The present monetary circulation of this country including gold, silver, and paper, is represented to be $1,700,000,000. As our population doubles in thirty years, the rate of increase is 31⁄3 per cent.
If the money volume be not increased by a proportion at least as great as this, the true relation between the supply of money and the demand for it will not be maintained. The demand increasing as the population increases, while the supply either does not increase at all or increases in a degree incommensurate with the demand, the money volume shrinks and the purchasing power of the unit becomes greater by reason of the increased keenness of competition to get it. This is but another mode of stating that the prices of all products of human labor decline. Prices falling, business ceases to be profitable, stores and work-shops close, and men are relegated to idleness.
THE QUANTITATIVE THEORY OF MONEY—THE VALUE OF EACH DOLLAR DEPENDS ON THE NUMBER OF DOLLARS OUT.
Thus by the universal competition to get it the value of the dollar is made to depend upon the number of dollars that are out. This is a principle that lies at the very foundation of the science of money. The law, stated broadly, is that the value of each unit of money in any country at any given time depends on the whole number of units in circulation in that country. The larger the number of units out, population remaining the same, the less must be the value of each unit; the smaller the number of units out, population remaining the same, the greater the value of each.
Notwithstanding the variance sometimes found between the premises and the conclusions of economic writers, there is no economist of repute who does not admit this to be a fundamental principle.
On the theory I have propounded therefore 31⁄3 per cent. of $1,700,000,000, or $56,000,000, is the minimum amount of money that should be added to the currency of this country during the present year.
Assuming the population of to-day to be 65,000,000 and the ratio of its annual increase 31⁄3 per cent., the population of next year will be 67,166,600. The percentage of monetary increase to be provided for that year should therefore be baaed on the increased number. And so on for each succeeding year.
I have thought best to collate a variety of citations from the most distinguished authorities on financial economy to support my contention that, ceteris paribus, the value of each dollar depends on the number of dollars in circulation.
John Locke, in his "Considerations," etc., published in 1690, said:
Money, while the same quantity of it is passing up and down the kingdom in trade, is really a standing measure of the falling and rising value of other things in reference to one another, and the alteration in price is truly in them only. But if you increase or lessen the quantity of money current in traffic in any place, then the alteration of value is in the money.