The Value of Money Part 8

1. Habits of the individual.

(a) As to thrift and h.o.a.rding.

(b) As to book credit.

(c) As to use of checks.

2. Systems of payments in the community.

(a) As to frequency of receipts and disburs.e.m.e.nts.

(b) As to regularity of receipts and disburs.e.m.e.nts.

(c) As to correspondence between times and amounts of receipts and disburs.e.m.e.nts.

3. General causes.

(a) Density of population.

(b) Rapidity of transportation.

Compare this list with the causes governing T:[215]

1. Conditions affecting producers: Geographical differences in Natural Resources; the division of labor; knowledge of technique of production; acc.u.mulation of capital.

2. Conditions affecting consumers: the extent and variety of human wants.

3. Conditions connecting consumers and producers: (a) Facilities for transportation.

(b) Relative freedom of trade.

(c) _Character_ of monetary and banking systems. (Not their _extent_.) (d) Business confidence.

These two lists are quite different, and indicate that in Fisher's mind the magnitudes, T and the V's, in general obey different laws. The only factor in both lists is facilities for transportation ("rapidity of transportation," in the first list). Strangely enough, T, though later recognized as having influence on the V's[216] is not included in these lists in ch. 5. The "character of the monetary and banking systems" in the second list is evidently not the same as "use of checks" in the second list, though it will doubtless affect that factor, as also the "habits as to thrift and h.o.a.rding," in some degree. "Business confidence," which is, in the view I am maintaining, as in the view, I should take it, of Horace White, the great variable affecting both T and the V's, does not appear in the first list. Indeed, one wonders why business confidence appears in either list, if only "normal," and not merely "transitional" causes are to be considered, but it appears from the fuller discussion on p. 78 that Fisher is not thinking of business confidence as a _variable_ at all--his normal theory has nothing to do with _variables_--but as a thing which either is or is not present, a sort of Mendelian unit, not a thing of degrees.[217] It will be noted, further, that most of the causes which Fisher lists as affecting T are really causes affecting _production_--they would be just as important under a socialistic as under an exchange economy.

Now I propose to show, on the basis of Fisher's own list of causes, that most, if not all, of the factors affecting the V's, will also affect T, _and in the same direction_. He admits this as to transportation facilities. It is surely true of thrift and h.o.a.rding. The miser neither circulates money nor buys goods. It is emphatically true--though Fisher's theory, as will later appear, is obliged to deny it,--of both book credit and banking facilities. Without the use of credit, much of the business now done simply would not be done at all. For Fisher, and the quant.i.ty theory in general, the contention would be simply that the same business would be done _on a lower price-level_. I reserve a full discussion of this fundamental point till later, noting here, in pa.s.sing, that the function of banks is to a.s.sist in effecting transfers, that that is why, from the social standpoint, banks are encouraged, and that the extension of banking would be folly if they did not, in fact, do this. As to book credit, let us suppose that, for example, in the great cotton section of the South the stores should cease to give advances of supplies on credit to negroes and small white farmers, pending the "making" of the crop. The outcome would be starvation for many of them, and no cotton crop at all. Under a system of private enterprise, the very division of labor itself, including the specialization of the capitalist, involves credit, and it is difficult to conceive a form of credit which does not either dispense with the use of money, or increase its "velocity." Admittedly, the division of labor increases trade.

The three factors listed under "Systems of payment in the community"

also affect trade. To the extent that receipts are frequent, regular, and synchronous with outgo, we have a smoothly working economic system, which facilitates commerce.

Finally, density of population enormously increases trade. The concentration of men in cities is essential for modern factory production, and the great cities have necessarily grown up about good harbors, or at strategic points for connecting lines of railroads. It seems almost trivial to insist on so obvious a point, but Fisher seems totally to ignore it, for he says: "We conclude, then, that density of population and rapidity of transportation have tended to increase prices by raising velocities. _Historically this concentration of population in cities has been an important factor in raising prices in the United States._"[218] (P. 88. Italics mine.)

