an increase (1) of the money in actual circulation, (2) of the money in banks, (3) of the loans and deposits based on this money, and (4) of prices. Approximately all these will be doubled. For, as long as prices fail to double, the surpluses and the tendency to spend them will continue to exist. Individuals, tradesmen, and bankers will all be trying to make use of their surplus, and their efforts to do so must tend to raise prices. Only when prices have reached about double their original level will the large stock of ready money cease to be regarded by its possessors as a surplus. At that time, since $80 will buy only what $40 bought before, the additional $40 will no longer seem superfluous. People will find their wages or incomes doubled likewise. Thus, if formerly the average individual was accustomed to expend $1000 a year and to carry an average balance of $40, he will now expend $2000 and carry an average balance of $80, the $80 being exactly the same relatively to $2000 as the former $40 was relatively to $1000.
Needless to say, the imaginary case just described is highly theoretical. Many qualifications need to be made in practice, especially those due to the existence of debts. As will be emphasized in the next chapter, debts are fixed in terms of dollars and, unlike prices, could not change. The supposed prank of Santa Claus would therefore upset debts as well as disturb somewhat the exactly proportional changes just supposed. The essential fact that an increase of money tends to increase prices would, however, remain unaltered.
The imaginary example we have given represents roughly what happens when new gold is discovered.
