but the amount of silver coins of the one nation which must be given to buy a stated sum of gold coins of the other nation. The silver bill varies relatively to gold coins in proportion to the changes in the value of silver bullion relatively to gold—unless the silver coins, under the laws of token-money, are kept at an artificial value, above the market value of the silver bullion in them, by some method, more or less direct, of redemption in gold. When silver bills are offered in the exchange market, they are simply offers for the sales of so much silver to be paid for in gold. If, then, the treasury of the silver-using country buys the bills, in certain emergencies of the exchange market, it is paying gold for silver; or, in other words, it is to that extent redeeming amounts of silver in gold.
Stripped of its enveloping mystery, the only way in which the new proposals for Mexico and China can establish stability of exchange is to establish the gold standard. For that purpose, if the silver coins in common use are to be rated in gold above the market value of the silver content of the coins, the only way in which parity in daily business, or in the exchanges, can be maintained is by creating a gold reserve large enough to redeem coins at par, or buy exchange at par, if no direct redemption is allowed. The whole operation, therefore, harks back to the principles regulating the value of such money as token-coins, bearing a seigniorage, or paper money, which has no value in itself. The worship of quantity as a regulator of value of money may do for those who are unwilling to test their theories by the facts; but inevitably one is obliged to admit that other forces are far more potent than quantity.
VIII. The Value of Paper Money.
I have said that the pivotal problem in the whole field of money is the theory of prices or the value of money. How true this is may be seen by the recurrence of this issue in each of the problems noted in this paper; and in the last one which I shall take up it again reappears. What regulates the value of those forms of money which circulate at a rate above their content is a question which forces itself to the front whenever we study a case of paper money. In times past, it has been sufficient to explain the value of paper money by referring its rise or fall to an increase or diminution of its quantity. This blind reliance on quantity as the main force controlling the value of money can not now, with our knowledge of the facts, be consistently held.
The amount of notes which a merchant can put out, provided he redeems them promptly, is limited only by the extent of his transactions. So it is with a nation. Given a certain set of business operations, as many notes can be kept in circulation as are needed by the