This is an astounding proposition. It is not merely that the concentration of population in cities has _tended_ to raise prices through raising velocities. It is a statement that this has been an important historical cause of the actual increase in prices. For Fisher's own theory, if the same cause had tended to increase T,[219]

that would have offset the rising V's on the other side of the equation, and left prices little affected. But he sees in the V's an independent cause here, divorces them from their connection with T, and follows his logic fearlessly where it leads. I do not see how one could more strikingly ill.u.s.trate the essential vice of erecting the V's into causal ent.i.ties.

In concluding the discussion of the role of velocity of circulation, I think it worth while to mention Fisher's own efforts to measure them. I examine his statistics in a later chapter. I do not regard the points at issue as points which can properly be handled by inductive methods, primarily. I do not accept his conclusions with reference to the magnitudes of V, the velocity of money, partly because I do not accept his doctrine that "banks are the home of money" (p. 287).[220] He finds for V a fairly constant magnitude during the thirteen years from 1896 to 1909, the range being from 19 to 22, the figures for all the years except 1896 and 1909 being interpolations.[221] For V, however, which is much the more important magnitude, from the standpoint of his equation of exchange for the United States, since deposits do so much more exchanging than does money, he finds a wide range of variation, from 36 to 54, and he states: "We note that the velocity of circulation has increased 50% in thirteen years and that it has been subject to great variation from year to year. In 1899 and 1906 it reached maxima, immediately preceding crises" (285). I think Fisher's own statistical results show that V', at least, is a child of the "state of trade."[222] Critical a.n.a.lysis of these statistics show that they greatly underestimate the variability of the V's.[223]

In summary: V and V' are not, as Fisher contends, independent of the quant.i.ty of money. Instead of resting on "technical conditions," and having large elements of constancy and rigidity, they are highly flexible, and vary, on the whole, with the same highly complex and divergent sets of causes which govern the volume of trade. The biggest factor affecting the variations of the V's on the one hand, and volume of trade on the other is business confidence--a factor which Fisher's normal theory is not concerned with, so far as it is considered as a variable, but which, more than anything else, does affect the concrete figures which go into the equation of exchange, either for a single year, or for an average of a good many years. The V's are not true causal ent.i.ties, but merely abstract summaries of a host of heterogeneous facts. I have indicated before, and shall later demonstrate more fully, that the same is true of T. Even the "normal"

causes governing the V's, however, are factors which likewise affect T, and in the same direction.

Among the factors affecting both V and T, there is one which sometimes makes them move in opposite directions, and that is the _value of money_ itself. This is so well stated in Wicksteed's interesting criticism of the quant.i.ty theory that I content myself with a quotation:[224] "Again, the history of paper money abounds in instances of sudden changes, within the country itself, in the value of paper currency, caused by reports unfavorable to the country's credit. The value of the currency was lowered in these cases by a doubt as to whether the Government would be permanently stable and would be in a position to honor its drafts, that is to say, whether this day three months, the persons who have the power to take my goods for public purposes will accept a draft of the present Government in lieu of payment. It is not easy to see how, on the theory of the quant.i.ty law, such a report could affect very rapidly the magnitudes on which the value of the note is supposed to depend, viz., the quant.i.ty of business to be transacted, and the amount of the currency. Nor is it easy to see why we should suppose that the frequency with which the notes pa.s.s from hand to hand, is independently fixed. On the other hand, the quant.i.ty of business done by the notes, as distinct from the quant.i.ty of business done altogether, and the rapidity of the circulation of the notes may obviously be affected by sinister rumors.

Two of the quant.i.ties, then, supposed to determine the value of the unit of circulation, are themselves liable to be determined by it."

