and not on goods, is widespread, and much discussion is probably before us on this point.
The relation of credit to the theory of prices is not so clear: some think that all the money, plus all the credit (whatever that may be), act primarily to fix the level of prices; but any sane person will see at a glance that the forms of credit, such as bills, drafts, etc., arising from the movement of the wheat crop, have no effect on the price of that crop—the price having been made antecedent to the creation of the forms of credit which came into existence only because of the actual ales of wheat. Does a farmer wait until he sees how many wheat bills are drawn before fixing the price of his wheat? Evidently not; and the popular conception needs thorough criticism.[1]
When men speak of 'our expansion of credit,' they have a very vague and general idea in their minds. The definite and distinct forces at work are covered with darkness; and, when a revulsion of trade comes, the results are accepted as coming from some undefined and mysterious force which can only be felt, but not explained. It remains the duty of the economic thinker to outline with scientific exactness the forces uniting in the upward wave of over-trading, and to state with equal definiteness the causes of the receding movement. Principles must be sought for which will explain the differing actualities of each special crisis.
IV. Theory of Prices.
Only after the honest student has come to a satisfactory conclusion in regard to the nature of money and credit is he in a position to discuss with profit the pivotal problem of this field—the theory of prices. Perhaps I may be criticized for treating here the present monetary problems from too theoretical a point of view; and it may be urged that I should have presented the practical problems confronting each leading nation, and discussed their relations to the several monetary systems actually in use. But I must respectfully insist that the moment any practical problem in any existing monetary system is taken up, one is instantly faced by the difficulty of agreement upon the terms in use, and in fact upon the simplest monetary principles involved in the examination of each case. Every practical reformer in the field of money is in fact using some theory of prices, true or false, in all the premises laid down in his propositions. One might as well go into practical engineering without a knowledge of thermodynamics as to discuss practical monetary schemes without first settling basic monetary principles. But, unfortunately, the thinking, even among so-called economists, is to-day unsettled on so pivotal a ques-
- ↑ For a full discussion of credit, see my 'Principles of Money,' Chap. IV. (1903).
