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.