for labor. Those employed in the new enterprises, or directly or indirectly drawing profits from them, are enabled to increase their demand for the comforts and necessities of life. So the increased demand comes to be felt by the producers of food, clothing, household furnishings and general merchandise. The prices of existing supplies advance, and producers plan to increase their output. Gradually the stimulating effect of the new conditions is diffused through all branches of industry. All production moves with quickened pace. The construction of new buildings and manufacturing plants adds to the demand for the metals, and for lumber, brick, and all classes of building materials and machinery. Soon the railroads find that their facilities for transportation are taxed to the utmost, and that they must have new trackage, larger terminals, and increased equipment of locomotives and cars. The new demand outruns supply, and all kinds of prices go up. This advance in prices is, of course, not uniform. In many lines of business the effect may not be apparent for several years. But gradually, though unevenly, the stimulating influence makes itself felt throughout the whole business community. Industry proceeds at a quickened pace, but ever subject to being disturbed or halted by such mischances as crop failures, misdirected production, or over-speculation. Such a halt in our industrial prosperity occurred in 1907 and 1908, but the recovery has proved to be unusually rapid.

Naturally, there will be inquiry as to the effect of such a period of rising prices as we are now experiencing upon the welfare of the various classes in society. If we divide men into two classes of debtors and creditors, rising prices favor debtors at the expense of creditors. This is especially true of obligations which have some considerable time to run. The purchasing power of money is less when a debt is repaid than it was when the debt was originally contracted. When the creditor receives repayment in dollars equal to the number of dollars loaned, he finds that he cannot buy as many commodities with the money received as he could have purchased when he loaned it. For instance, the man who loaned a thousand dollars thirteen years ago and receives it back today finds that he can buy only two-thirds or three-fourths as much building material as he could have bought with the same money when the debt was contracted. If he wishes to buy

food, or farm products, or machinery, he finds himself at a similar disadvantage. Of course, this is an extreme illustration, but the same thing is also true, in a lesser degree, of short time indebted

ness.

The class of employers and directors of industry are usually debtors doing business with borrowed money. As such, they will especially enjoy the benefits of a period of rising prices. To them the expansion of the money supply and the consequent expansion of credit means an increasing demand for their goods at higher prices. They find it comparatively easy to provide for their debts. To be sure, raw materials at such times advance in price, but a fresh rise in prices of finished products more than meets this extra cost of production. A continuance of such conditions is likely to stimulate the enterprise and energy of business leaders. The economic causes which are at the bottom of exceptional prosperity may not be consciously present to the minds of business men, but such causes are none the less potent in producing a general spirit of optimism. Active business men are likely to be well content with abundant profits in gold dollars and to give little thought or attention to considerations based upon the fact that gold has a smaller purchasing power in commodities than it formerly had. Rising prices and easy credit stir the imagination, encourage enterprise, and quicken the pace of industry. Falling prices have a contrary effect.

The farmers-the directors of agricultural industry—profit greatly by the progressive rise in prices. General activity and prosperity means that more cotton, more wheat, and more corn will be wanted and at better prices. Some of the farmer's increased returns are taken in the higher prices he has to pay for manufactured articles he uses. But on the whole he has a greater surplus than before. This he may put in the banks, or use in the purchase of additional comforts of life, or spend in improving his farm, or in buying new land, or he may pay off old mortgages and debts. Recent agricultural prosperity has been especially favorable to the paying off of farm mortgages. Here we have an excellent illustration of the way in which rising prices have favored debtors. If a farmer has borrowed $1,000 in a year when wheat was selling at 50 cents a bushel, he has received the equivalent of 2,000 bushels of wheat. If several years later he finds

that his wheat sells at $1 a bushel, he is able to pay off the mort. gage with what he receives for only 1,000 bushels of wheat. Similar conditions hold true of other agricultural products.

