds no way in which expanding trade can directly increase credit. Expanding trade can increase credit, (a) only by changing the habits of the people, so as to alter the ratio, M to M´, or (b) by reducing the price-level, and so bringing in money from abroad, whence, as M is now increased, M´ rises proportionately. "An increase in the volume of trade in any one country, say the United States, ultimately increases the money in circulation (M). In no other way could there be avoided a depression in the price-level in the United States as compared with foreign countries. [He should say, from the standpoint of his theory, that increasing trade will cause a fall in the price-level, and so bring in more money.] The increase in M brings about a proportionate increase in M´.[316] Besides this effect, the increase in trade undoubtedly has some effect in modifying the habits of the community with regard to the proportion of check and cash transactions, and so tends somewhat to increase M´ relatively to M; as a country grows more commercial the need for the use of checks is more strikingly felt."[317] In a footnote to this paragraph, he defines the issue still more sharply. "This is very far from asserting as Laughlin does that 'The limit to the increase in legitimate credit operations is always expansible with the increase in the actual movement of goods'; see Principles of Money,[318] New York (Scribner), 1903, p. 82. We have seen, in Chapter IV, that deposit currency is proportional to the amount of money; a change in trade may indirectly, i. e., by changing the habits of the community, influence the proportion, but, except for transition periods, it cannot influence it directly."[319]