standing to that of 1860 in the ratio of 328 to 100, the ratio would have been 164.8 to 100. In other words, the currency would have shown a per capita increase of only 64.8 per cent. instead of 228 per cent.,-a notable change, indeed! It is true, as Dr. Hardy says, there is no absolutely necessary relation between an increase of population and an increase in those trade transactions which require the use of money;* but it stands to reason, most conspicuously, that, except for a revolution in other conditions, to double the population of the country is to require some increase, and a considerable increase, in the demand for money, whether that increase shall be exactly 100 per cent. or less or more. It is true that a comparative per capita table of monetary circulation would still contain its own elements of doubt and difficulty; but this seems no good reason for introducing an additional and altogether unnecessary element of confusion and error. If Dr. Hardy allowed for the growth of population, she would manifestly come much nearer the truth than by not allowing for it. The assumption that a twofold population would require a twofold circulation, clearly may be, in its own degree, erroneous; but the assumption that a twofold population, spread over a vastly greater area, would not require any more currency is certain to contain a larger amount of error. In a quantitative investigation the difference between a 64.8 per cent. increase and a 228 per cent. increase is not immaterial.

Yet, even if we correct these tables by introducing the per capita element, it still remains true, as Dr. Hardy has stated, that, in general, while the "volume of currency" has increased, and increased largely since 1860, prices have declined, or at least have declined since 1865. It

*In illustrating this, Dr. Hardy says: "An increase in population does not necessarily imply an increase in transactions, for it is a well-known fact that there are great differences in productive power among men. Compare, for example, two nations like China and the United States or Mexico and Holland" (p. 161). But in the case under consideration Dr. Hardy is not comparing two nations of different productive power.

is this result which leads Dr. Hardy to the conclusions: "(1) that that dogma, in its general theoretical form, is inapplicable as an explanation of this given set of actual conditions; (2) that, so far as it may be at all valid, its influence in determining the level of prices is of far less importance than is commonly supposed; (3) that prices, from 1861 to 1891, were fixed in the main by other causes than the quantity of that kind of money which was in circulation during those years."

Now let us see just what it is which, in Dr. Hardy's opinion, justifies conclusions so important,-what statistical evidence is relied upon in thus cutting down the scope and validity of the quantity-theory of money. She compares the "volume of currency" with the average annual prices for a considerable term of years, and finds that, in general, in spite of a steady increase in the volume of currency, there has been a decrease, more or less intermittent and spasmodic, in prices. But is it sufficient to put together merely the volume of currency that is, the supply of money and the corresponding prices, without even attempting a quantitative statement of the demand for money? Dr. Hardy would appear to think that the quantity-theory of money is in effect this: that, if the actual quantity of money is increased, prices must rise; if the actual quantity of money is diminished, prices must fall. Now, no economist of reputation ever held such a theory, however loosely some may have written upon the subject. The quantity-theory of money, by its very statement, takes into account both the supply of money and the demand for money. Dr. Hardy's tables and diagrams do not refer to the latter element, even by so much as an interrogation-point. We have already seen that, in making the table of the "Volume of Currency" an aggregate and not a per capita table, Dr. Hardy threw out of consideration the influence of a population more than doubled during the period covered by the investigation. We now see that she does

not even give so much as a blank column to the demand for money, although the demand for money is just as much a factor in determining prices as is the supply of money. Such an investigation can scarcely be deemed conclusive. Dr. Hardy shows that the volume of currency i.e., the supply of money increased steadily and largely from 1860 to 1892. She has not shown that the demand for money did not, during the same period, increase even more rapidly, thus completely justifying the quantity-theory. According to that theory prices do not necessarily rise because the supply of money increases. Prices only rise when the supply of money increases relatively to the demand.