CHAPTER XIII

THE VOLUME OF MONEY AND THE VOLUME OF TRADE--TRADE AND SPECULATION

In proving that an increase of money must proportionately increase prices, it is necessary to prove that the volume of trade is independent of the quant.i.ty of money and credit instruments by means of which trade is carried on. Money on the one hand, and quant.i.ty of goods to be exchanged on the other, are the two great independent magnitudes, whose equilibration mechanically fixes the average of prices. This notion, as to the essence of the quant.i.ty theory, finds expression in Taussig,[225]

"The statement of a quant.i.ty theory in relation to prices a.s.sumes two independent variables: total money or purchasing power on the one hand, total supply of goods or volume of transactions on the other." Taussig, though he would maintain that this independence holds, so far as money and trade are concerned, admits that it breaks down so far as trade and elastic bank credit, bank-notes and deposits, are concerned. Trade and elastic bank-credit are largely _inter_dependent.[226] This concession on Taussig's part means virtually giving up the quant.i.ty theory for Western Europe and the United States and Canada, though Taussig still sees something left of the quant.i.ty theory tendency in view of the "irregular and uncertain" connection which he finds between money and bank-credit.[227] Fisher, however, makes no such surrender. He is quite as uncompromising as to the independence of _deposits_ and trade as he is with reference to the independence of _money_ and trade. He does, indeed, make the concession that increasing trade tends to increase deposits _indirectly_, by increasing the ratio of M' to M, by modifying the habits of the people as to the use of checks as compared with cash (p. 165),[228] but he denies stoutly that there is any _direct_ relation between them. (P. 168.) Trade acts only _via_ a modification of the ratio between M and M', and M still remains controlled, not by trade, but by quant.i.ty of money. As to any control over T by M', he repudiates it explicitly, (P. 163.) Increasing M', either through an increase of M, or through an increase in the normal ratio between M and M', will have no effect on T,--or, for that matter, on the V's. The introduction of credit, therefore, leaves the quant.i.ty theory intact: an increase of M, increasing M' proportionately, leaving the V's unchanged, and having no effect on T, must exhaust its influence on P, raising P proportionately, if the equation of exchange is to remain valid.

The argument set forth to prove that T is not influenced by M or M' is as follows: "An inflation of the currency cannot increase the products of farms or factories, nor the speed of freight trains or ships. The stream of business depends on natural resources and technical conditions, not on the quant.i.ty of money. The whole machinery of production, transportation and sale is a matter of _physical capacities and technique_, none of which depend on the quant.i.ty of money. The only way in which quant.i.ties of trade appear to be affected by the quant.i.ty of money is by influencing trades accessory to the creation of money and to the money metal.... From a practical or statistical point of view they amount to nothing, for they could not add to nor subtract one-tenth of 1% from the general aggregate of trade." (_Loc. cit._ p. 155. Italics mine.) Something similar is said on p. 62, where "transitional"

influences of M on T are being discussed: "But the amount of trade is dependent, _almost entirely_, on other things than the quant.i.ty of currency, so that an increase of currency cannot, _even temporarily_, very greatly increase trade. In ordinarily good times practically the whole community is engaged in labor, producing, transporting, and exchanging goods. The increase of currency of a "boom" period cannot, of itself, increase the population, extend invention, or increase the efficiency of labor.[229] These factors pretty definitely limit the amount of trade that can reasonably be carried on. So, although the gains of the enterpriser-borrower may exert a psychological stimulus on trade, though a few unemployed may be employed, and some others in a few lines induced to work overtime, and although there may be some additional buying and selling which is speculative, _yet almost the entire effect_ of an increase in deposits must be seen in a change in prices. Normally the _entire_ effect would so express itself, but transitionally there will be also _some_ increase in the Q's." (Pp.

62-63. Italics mine.)

Fisher is here exceedingly uncompromising, even where transitional periods are concerned, and it is not necessary, in order to do his position full justice, to make much distinction between "normal" and "transitional" effects in my counter-argument. I shall, however, take account of the distinction as I proceed, in justice to other, more moderate, quant.i.ty theorists.

