WHAT PRODUCES A GENERAL FALL OF PRICES?
What, then, is it that produces a general decline of prices in any country? It is produced by a shrinkage in the volume of money relatively to population and business, which has never yet failed to cause an increase in the value of the money unit, and a consequent decrease in the price of the commodities for which such unit is exchanged. If the volume of money in circulation be made to bear a direct and steady ratio to population and business, prices will be maintained at a steady level, and, what is of supreme importance, money will be kept of unchanging value. With an advancing civilization, in which a large volume of business is conducted on a basis of credit extending over long periods, it is of the uttermost importance that money, which is the measure of all equities, should be kept unchanging in value through time.
EFFECT OF A REDUCTION IN THE MONEY-VOLUME.
A reduction in the volume of money relatively to population and business, or, (to state the proposition in another form) a volume which remains stationary while population and business are increasing, has the effect of increasing the value of each unit of money, by increasing its purchasing power.
It is only within a comparatively recent period that an increasing value in the money unit could produce such widespread disturbance of industry as it produces to-day. In the rude periods of society commerce was by barter; and even for thousands of years after the introduction of money, credit, where known at all, was extremely limited. Under such circumstances changes in the volume and in the value of money, while operating to the disadvantage of society as a whole, could not instantly or seriously affect any one individual. An increase of 25 per cent. in one year in the value of the money unit—a change which now, by reason of existing contracts or debts, would entail universal bankruptcy and ruin—would not be seriously felt by a community in which no such contracts or debts existed, in which payments were immediate or at short intervals, and each individual parted with his money almost as soon as he received it.
Such proportion of the annual increase in the value of the money unit as could attach to any one month, week, or day would be wholly insignificant, and as most transactions were closed on the spot, no appreciable loss could accrue to any individual. Such loss as did accrue was shared in and averaged among the whole community, making it the veriest trifle upon any individual. But how is it in our day?
THAT EFFECT INTENSIFIED AS CIVILIZATION ADVANCES.
The inventions of the past one hundred years have established a new order of the ages. The revolution of industry and commerce, effected by the adaptation of steam and other forces of nature to the uses of man, have given to civilization an impetus exceeding anything known in the former experience of mankind. Under the operation of the new system, the rapidity and intensity with which, within that period, civilization has developed, is due in great part to an economic feature unknown to ancient civilization and practically unknown even to civilized society until the present century. That feature is the time-contract, by which alone leading minds are enabled to project in advance enterprises of magnitude and moment. It is only through intelligent and far-seeing plans and projections that in a complex and minutely classified system of industry great bodies of men can be kept in uninterrupted employment.
We have 22,000,000 workmen in this country. In order that they may be kept uninterruptedly employed it is absolutely necessary that business contracts and obligations be made long in advance. Accordingly, we read almost daily of the inception of industrial undertakings requiring years to fulfill. It is not too much to say that the suspension for one season of the making of time-contracts would close the factories, furnaces, and machine shops of all civilized countries.