154
APPEECIATION OF GOLD.
course, the same thing as a general fall in prices,
the very meaning of the expression is that a given
amount of gold purchases more commodities than
before. But general prices depend on a variety of
causes, some operating in the same direction, and
others antagonistic. There is no proposition better
established in Politicai Economy than that, under
certain conditions, the value of money (by which is
meant not the rate of interest, but a high or low
level of prices of things in general) varies inversely
as its quantity multiplied by the rapidity of circula-
tion. But the conditions laid down are, for practical
purposes, of the highest moment. The two elements
in the law—the quantity of money and the rapidity
of circulation—may be taken separately. It is easy
to see, under the assumptions to be indicated, that
the more money there is the less will be the ex-
change value of every piece. The necessary assump-
tions are—(1) that the quantity of commodities to
be exchanged, and the number of exchanges to be
eifected, remain the same; (2) that money is used
only for purposes of currency ;—that is, that no
account is taken of the other uses to which the
material of which it is made can be applied ; (3) that
money passes from band to band at every trans-
action—credit, and even barter, being non-existent.
Under these conditions it is obvious that the value
of money must vary inversely as its quantity; if
the quantity is doubled, general prices will be