It is a familiar doctrine that the quant.i.ty of money is irrelevant, that things go on in much the same way whether money is abundant or scarce, the only difference being that in the one case prices are high and in the other, low; that, in particular, it is a gross fallacy to connect the rate of interest with the amount of money, since (as many writers would put it) the rate of interest depends on the amount of _capital_ rather than _money_. At the opposite extreme, we have writers like Brooks Adams (_Law of Civilization and Decay_), who see the fate of nations and the progress of civilization resting on the abundance or scarcity of money. Fisher takes the first position in its extremest form.[230]

The truth, I think, is intermediate. The effects of the New World discoveries of gold and silver after the voyage of Columbus on trade and industry were tremendous. Trade was enormously increased. Walker, in his _Inter__national Bimetallism_,[231] asking, from the standpoint of a quant.i.ty theorist, why prices only increased 200% while money increased 470%, admits that the chief reason was the increase in trade, due in large part to the very increase in money itself. Sombart, in his _Der Moderne Kapitalismus_,[232] finds in this influx of money a tremendous source of capitalistic acc.u.mulations, (a) for the Conquistadores, (b) for the handicraftsmen whose prices rose faster than their costs, (c) for tenants whose rents were fixed in money, (d) for landowners, whose rents were fixed in kind [a point not obviously true], and (e) for bankers, as the Fugger. An increase of capital, savings that would otherwise not have been made, must have profoundly modified the whole industrial system, and greatly increased both industry and commerce. If it be objected that effects of this sort are not usual, that they came in a world which had been starved for money, and which, by means of the enormous increase in money was able to pa.s.s from a "natural" to a money economy, I reply that the difference between such a case and the usual effects of an increase of money are in degree rather than in kind. The world of Columbus' day was in part on a money economy, and the world to-day, despite Professor Fisher's emphatic denial,[233] still employs a great deal of barter, or equivalents of barter. I shall revert to this point later. But even this consideration would not rob Sombart's points of their significance for modern conditions. Further, we have an even more striking case, on Walker's own showing, in the effects of the Californian and Australian[234] gold discoveries in the 19th Century on trade, industry, and speculation.[235]

Nor is the tremendous agitation over bimetallism, involving a literature so great that no man could dream of reading it all, involving great political movements, Presidential campaigns, great Congressional debates, repeated legislation, international conferences, etc., for twenty years, to be explained on any other ground than that the world felt practical, important, and unpleasant effects on industry and trade from the inadequacy of the money supply.

The view of Hartley Withers[236] is interesting here. He says: "any such great addition to currency and credit would have a great effect in stimulating production, and so would lead to a great addition to the number of real goods which humanity desires and consumes when it can get them.... Trade would be more active." On p. 23 he speaks of the enormous expansion of trade made possible by paper representatives of gold. On p.

83 he speaks of the att.i.tude of the money-market toward gold, which the orthodox economist is apt to think of as a survival of Mercantilism.

Withers thinks that the money market is right in a large degree.

As ill.u.s.trating Withers' statement about the views of "practical men" on this point, the following extract from a recent address by Theodore Price, quoted with approval in a "market letter," written by Byron W.

Holt,[237] is interesting: "The fact seems to be that the exigencies of war in Europe are leading to an extension of credit such as would not have been possible in peace, because the hesitant conservatism of bankers would have then prevented it, and we are finding that instead of working harm it is doing good, because huge ma.s.ses of fixed capital are thereby made productive, and are circulating with the increased velocity that always quickens enterprise and accelerates the wheels of industry.... All the precedents of history indicate that accelerated activity will come with peace and continue until the exuberance of success has led men to build faster than the world has grown and to demand credit upon the basis of future rather than of present values."

What is the essential causation in the matter? Well, viewed merely as a matter of mechanical equilibration, the quant.i.ty theory view is not strictly true, by any means. For a given country--and Fisher's quant.i.ty theory is always a theory for a given country, and, indeed, for any separate market, even a single city[238]--an increase of banking credit means an increase in non-monetary capital, because, to a greater or less extent it dispenses with the use of gold, which goes abroad, bringing back wealth in other forms in exchange. Adam Smith saw this clearly, and phrased it strikingly, likening gold and silver coins to the wagon-roads of Scotland, which are necessary for transportation, but which none the less prevent the use of the roadways for raising grain; whereas bank credit is like a wagon-road through the air, which restores the roadbeds to cultivation. Increased non-monetary capital, other things equal, should mean increased trade.

