period was further characterized, as all preceding periods had been, by chaotic financial systems, experimentation with them, and final settling down to a gold standard. Much of the new gold and of the silver was sent into new and backward, rapidly developing sections of the earth to furnish the very foundation of a currency system and to meet the demands for rapidly developing trade. The result was that the increase in money did not quite keep pace with the demand for it brought about by the readjustments of the financial systems of the world and by the rapidly expanding commerce.

Since 1896 conditions have changed. For the first time in the world's history, each of the leading nations has devised a much more rational and satisfactory monetary system. Some degree of order has been brought out of the chaos. Confidence has superseded distrust. The foundations were laid for these

changes by the additions to the gold stock of the world by the large output of the mines during the last half of the nineteenth century. Industry has prospered, but no vast new regions of land have been opened up, such as were exploited up to the last decade of the nineteenth century; no such enormous development of internal improvements has been witnessed. Inventions have proceeded, but not with the rapidity or of such wide importance as during the period preceding 1895. I suppose it may be conceded that the factors tending to the lessening of the cost of production of commodities generally have not operated by any means so powerfully in the period under discussion. Conditions of production have become more stable, and in manufacturing the concentration of industry and the growth of large enterprises have been witnessed. There has been a vast increase in the output of commodities generally in the last fourteen years, ranging in many important items from 50 to 100 per cent or more, exceeding, perhaps, the growth of the preceding period of twenty years or more. But to account for an increase of price from the side of commodities in general, it would be necessary to furnish evidence of the efficient operation of causes leading to great increase in the cost of production of them; and, while I am prepared to admit that the decline in the cost of production of commodities was checked, and even that some increase in the cost has occurred, I have seen no evidence to convince me that the increase has been sufficient to explain the rise in the last fourteen years. Perhaps the most tenable position the opponents

could assume would be that the food products have not kept pace with the increase in the population and with the demand, but it is not clear that this difficulty has presented itself in sufficient degree, in this country particularly, to explain the increase of price. And, when we view the expansion of agricultural production in other parts of the world, the sufficiency of this explanation becomes still more doubtful. In the United States the production of leading crops, like corn, wheat, and oats, has increased nearly as rapidly in the last fourteen years as in the preceding period of equal length, and the yield per acre has not decreased.

In the period under discussion the nations which have added most largely to their stock of new gold are the United States, France, Germany, the United Kingdom, India, and the Argentine Republic. Of those for which we have much data the United States, France, Germany, and England have made the most significant additions; of these four the United States and Germany have at the same time most satisfactorily developed credit devices for increasing the efficiency of gold; and, while I believe it is conceded that prices have reached a higher level in the United States than in any of the other countries, I imagine that it may be found that there has been a slightly higher rise in Germany than in either England or France.

The situation in the United States presents unusual interest. Up to 1866 the net result of importations and exportations of gold and silver combined and of the retention of the gold and silver produced within the country itself was an addition of only $238,000,000; between 1866 and 1876 the net result was the addition of less than eighty millions of gold and ninety millions of silver; between 1876 and 1886,-the period representing the resumption of specie payments,-something like a half billion dollars were added; but in the following ten years less than one hundred and fifty millions resulted from these forces. The Director of the Mint gives his estimate of the stock of gold in the United States in 1895 as $502,000,000. The estimate for 1909 is $1,612,000,000. More than twice as much gold has been added to the stock of the United States in the last fourteen years than was added in the preceding fifty, and the amount of money of all kinds has increased in the period from 1906-1909 from $1,500,000,000, to $3,100,000,000. The lawful money reserve has increased from $420,000,000 to $860,000,000, and the cash

holdings from $875,000,000 to $1,370,000,000; and, what is equally striking, the amount of individual deposits subject to check has increased from $2,600,000 to nearly $7,000,000,000. I am convinced that these enormous additions and developments, on the top of a somewhat adequate currency system in 1895, furnish the principal explanation of the rise in price.

That the tariff has played a part in the situation, I should of course not deny. By preventing us from securing supplies where they can be more economically produced, and by making it possible for domestic manufacturers to monopolize the market, and by tending to compel the payment for exports in gold, it has unquestionably played a part and is a notable factor. I imagine that for a part of the period under discussion the conditions which would make McDuffy's export tax theory applicable have been satisfied. In considering the tariff as a factor, however, we must not forget that we have had the tariff since the beginning, and that the rates have been nearly as high since the Civil War as they are today; and we must remember, further, that in one of the great countries which has no protective tariff the tendency of price has been upward; furthermore, we must not overlook the fact that many of the tariff rates, which are very high now, are not effective or not nearly so effective as they were in the earlier period, and also that its influence is probably greater in things in which the rise of price has been less marked.