And right here let me take issue bluntly with the writers of the gold monometallist school generally, Mr. Wells, Mr. Horace White, Mr. Atkinson, Professor Sumner, and others, regarding their unverified assumption that it is in the nature of an advancing industrial civilization to require smaller and still smaller amounts of "the circulating medium." These writers are never tired of dilating upon the function of the bank and the clearinghouse in saving the use of money. They descant upon the statistics, partial, fragmentary, and unreliable as they are, which show the comparatively small proportion of cash payments; and they meet every statement or assumption as to the importance of the money-supply with assertions

* Dr. Hardy says (pp. 157, 158): "According to the a priori law [i.e., the quantity-theory] either the amount of currency should have decreased or prices should have risen. But neither of these events has taken place." Here is no recognition of a possible increase in the occasions for the use of money. Again, she says, referring to the fall of prices, 1865–92, accompanying an actual increase in the volume of currency: "The quantity-theory, if operative at all, has been overbalanced or checked by some other stronger force or forces. Some disturbing causes have intervened to produce effects for which the quantity-theory can give no explanation, for the understanding of which it is very irrelevant " (p. 158). According to this, an increase in the demand for money, arising from a growth of population or a multiplication of commodities or changes in the habits of the people in regard to carrying and spending money, is "a disturbing cause," contravening the operation of the quantity-principle, instead of being an essential and necessary element in the determination of prices.

that the money-supply has really ceased to be of any practical consequence, as a result of the extension of credit-agencies and instruments.

Now, it is perfectly true that credit-agencies and instruments, in any high state of industrial civilization, effect an enormous saving in the use of money. But it is at the same time true that, in spite of all which credit-agencies and instruments can do, after the efficiency of banks and clearing-houses is exhausted, the whole tendency of modern civilization has been to increase the demand for actual money. At the beginning of the present century the people of the United States enjoyed a minimum of creditagencies and instruments; and yet the volume of currency was, so far as we can make out from the incomplete statistics of circulation, less than one-half, per capita, what it was sixty years later, in spite of the fact that, during the interval, banks by the hundreds and clearinghouses in a half-score of cities had come into existence, transportation had been enormously quickened, the telegraph had been introduced, and in a hundred ways the efficiency of a given body of money had been increased. And to-day, thirty-five years later still, while creditagencies and instruments have been enormously improved and entirely new means of communication, like the telephone, have been introduced, the people of the United States are using far more money than they did in 1860; and yet the sole sign of inflation— namely, rising prices does not appear. The simple explanation is that the multiplication of commodities due to the increased facilities of production, the marvellous increase of travel, and changes in the habits of our people with respect to carrying and spending money, are continually creating a demand for a larger and still larger volume of actual money, in spite of improved agencies of exchange and rapidly multiplying instruments of credit.

FRANCIS A. WALKER.

THE ORIGIN OF INTEREST.

IN the last number of this Journal Professor J. B. Clark has given in some detail his views upon the origin of interest, and has there placed in opposition to my theory his own theory of "permanent capital" and its "specific productivity." I have, however, already set forth at such length in my last article † the considerations which forbid me to accept as a really scientific explanation of interest his brilliant but somewhat dangerous speculations, that it would be too great a strain upon the reader's patience again to take up that matter. We have each put our views clearly and fully before the public for public approval or disapproval.

Upon a few new points made by Professor Clark, however, I wish to say a few words, not in order to advance opinions, but merely to substantiate facts.

1. Professor Clark seems to assume ‡ that I have in my last article "introduced into the problem for the first time" the case of money, representing money as a species of "goods" manifesting the difference in value between present and future goods. In this he is mistaken. For in many, and in some of the most important, passages of my Positive Theory of Capital I have used money as an illustration of the proposition that present are worth more than future goods.§

2. Again, Professor Clark seems to regard my theory of interest as a sort of abstinence theory. He believes that, so far as my theory of interest is concerned, production *Article entitled "The Origin of Interest," in vol. ix., No. 3, p. 257, seq. † See vol. ix., No. 2, pp. 113-131. "Origin of Interest," pp. 262-264.

§ For example, Positive Theory, pp. 249 ("present shilling" compared with the 'future shilling "), 250 ("most goods, and among them particularly money," etc.), 251, 255, 256, seq., 276, 286 (the case of loans), 304, 375, 415, seq., etc.