But, more fundamentally, an increase in gold itself within the country, if not bought by the export of an equivalent amount of other goods, _is an increase of capital_. Not all capital is money, but standard coin is capital. Money is a tool of exchange, and exchange is part of the productive process. More money means more exchanging. That is what money is for. Part of the mechanism is in the money rates, which go down as money becomes more abundant, making it profitable to effect exchanges which would not have been profitable had the money rates been higher.

Granted that the money-rates and the general rate of interest tend, in the long run, to keep--I will not say at the same figure[239]--a certain fairly definite relation to one another, it still does not follow that the new "normal" equilibrium will give us an interest rate which is the same as the general rate of interest was before the influx of gold. On the strictest static theory, this is not to be expected. Because the total amount of capital in the country is increased, and this means a lowered interest rate all around, in the marginal employment of capital.

The margin of the use of capital will be lowered everywhere, including the margin for the use of money. This means permanently lowered money rates in the country, even though the permanent level be higher than the initial money rates immediately following the access of new gold. I have put the argument in terms that suggest the productivity theory of interest, because it is more simply stated that way. I do not accept the productivity theory, as a fundamental explanation of interest, but for many purposes, the results to be obtained by it coincide with the psychological time theories,--which also, in their present form, seem to me imperfectly developed. I need not try to construct a theory of interest here, however, as the familiar theories lead to no trouble at this point. It is enough to point out that the increased amount of capital, meaning better provision for present wants--wants concerned with gold in the arts and with money for productive exchanges, as well as goods generally since part of the new gold will be exported for other things--will lessen the pressure of present as compared with future wants, and so lessen the rate of interest on the time-preference theory.

The final outcome will be an extension of the marginal use of money, and a greater volume of exchanges. Of course, the increase in the supply of any kind of capital good, apart from a prior increase in the demand for its services, will, on the mechanical view of economic causation, necessarily lead to some fall in its capital value. Gold money will be no exception to this rule. As to how much the increase in its quant.i.ty will lead its capital value to fall, however, we are unable to say. For the quant.i.ty theory, the fall will be in proportion to the increase. For the theory just outlined, the fall will depend on the elasticity of demand for gold in the arts, and on the elasticity of "demand" for money, meaning by demand for money simply the demand for the short-time use of money as a tool of exchange, a demand which governs _directly_, not the capital value of money, but rather the "money-rates." The relation between the money rates and the capital value of money will best be discussed at another point.[240] We have no reason at all to suppose that either of these demands[241] exhibits the tendency to obey the law of proportional variation which the quant.i.ty theory requires of money.

It is further important to note that as a country gets more abundant capital, there seems to be a tendency to extend the use of money rather more than the use of many other capital goods. Where the interest rate is 10 and 12%, as in Arizona and New Mexico, money, even when brought in, tends to leave in large degree to bring in other forms of capital which the situation calls for more imperatively. The early American colonies, needing money pressingly, and making shift with a great variety of subst.i.tutes for good metallic money, thoroughly acquainted with the advantages of a money-economy from their European experience, and having "habits" as to the carrying and using of money which they had brought with them from Europe, still found it impossible to keep a great deal of metallic money, in view of the still greater importance of other forms of capital. It is in the most highly developed commercial communities, commercial centres, and _par excellence_, in the speculative centres, that the demand for the money-service is most elastic.[242] A country where the rate of interest is low, loses other forms of capital, and gains money, in the process of reequilibration, as compared with a new and undeveloped section, although the new section also extends the margin of the money service, in effecting a greater number of exchanges, when money is increased.

