This section is from the "The Science Of Wealth" book, by Amasa Walker.
Currency performs the function of a standard of value, by fixing the price of commodities. In order to examine the subject intelligently, we shall be called first to notice the import of the term " price." It expresses the relation of all objects to a common measure or standard. For example, if the standard were sheep, it might be said that an ox was worth twenty sheep; the price of the ox would be twenty sheep. If the standard were dollars,—that is, certain well-known coins,—we should say that the ox was worth twenty dollars, and that would be its price. And it would be the same, if by dollars we meant only certain pieces of paper, promising to pay these coins.
Price and value are often confounded together. The difference is this: value is the relation which all objects have to each other in exchange; while price is the relation of all commodities to one special object, viz. money or currency.
Price may be increased without increasing value. For example: the price of flour in 1859 was $5; in 1864 it was $10. Yet a barrel of flour had no more value at the latter date than before the war, because it would command no more of other value; that is, of broadcloth or tea, or other commodity.
This discrepancy is found, not only at different periods in the same country, but between different countries at the same time. If all commodities in all countries were always measured by the same standard, price and value would be synonymous; but if, as often happens, a standard is adopted in one country less valuable than that of others, commodities will adapt themselves to the currency, and the agreement between price and value is destroyed in the act of vitiating the standard.
" The value of a thing is its purchasing power: the price of any thing is its power to command gold, silver, or that which constitutes the currency of the country. Value may be expressed in any commodity whatever: price is expressed in one commodity only." — Bascom, p. 22.
If an inventory of all the property belonging to the people of the United States had been made in 1864, at the then prevailing prices, it would have amounted to nearly double what it was two years before, even though the quantity of all commodities had been identically the same. This, because prices were measured not by gold, but by credit, or the promises of government and the banks; but the value of all these commodities in the commerce of the world, and among themselves, was no greater than two years before.
The difference between price and value was also strikingly-exhibited in the history of the Confederate States during the Rebellion. In both sections of the country, the variations in 1864 were so great as to attract universal attention; but they always exist, in greater or less degree, under a mixed-currency system, because the standard of value, except at short intervals, is not sound. The difference begins to manifest itself whenever the currency is inflated beyond its natural volume, and increases with that inflation.
We here present a table, showing the historical variations in certain commodities, for a series of twenty-six years, under the undisturbed operation of a mixed-currency system.
"We have selected, for the purpose, the period 1834-1859, inclusive, because it is the only one for which we have correct data, — that is, well-authenticated returns; and for the additional reason that the period was one of general peace, at home and abroad.
The articles we have selected for this comparison are the most common in use, whose prices are best known and least liable to variations, except from changes in the value of the currency, and therefore, it is supposed, most proper for our illustration.