12. Does the Ricardian reasoning in favor of the quantity theory of prices hold in monetary systems where free coinage of the standard money exists, and where other devices are used as media of exchange? If mints are open, how can the coin differ in value from the bullion of which it is made?
It is safe to say that the thorough discussion of these points, and a satisfactory disposal of them, will aid in the solution of the central monetary problem, not only of the past, but of the present time. It is one which can not be blinked. It arises at every step in popular monetary discussions, and the economists have not given it necessary attention. On the settlement of the theory of prices, of the value of money, a host of minor questions, which have caused endless and fruitless differences of opinion, will disappear The solution of this matter of theory is of the greatest practical import; it is as important to practical monetary action as a theory of heat is to mechanics. Therefore let us not be deterred from a struggle with a fundamental matter of theory by any slighting and cheap sarcasm about the futility of theoretical and abstract discussions. As well scoff at the mathematics which lies behind physics and astronomy as theoretical.
Nor will it be wise to minimize the differences between the old and new points of view in the theory of prices. It may be said that the quantity of money would have an influence on general prices in any theory. True; but that does not touch the crucial point at issue. The quantity theorists make the process of evaluation between goods and 'money' dependent on the actual offer of the medium of exchange and goods for each other; an increase of transactions in goods is an increased demand for money, resulting, unless the quantity of money is increased, in falling prices. It is needless to say that the facts do not agree with these statements. An inductive economist, who would be unwilling to state any principle which had not been the outcome of a study of concrete data, could never, under any possible circumstances, have arrived at the quantity theory of money. In no case coming under my observation has there ever been any correspondence between the movement of general prices and the known facts as to the quantity of circulation, or the money-work to be done. If I am wrong, it lies in the power of induction to disprove my statement by the facts. In truth, the quantity-theory was the product of the metaphysicians, and not of the men of affairs; and it never has been in accord with the data of inductive study, so far as I know.
It is true that a great increase in the supply of gold would lower its value, other things remaining the same; but the effect on general prices would be a simple one, such as would be produced by any cheapening of the standard, like a change to a depreciated paper standard. But this change in the value of the standard is a radically