I should not deny that labor unions and monopolies have had an influence, in increasing price. The evidence seems to justify the conclusion that monopolies have had some effect in increasing price. I am not sure that there is sufficient evidence in regard to labor unions to enable us to form a conclusion. That labor, as well as capital, has been unwise, I should concede. Many of the policies of the labor unions are unquestionably detrimental to their own welfare and to that of the community, if pursued they would be economically suicidal; that many of their other policies are wholesome and will result in economic gain, I think is equally clear; what the balance is, is uncertain. It is probably clear that strikes have not operated any more strongly in the later period than in the former.

Much has been said in discussion about the influence of extravagance. This has played a part in similar discussions at all times; every era has its cry of extravagance, and it is not clear that it has been more marked in our time than in former times.

And one thing is quite clear, that the extravagance, or economic waste, resulting from the prosecution of war and its after effects, has been conspicuously absent during the last fifteen years.

To summarize. The stock of gold in the leading western commercial nations, with which we are concerned in discussing prices, probably did not exceed $5,000,000 at the end of 1895. During the next fourteen years there was added to the stock of gold of these countries an amount nearly equal to the existing stock. In addition, a number of these countries enormously developed their credit devices. According to all economic law, these facts create a strong presumption that gold has been the main factor affecting price. No sufficient evidence has been presented to overthrow this presumption. If, under existing conditions, gold is not the principal factor in producing a rise of price, I cannot easily imagine conditions under which it could reasonably be assigned as a controlling cause.

E. W. KEMMERER: An adequate discussion of the papers presented by Professors Fisher and Laughlin would require much more time than the few minutes at my disposal. I shall accordingly limit myself to a few points and support my conclusions principally by footnote references. This procedure is perhaps the more justifiable in view of the fact that my own philosophy of the relationship between money and prices is given in detail in the book1 on money and prices to which Professor Fisher has so generously referred.

I have had the opportunity of reading in manuscript Professor Fisher's forthcoming book on Price Levels, of which his paper today represents one chapter, and find myself in substantial agreement with his main contentions. His discussion is a permanent contribution to monetary science of very great value. To a number of minor points, however, it seems to me, exception must be taken. For example, I doubt if the percentage of the country's exchange work performed by means of cash is as large as he estimates (p. 43), that is, about 86 per cent in 1896 and about 91 per cent in 1909, and believe that he has not made sufficient allowance for the tendency of figures based upon bank returns to exaggerate the relative importance of checks.2

1

Money and Credit Instruments in their Relation to General Prices, 2d edition, 1909. New York: Henry Holt & Company.

2 Ibid., p. 107.

3

Professor Fisher's formula expressing the relationship between the circulating media and prices is essentially the same as my own, but he pays little attention to the factor of business confidence, which is a most important consideration in the interpretation of the formula. The ratio of deposit currency to bank reserves is a function of business confidence.*

The distinction Professor Fisher draws between the prices of individual commodities and the general price level appears to me, as to Professor Laughlin, to be untenable. It is, moreover, contradictory to his general philosophy of money. His index numbers recognize no general price level distinct from individual prices. He illustrates the point that the price of any individual commodity presupposes a general price level by saying that "the position of a particular wave in the ocean depends on the general level of the ocean." I can conceive of no such distinction between the general price level and individual prices as his statements seem to imply. General prices "are but a combination, or composite photograph, as it were, of individual prices." Professor Fisher's illustration of the ocean would be more apposite if he called it a lake whose level was continually changing, and if he considered each particular wave as extending to the bottom.

Passing to Professor Laughlin's paper, which has been presented to me merely in the form of an abstract, we find ten propositions, which to a considerable extent are repetitious. His first five propositions are rather commonplace generalizations and few economists will be disposed to dissent from their essential soundness. They place him much closer to the quantity theory of money than most of us, judging him from his previous writings, were disposed to think he would go; and in his third proposition he says, "Probably there is not so much difference of mind regarding the theory of prices as is sometimes supposed."

In passing over these first five propositions it may be well to note an important qualification to his statement that “The price of a commodity is the quantity of a given standard for which it will exchange." If by standard he means standard money (in the economic sense of the term as contrasted with the legal sense) the definition is essentially true; if, however, he means the bullion from which the standard money is made, the definition is not

3

Kemmerer, Money and Credit Instruments, pp. 9-18, 74-82.

Ibid., pp. 82-8, 121-6, 145-8.

Ibid., p. 9.