CHAPTER 4

THE VALUE OF MONEY

REFERENCES.

_Fisher, Irving_, The purchasing power of money. 1911.

_Gibson, Thomas_, Special market letters on the increasing gold supply and its effect on security values; interest rates; commodity prices, etc. 1908.

*_Johnson_, chs. III-VIII, X.

_Kemmerer, E. W._, Money and credit instruments in their relation to general prices. 2d ed. 1909.

_Magee, J. D._, Money and prices. J. P. E., 21: 681-711, 798-818. 1913.

*_Phillips_, chs. VIII, XI.

_Round table discussion_, Money and prices. A. E. Assn. Bul., 4th ser., 1 (no. 2): 46-70. 1911.

*_Source Book_, 303-313. (Extract from report of the Secretary of the Treasury, 1911.)

_United States Secretary of the Treasury_, Finance report, 1911.

_Walker, F. A._, chs. IV, V.

QUESTIONS.

1. What are the functions of money?

2. What are the principal things besides money uses that cause a demand for gold and silver?

3. Why do you value money? Do you value it more than the things it buys?

4. When goods are exchanged for money or money for goods, what is the gain?

5. If money is a tool, what does it make?

6. When gold comes out of the mine is the gain to the community greater or less than when the same value of grain is harvested?

7. Are men wealthy in proportion to the money they have? Are countries?

8. Would a nation be poorer, if, like Sparta, it prohibited all money?

9. Is a community poor because it has little money in circulation or does it have little money in circulation because it is poor?

10. Could a country better do without money, horses, or roads?

11. Why does nearly all the gold produced in California leave the state? What keeps any of it there?

12. The mint price of an ounce of gold, .900 fine, is alike at San Francisco and Philadelphia, $18.604. Why is gold ever shipped from California to New York?

13. Does gold cost the day-laborer as much in California as in New York?

14. Note any habits of friends that result in their carrying more or less money than others of the same income.

15. What determines the amount of money needed by different persons, towns, states, and nations?

16. Give examples of things that increase the demand for money.

17. On an isolated island would it make any difference as to the value of money if there were but one gold-mine or several competing ones, supposing that the output were the same?

18. What per cent. of the total money in the world is the yearly output of gold; of silver; of gold and silver? Stat. Abst.

19. Is the value of gold and silver due to the action of government?

20. In what ways may the government determine the value of the monetary standard?

21. If all the different denominations of media of exchange were doubled in number, exchanges remaining unchanged, what would be the effect upon prices?

22. Is it true of all commodities that changes in supply affect their value proportionally? Is it true of money? If in your opinion there is any difference, explain it.

23. If the amount of coal in a country should be increased twenty-five per cent., in what percentage would you expect the value of coal to change? Give reasons. If the amount of money in a country should be increased twenty-five per cent., in what direction and in what percentage would the value of money change? Give reasons. (In each case the condition is "other things being equal.")

24. If in a given community all watch cases were made of gold, and each case contained one ounce of gold, would you expect the value of watch cases to fall by exactly one-half if the number of watch cases in the community were doubled, all other things remaining the same? If in another community (at another time) all exchanges were made exclusively by the use of gold coins, each containing an ounce of pure gold, would you expect that prices in general would be exactly doubled in case no change occurred in the community except a doubling of the number of coins in circulation?

25. Why might an increased resort to barter produce upon the general level of money prices effects similar to those produced by an increased use of credit media of exchange?

26. What gives rise to the belief sometimes held that money is an invariable standard of value?

27. Define depreciation and appreciation of the currency. What causes may produce either? What are the effects of either? More generally, what determines the value of the currency?

28. If gold were to become as plentiful as iron, would it be worth more or less than iron?

29. A nation having no foreign trade had originally in circulation 1,000,000 coins, each called a florin, and each containing an ounce of pure metal. To this original coin circulation the government adds 500,000 florins each containing one-half ounce of pure metal, and at the same time the government adds to the circulation 600,000 florins in the shape of inconvertible paper. Both the half ounce florin and the paper florin are by law made legal tender for a full weight florin. In the absence of any tendency to discriminate between accepting different kinds of florins in domestic trade, and with no other changes in the money situation except such as are necessitated by the aforesaid additions to the circulating medium, tell, first, what ultimately will be the number of florins in circulation, and give your reasons; and tell, second, of what kinds of florins and in what proportions the ultimate circulating medium will be composed.

30. Assume a country using gold alone as money and having in circulation 2,000,000 coins, under a system of free coinage. What would be the effect of closing the mints and issuing 1,500,000 new coins containing nine-tenths as much gold as the coins above mentioned, assuming that the number of goods exchanged remains the same? Explain clearly. What is the total quantity of such new coins the government can issue and keep in circulation? Explain clearly.

31. A country using gold money as its sole medium of exchange, under free and gratuitous coinage, makes the following change: it imposes a seigniorage charge of ten per cent., but without giving up free coinage or reducing the amount of fine gold in the coin. To what extent and in what direction will the value of money change, if at all

(a) if the number of goods exchanged gradually increases five percent.;

(b) if the number of goods exchanged gradually increases twenty-five percent.?

Give your reasons clearly.