Page:Stabilizing the dollar, Fisher, 1920.djvu/99

14] 14. A Visit of Santa Claus

Many people, after being forced to admit that an abundance or scarcity of money does, in some way, raise or lower the prices of other things, still remain somewhat mystified because they cannot trace the intermediate process by which money operates on the price of a given article. "How," they ask, "does the import of gold (or the issue of paper money or the creation of bank deposits) really affect the price my grocer charges me for butter? He has probably never even heard of this new gold (or paper or bank credit), much less seen it."

The answer is that more money in tills and pockets means more lavish spending, i.e. a greater demand for goods, without any greater supply.

To make the picture vivid, let us imagine a financial Santa Claus. Let us suppose that, before his visit, the average per capita amount of money in actual "circulation" in the United States, that is, all money except that of the United States Treasury, is about $40. On Christmas Day Santa Claus doubles this amount. Each individual person, firm, and bank suddenly has on hand twice as much as before.

Now, while the amount carried by any one individual necessarily fluctuates because of his expenditures and receipts, in a large group of people the average amount carried usually fluctuates but little. If, then, an addition to the total circulation is suddenly made so large as to put forty extra dollars per capita in the pockets of the people, the first thought of most people will be how to expend this extra sum instead of merely keeping it idle in their pockets. If they should be