61 to
1873 we had no gold or silver money in the United States, or virtually
none. The official reports of the Secretary of the Treasury show that
the gold and silver coin, including the gold and silver bullion in the
United States Treasury during that period, amounted to but
$25,000,000, and even that was not in circulation, except to a very
limited extent on the Pacific Coast. Yet during that period prices
reached the highest level ever attained in this country. Certainly,
the level of prices during that period was not fixed by the gold and
silver money available for use. In view of the foregoing facts I think
it must be apparent that any money which is received in full payment
for commodities, whether so received on account of its legal tender
property or by universal consent, and whether it is gold, silver,
paper, or token money, acts on prices, and tends to fix the general
level of prices.

It is claimed by a great many writers on political economy that credit
has the same influence in fixing the general level of prices that
money has, and that an expansion or contraction of credit would
inflate or contract prices in the same manner and to the same extent
as would result from a contraction or expansion of money; that if
credit is extended, if more commodities are sold on credit than
formerly, such extension of credit will tend to raise prices in the
same manner and to the same extent as would so much additional money;
and that if credits are contracted, if less credits are given than
formerly, such contraction of credits will tend to depress prices in
the same manner and to the same extent as a withdrawal of a like
amount of money from the channels of trade would depress them. At the
head of this school of political economists stands John Stuart Mill.
He says:

I apprehend that bank notes, bills, or cheques, as such, do not
act on prices at all. What does act on prices is credit, in
whatever shape given, and whether it gives rise to any
transferable instruments capable of passing into circulation or
not. (See Book 3, Chapter 12.)

Is this contention true? If so, then it is not true that the general
level of prices is determined by the amount of money available for
use; but is determined, rather, by the amount of credits available for
use. The debts of the world (and the credits, of course, are precisely
equal to the debts, as there could be no debt without a corresponding
credit) amoun