The Purchasing Power of Money
By Irving Fisher
THE purpose of this book is to set forth the principles determining the purchasing power of money and to apply those principles to the study of historical changes in that purchasing power, including in particular the recent change in “the cost of living,” which has aroused world-wide discussion.If the principles here advocated are correct, the purchasing power of money–or its reciprocal, the level of prices–depends exclusively on five definite factors: (1) the volume of money in circulation; (2) its velocity of circulation; (3) the volume of bank deposits subject to check; (4) its velocity; and (5) the volume of trade. Each of these five magnitudes is extremely definite, and their relation to the purchasing power of money is definitely expressed by an “equation of exchange.” In my opinion, the branch of economics which treats of these five regulators of purchasing power ought to be recognized and ultimately will be recognized as an exact science, capable of precise formulation, demonstration, and statistical verification…. [From the Preface to the First Edition]
First Pub. Date
New York: The Macmillan Co.
Assisted by Harry G. Brown (Instructor in Political Economy in Yale U.) 2nd edition. Harry G. Brown, assistant.
The text of this edition is in the public domain.
- Preface to the First Edition
- Preface to the Second Edition
- Suggestions to Readers
- Chapter 1
- Chapter 2
- Chapter 3
- Chapter 4
- Chapter 5
- Chapter 6
- Chapter 7
- Chapter 8
- Chapter 9
- Chapter 10
- Chapter 11
- Chapter 12
- Chapter 13
- Appendix to Chapter II
- Appendix to Chapter III
- Appendix to Chapter V
- Appendix to Chapter VI
- Appendix to Chapter VII
- Appendix to Chapter VIII
- Appendix to Chapter X
- Appendix to Chapter XII
THE second edition is a reprint of the first with the following changes:—
2. Addition of data for 1910, 1911, and 1912, in the tables on pages 304, 317, and the diagram between pages 306 and 307.
3. A change in Figure 1 (page 13) to make it conform to the facts for 1912.
4. Changes in the table on page 147 with accompanying text to make the data correspond to the facts for 1912.
5. The insertion of an addendum on pages 492-493, giving the revised figures for deposits subject to check as calculated by Professor Wesley Clair Mitchell.
6. An appendix to the second edition (page 494 ff.) on “standardizing the dollar.”
For corrections of misprints and various helpful criticisms of the first edition I am under great obligations to a number of friends and correspondents and particularly to Major W. E. McKechnie, of the Indian Medical Service, Etawah, United Provinces, India; Professor Warren M. Persons, Colorado College, Colorado Springs, Colo.; Mr. J. M. Keynes, Editor,
Economic Journal, Kings College, Cambridge; Carl Snyder, author, New York City; James Bonar, Deputy Master of the Royal Mint, Ottawa, Canada; Professor Allyn A. Young, Washington University, St. Louis, Mo.; Professor Stephen Bauer, Director, International Office of Labor Legislation, Basle, Switzerland; Professor Wesley Clair Mitchell, New York City; Professor O. M. W. Sprague, Harvard University.
I have endeavored to avoid disturbing the plates of the first edition more than was absolutely necessary. Otherwise I should have been glad to incorporate some changes to make use of some valuable but general criticisms. In particular I should have liked to modify somewhat the statement of the theory of crises in Chapter IV and in Chapter XI to make use of the helpful criticism of Miss Minnie Throop England, of the University of Nebraska, in
The Quarterly Journal of Economics, November, 1912; also to meet a criticism of Mr. Keynes’ to the effect that, while my book shows
that the changes in the quantity of money do affect the price level, it does not show
how they do so. To those who feel the need of a more definite picture of
how the price level is affected by a change in the quantity of money I refer the reader to my
Elementary Principles of Economics, pages 242-247, and to other writers on this subject, particularly Cairns.
M. On page 432 add (to the bottom of columns 1-8 incl.) in the table the following: 1910, 3.42, 3.42, .32, 1.41, 3.3%, 1.46, 1.64.
M‘. It is not necessary to complete the table on page 435, as the Comptroller’s Report for 1910 (p. 54) gives for the first time deposits subject to check (7.82 billions). To this 7.82, however, three corrections are needed: (1) subtract .29 for “savings accounts” improperly included (estimated for me by the Comptroller’s Office at half of the figure in note
a, lower table, p. 54, Comptr. Rpt.); (2) subtract .54 as “exchanges for clearing house” (= 5/4 times those for national banks); (3) add .25 as the Comptroller’s Office estimate, for me, of unreported deposits subject to check. By applying these corrections we obtain 7.24.
V. I have simply taken 21 as a safe approximate estimate on the basis of the previous statistics of
V (p. 478) and its assumed relation to
V‘. Add to columns 1-7 of table on page 448 the following: 1910, 97.3, 66.4, 429.3, .89 (by extrapolation, an unsafe guide), 382, 52.8.
P. This is obtained (on the principles of the table on page 487) from the index number 131.6 of wholesale prices for 1910 (kindly supplied in advance of publication by the Bureau of Labor) and the average price 96.2 of stocks as given by the
Commercial and Financial Chronicle, both being compared with the respective figures for 1909, viz. 126.5 and 97.5. They are combined by “weighting” the wholesale prices 10 and the stock prices 1 and reducing the results so that the average for 1909 shall be 100.
T. This is obtained: (
a) by continuing columns 1-5 of the table on page 479 by inserting: 1910, 160, 113, 162, 154; (the extension of column 2 for 1910 is made by means of somewhat more complete data than those enumerated on pages 480-482); (
b) by combining the result, 154, obtained for column 5 with the figures for railway cars handled. These were 19.8 millions for 1909 and 22.3 for 1910. Column 5 being weighted 10 and the car figures 1, we get as indices of trade: for 1909, 1718, and for 1910, 1763, showing an increase of 2.6%, which, applied to the (corrected) estimate of the absolute trade of 1909, viz. 387 billions, gives 397 as the absolute trade in 1910.
(The opportunity is here taken to correct an inadvertence on pp. 480 ff. It should have been there stated that, of the 44 categories mentioned, some are
alternative and not independent items, viz. those having the same names and differing only in the number of cities; also that the dates given do not imply that the items opposite are in all cases used for
all the intervening time, but only for such periods as the items were actually available.)
It is noticeable that the changes in business in 1910 as compared with 1909 are somewhat irregular; the sales of stocks have declined; exports and imports (both of them) have declined about 10%.
Notes for Chapter I