Before entering upon the discussion of the important question of the value of money and its relation to prices and profits, it will be helpful to get clearly before us the precise meaning of the terms, "value" and "price." In economics value means exchange power or purchasing power, the exchange relation of a commodity to other commodities. Price is value expressed in terms of money. The value of a bushel of wheat can be determined only by comparing it with other commodities for which it may be exchanged. To make this comparison as simple and easy as possible, it is necessary to have some convenient unit of value. In the United States the unit of value is the dollar composed of 23.212 grains of pure gold, and prices are expressed or registered in terms of dollars and cents.

Now, since price is value expressed in terms of money and value is simply exchange power, the exchange relation of one commodity to another, money itself cannot have any price; a thing cannot be exchanged for itself. Under our coinage laws an ounce of pure gold is worth or is coined into $20.67, and this is sometimes referred to as the price of money (gold).1 More properly, this is the mint price of an ounce of gold bullion. When the gold is made into coins it becomes money and has no price. Reference is constantly made in the financial papers to the "price" of money in the loan markets of the world. In this connection price is a loose and convenient term to express the rate of interest on bank loans, the right to draw upon deposits.

1 Our gold coins arc only nine-tenths fine and so their gold content is worth $18.00 per ounce. The "price" of gold is always $18.00 because the Government fixes its price by fixing the weight of the dollar. As an ounce of gold contains 480 grains and a dollar contains by government decree 25.8 grains of gold, an ounce of gold is 18.6 times as heavy as a dollar. Thus gold is always worth $18.00.

But though money has no price it has, like other things, value. By the value of money we mean its purchasing power and this can be determined only by reference to the general level of prices. If the price of wheat rises from 50 cents to a dollar, it may be due either to a change in the relation of the supply of wheat and the demand for it, or to a change in the value of money. If the prices of all commodities except wheat, remain stable, the change is traceable to causes affecting wheat alone, but if all prices have tended to advance, clearly the value of money has decreased. A general rise or fall in prices indicates a change in the value or purchasing power of money. It rises as the general level of prices falls, and falls as general prices rise. "The value of money is inverse to the level of prices."