The wage-earning classes are at first losers in a period of rising prices. They are creditors for their wages, and they find that the established rate of pay for their labor will not buy as many of the necessities and comforts of life as formerly. There is likely to be much delay and friction before they can succeed in getting their wages advanced. When they get an increase, it is quite likely that it may not be as great proportionately as has been the advance in prices. But after a time their loss is at least partially, and sometimes wholly, remedied. The general prosperity of employers and the multiplicity of new enterprises increases the demand for labor. The keener competition for labor-supply results in the offer of higher pay. In time there must be a general rise of wages throughout the business community.

A class of people who will inevitably suffer a loss in times of rising prices consists of those who get their living from fixed incomes from investments or other sources. The bondholder who lives on his interest finds that with rising prices his fixed income will not buy so much as formerly. Widows and orphans will not gain from their trust investments so great a real return in the comforts and necessities of life. Those who have left active business and are living on conservatively invested wealth, earned in the past or inherited from the industry of others, will find the purchasing power of their returns lessened. Universities and colleges, philanthropic and charitable institutions, will find the income from their endowment funds less adequate than formerly. If they cannot find new sources of financial support, their work will suffer and the salaries of those employed by them will remain fixed while every cost of living increases. Fortunately, in the United States this latter effect of rising prices has been to a large extent obviated by the princely gifts to education and philanthropy made by those who are actively connected with business life.

In general, a period of rising prices seems to favor those classes which are actively engaged in the production of fresh wealth, and to be detrimental to those who are living on endowments, investments, or fixed returns of any kind. On the whole, if we cannot

have an absolutely stable money standard, there are advantages in having one which favors those who are actively engaged in new wealth production. Gently rising prices will mean prosperity to active business men. The danger lies in so rapid an inflation of prices as to cause over-speculation, the sinking of capital in unsound enterprises, misdirected production, and so ultimately reaction and financial disaster.

Is the price level to advance even beyond that of the present day? If the theory here supported is valid, future gold production will have a great influence in determining the answer. No facts are at hand which seem to indicate an abatement of the production of this metal, although it is possible that rising prices may increase the cost of working some low grade ore deposits to the extent of causing a discontinuance of the operation of such mines. In any event, we cannot look for so marked a rise of prices, due to the future increase in the world's supply of gold, as seems to have taken place in recent years. The volume of business to be transacted is now vastly greater than it was twelve or thirteen years ago, and it is being conducted on a scale of general prices thirty or forty per cent. higher. And, with the stock of gold in the world very largely increased, future annual additions are likely to be a smaller percentage of the existing stock, and hence to have a less marked effect upon the general level of prices.

BOOK REVIEWS

MONEY AND CREDIT INSTRUMENTS IN THEIR RELATION TO GENERAL PRICES. By Edwin Walter Kemmerer. New York: Henry Holt and Company, 1907,—xi., 160 pp.

Not many years ago it would have been difficult to find a writer on the money question absolutely free from the bias of party politics. A wholly impartial attitude, even toward the theoretical problems most remote from practical consequences, was seldom observed. To those students of economics who have received their training since the passions of the silver movement cooled, it seems almost incredible that sincere scholars should have consented to a manifest subordination of logic to the exigencies of political pamphleteering. We shall, however, judge these scholars more sympathetically when a newer and freer generation of economists shall show how many of the principles we ourselves cherish are rooted in party interest. In the meantime we may congratulate ourselves that the recent literature on money, of which Professor Kemmerer's book is an excellent type, is governed wholly by fact and logic. Professor Kemmerer's purpose is to determine the degree of validity of the classical "quantity theory of money," and its applicability to modern business condi tions.

The essay consists of two books, the first of which gives a brief, but scholarly, review of the history of the quantity theory and an analysis of the reasoning upon which it is based; the second, a statistical treatment of the facts in which verification of the theory is sought. The method of Book I. is to construct an hypothetical society upon the simplest foundations, and gradually to complete the concept by the introduction of elements of increasing complexity. From a society in which exchanges are effected entirely through a homogeneous monetary medium we are led step by step to a society in which exchange presents all the complexities of modern business. The conclusion to which the author is forced by his reasoning is that "a change in the total circulalating medium, money and checks combined, is accompanied under like conditions by a proportionate variation in prices" (p. 76).