And this leads to a vital distinction, which quant.i.ty theorists almost always lose: the distinction between the volume of _production_, and the volume of _trade_. Even in the mechanical system of causation which they describe, it is true only of production and transportation that _technical_ and _physical_[243] factors are of primary significance, and that money is of minor significance. For trade and commerce, money is always highly important. To the extent that a region is primarily given over to the primary productive activities, mining, and agriculture, such trading as is necessary can be done by means of a small amount of money, supplemented by barter and long-time book-credit. A region or a city whose chief business is _commerce_, however, needs a large part of its capital in the form of money, and of banking capital, which is largely invested in money for banking reserves. _Trade_, as distinguished from industry (and it is after all trade that is under discussion), is helped or hindered as its tools are more or less abundant. These considerations would suggest that the elasticity of the demand for the use of money is greater than the elasticity of demand for the use of capital in almost any other form. Production is, indeed, limited by labor supply and natural resources, in considerable degree. _Trade_,[244] however, even from the standpoint of mechanical causation, is limited chiefly by the relation between the profits to be made in commercial transactions, and the "price" that must be paid for the money and credit that are required to put them through. There are enormous numbers of transfers that could be made to advantage if there were no cost at all involved. They are not made, because exchanging requires pecuniary capital. Let the pecuniary capital increase, however, and sub-marginal exchanges become worth while, the general margin is lowered. Commerce is the most highly flexible and elastic portion of the whole productive process. The elasticity of demand for commercial capital is, thus, greater than the elasticity of demand for any other form of capital.

How widely the volume of trade differs from the volume of production, and how great is the element of speculative transactions in trade, will best appear, I think, from an a.n.a.lysis of the figures which Fisher gives[245] for the volume of trade in the United States. His figure for the volume of trade in the year 1909 is $387,000,000,000.00, three hundred and eighty-seven billions of dollars! This figure is reached by equating the figures he has reached for MV plus M'V' to PT, and a.s.suming P to be one dollar, by making the "unit" of T, arbitrarily, a dollar's worth of each sort of commodity, at the prices of 1909. I have already commented on the legitimacy of this method of summarizing T,[246] and need not say more here, beyond calling attention to the fact that "volume of trade," as commonly used, does in fact mean, not T alone, but PT. Fisher for years other than 1909, however, makes use of a different method of getting at T: he takes certain indicia of _relative_ amounts of trade, compares them with the same indicia for 1909, and estimates the trade for other years as being such a percentage of the trade for 1909 as their indicia are of the indicia of 1909. The indicia chosen are: (1) quant.i.ties of certain commodities, cotton, fruit, cattle, etc., _received at_ princ.i.p.al cities of the United States, taken as typical of the variations of the internal _commerce_ of the United States; (2) quant.i.ties of 23 articles of import and 25 articles of export, for each year, taken as typical of variations in the foreign trade of the United States; (3) sales of stocks. These three indicia, weighted in a manner to be described in a moment, are then averaged. There is a second element in the index, made up by taking the figures for railroad _tonnage_, and the figures for _receipts on first cla.s.s mail_, which are averaged. The first average and the second average are then combined into a third average, which is the final index. The relation between this index for every year other than 1909 and the same index for the year 1909 determines the amount of T for each year--the two indicia, together with the figure, $387,000,000,000.00, giving the required amount by the "rule of three." I shall not go into details with the method of constructing these averages, but I wish to make clear the comparative _weight_ given to each element in the final index: The first three elements count _twice_ as heavily as the last two, and so const.i.tute the biggest factor. In the first average, based on the first three elements, the item taken as typical of internal trade is _weighted by 20_, the item taken as typical of foreign trade is _weighted by 3_, and sale of stocks _by 1_. It appears from Fisher's figures (p. 479), that the one really big _variable_ among all the indicia is the sale of stocks, but the weight given it is so small that it makes virtually no difference in the final result. Thus, as between 1898 and 1899, stock sales increased over 50%, but total trade, as shown by Fisher, increased only 5%. In the following year, stock sales _decreased_ over 21%, but total trade, on Fisher's figures, _increased_. The following year, 1901, stock sales virtually doubled, but Fisher's final figure shows only an increase around 13%. Two years later, in 1903, stock sales fell off about 40%, from the figures for 1901, but again, as compared with 1901, total trade on Fisher's figures shows an appreciable gain. The influence of stock sales on Fisher's index is, virtually, negligible. The dominating factor is the _receipts_ of selected staples, cattle, cotton, rice, pig iron, etc., in the princ.i.p.al cities of the United States. There is not a _single year_ in which his final figure for T does not move in harmony with this factor (p. 479). He gets, thus, for the volume of trade through the fourteen years under consideration, a surprising steadiness, and a pretty uniform progressive development.

