When the people arrive at a clearer perception of these facts and principles they will understand that the chance production of gold and silver is too clumsy a contrivance to properly control so delicate a matter as the value of money under modern industrial conditions, and I believe they will substitute for the present system a circulating medium of paper money, properly guaranteed, and susceptible of prompt and certain increase or decrease of volume to meet every possible variation in demand, and rigidly controlled to conform in value to a true standard of value, a standard composed not alone of gold or silver or both combined, but of all the leading commodities.
In short, they will separate the standard of value from the medium of exchange, demonetizing both gold and silver as to the latter function, but using both and many other things in conjunction therewith for the former function.
V. BY A. J. WARNER.
From whatever side the question is approached, in the last analysis the value of money of any kind is found to depend upon its quantity, and not upon color, or ductility, or malleability, or any other particular quality of the thing upon which the money function is impressed. There can be therefore, in fact, no other standard of value, or money standard, except the quantity of whatever is used as money. When gold and silver are used, the value of each unit of money depends upon the number of such units, and these in turn depend upon the quantity of the metal from which the money is made. Any cause, therefore, which restricts, limits, or contracts the quantity of any kind of money, increases the value of each unit. On the contrary, causes that operate to increase the supply of money have the opposite effect.
Hence, only that currency can properly be called “sound” currency which is made to maintain stable relations to things to be bought and sold. In other words, general prices are determined by the proportion between money on the one side, and things offered against money on the other side. Such money only is “honest” money.
The whole question, therefore, of money standard is a question of money supply; for, as the price of single things, money being constant, depends upon supply on the one hand, as against demand for it on the other, so, in general, prices depend on money supply on the one hand, and things to be bought and sold on the other. This I believe to be the fundamental law of money.