circulation, it defined metallic money as coin, and metallic coin as a mere token of value. In accordance with the law governing the circulation of tokens of value, the proposition was advanced that the prices of commodities depend on the quantity of money in circulation instead of the opposite principle that the quantity of money in circulation depends on the prices of commodities. We find this view more or less clearly expressed by the Italian economists of the seventeenth century; LOCKE now asserts, now denies that principle; it is clearly elaborated in the “Spectator” (of October 19, 1711) by MONTESQUIEU AND HUME. Since Hume was by far the most important representative of this theory in the eighteenth century, we shall commence our review with him.
Under certain assumptions, an increase or decrease in the quantity either of the metallic money in circulation, or of the tokens of value in circulation seems to affect uniformly the prices of commodities. With each fall or rise of the value of gold or silver in which the exchange values of commodities are estimated as prices, there is a rise or fall of prices, because of the change in their measure of value; as a result of the rise or fall of prices, a greater or smaller quantity of gold and silver is circulating as coin. But the apparent phenomenon is the fall in prices—the exchange value of commodities remaining the same—accompanied by an increased or diminished quantity of the medium of circulation. On the other hand, if the quantity of tokens of value rises above or falls below its required level, it is forcibly reduced to the latter by a fall or rise of prices. In either case the same effect seems to be brought about by the same cause, and Hume holds fast to this semblance.
Every scientific inquiry into the relation between the volume of the circulating medium and the movement of prices must assume the value of the money material as given. Hume, on the contrary, considers exclusively periods of revolution in the value of the precious metals, i. e. revolutions in the measure of value. The rise of prices which occurred simultaneously with the increase of metallic money after the discovery of the American mines forms the historical background