In defence[247] of his method of weighting, Fisher says, simply: "These weights are, of course, merely matters of opinion, but, as is well known, _wide differences in systems of weighting make only slight differences in the final averages_." (Italics mine.)[248]

Are these figures valid? Well, first one is struck with the absolute magnitude a.s.signed to T. The figures seem vastly greater than would have been antic.i.p.ated. The method of calculating it, for 1909, I shall discuss in detail in the chapter on "Statistical Demonstrations of the Quant.i.ty Theory." For the present, it is enough to note that the absolute magnitude is derived from figures collected by Dean David Kinley for the National Monetary Commission,[249] of deposits, exclusive of deposits made by one bank in another, made in about 12,000 banks (out of 25,000) on March 16, 1909. These deposits were cla.s.sified as (1) money (with subdivisions) and (2) checks and other credit instruments. A cross-cla.s.sification divided them into (1) retail deposits; (2) wholesale deposits; (3) all other deposits. Kinley's object was to determine the extent to which checks are used, as compared with money, in payments, particularly in wholesale and retail business. Fisher's total, briefly, was obtained as follows: Kinley's figures, for the one day, were increased to make an allowance for the non-reporting banks; they were further increased on the a.s.sumption that March 16 was below the average for the year; the figure finally obtained for the day was then multiplied by 303, a.s.sumed as the number of banking days in the year, and the product, 399 billions, was taken as representing the total circulation of money and checks in trade. For some reason not made clear, this total was subsequently reduced to 387 billions. Counting the average price, P, as $1, T was considered to be 387 billions.[250]

In the statistical chapter to follow, it will be shown that this estimate is a very decided exaggeration. Deposits made in banks greatly overcount trade. Very many payments represent duplications, loans and repayments, taxes, etc., and are in no sense trade. This is true of all cla.s.ses of deposits, wholesale and retail, as well as "all other." But for the present, I am concerned with the question, not of the absolute magnitude of the volume of trade, but rather, the questions of its character, of the elements that enter into it, and, above all, of the extent to which it is physically determined by technical conditions of production, and the extent to which it is flexible, a matter of speculation, etc.

We may approach this question from the angle of several bodies of statistical information. First, the question may be raised: what is there in the country which could be bought and sold enough in the course of a year to give us anything like so great a total? The subtractions which we shall find it necessary to make will still leave us an enormous total.

The United States Census Bureau[251] in 1904 reached the conclusion that the _total wealth_ of the country was only $107,000,000,000. Of this, over $62,000,000,000 was in real estate; $11,000,000,000 in railroads; street railways, over $2,000,000,000; telephone, telegraph, water and light, and similar enterprises total nearly $3,000,000,000 more. None of these things enter into ordinary wholesale and retail trade. The items that one would ordinarily think of are agricultural products, $1,900,000,000; manufactured products, $7,400,000,000; mining products, $400,000,000. Can these things be exchanged often enough in the course of a year to account for $387,000,000,000!

These figures are for 1904,[252] whereas Fisher's figures are for 1909.

If the Census Bureau had taken an inventory in 1909, the figures would doubtless be larger. The inventory for 1912 made by the Census Bureau does show a very considerable increase, the largest item being due to a rise in real estate values. The figures for agricultural, manufacturing, and mining products are, also, figures for a given time rather than for total production through the year. But, making all the allowance one pleases, it is quite incredible that one should reach a figure of $387,000,000,000 by taking only the exchanges necessary to bring raw materials through the various stages of production to the consumer. The greater part of the $387,000,000,000 is to be explained in another way!