MONEY, CREDIT AND PRICES 1. Relations of value, price, money and credit.— The discussion has taken up successively a series of closely related phenomena, value, price, money and credit. It remains to consider them in their mutual relations. Price we have considered as the expres sion of value in the terms of one commodity, money as the term in which price is expressed, credit as an agency thru which the. use of money is economized. We must now inquire what it is that fixes the value of money, how the value of money is expressed in prices, and what effect credit has upon prices.
2. Value of have value be cause in the first instance they satisfy some desire of man's nature in the present organization of society; in other words because they have utility, and because the available supply is less than the demand for them. Like all other things money depends for its value not only upon its utility, but upon the demand for money and the supply of money. Its utility does not lie in the substance^ of which it is composed but in the service which it renders. It is a common impression in the case of standard gold money, that the money is valuable because it is gold, whereas it would be more accurate to say that zold is valuable because it is money. We all know that a silver dollar and a paper dollar are each worth a dollar, not because of the sub stances of which they are made but because they do the work of a dollar.
Nor is the ease of a gold dollar essentially different. It may be admitted that gold as a substance has utilities apart from its use as a monetary medium, but these are of second rank. Apart from its use as adornment its employment in the arts is extremely limited. On the other hand, a very large portion of the gold stock of the world is performing the function of money, and there can be no doubt that were gold deprived of its money function it would greatly de preciate in value as compared with other commod ities. The use of gold as money heightens the value of gold, and the value thus given to gold is imparted to the other forms of money which do a similar service irt the affairs of the world.
Like other commodities or services, the value of money depends upon the ratio between demand and supply. What these terms mean in relation to com modities in general has already been explained. In the case of money the elements which enter into both demand and supply are so complex that special analysis is desirable.
3. Demand for money.—What measures the de mand for money? Obviously the demand for money differs from the desire for wealth. While in common parlance we are apt to confuse the two and speak of the well-nigh universal longing for riches as an insatiable demand for money, it is not in this sense I that the phrase is used here. The demand for money is simply the work that money is required to do. That work, as preceding chapters have shown, is somewhat varied in character.
I Money serves as the medium of exchange. Money'serves as the basis of credit.
Money serves as a store of value.
4. Population and the money things being equal, the demand for money grows with the volume of business. The United States today, with its population of over 100,000,000 persons, could not conceivably get along with no more money than when our national existence started. The growth of population, independently of any other factors, has created a, far larger demand for money. Business activity does not depend upon population alone ; China with its teeming millions is not a business force comparable to other nations with much smaller num bers.
In newer countries, such as the United States and Canada, increasing numbers have been also accom panied by increasing wealth. The greater the wealth the more frequent its interchange, and the greater will be the demand for money. In the United States the money employed per capita has been constantly increasing. In part such increase must be explained by a greater demand for money flowing from the rapid increase of wealth.