Remembering that prices are simply the numerical expression of the ratios of exchange between every other commodity and the standard commodity, we may easily explain the immediate causes of their fluctuations. Since the ratio of exchange between two commodities is simply the relative quantities that exchange for each other, it is evident that this ratio will change whenever the worth of either of the commodities changes. If wheat is being exchanged for shoes from time to time, and it becomes for any reason more valuable, it will exchange for a larger number of shoes; if it becomes less valuable, it will exchange for a smaller number. Likewise if shoes become more or less valuable, the ratio of exchange with wheat will change. By parity of reasoning, prices, which are the expression of the ratio of exchange between the standard and commodities, may change from any one of the following four causes or from various combinations of these: (a) from a rise in the value of the commodities the prices of which are in question; (b) from a fall in the value of these commodities; (c) from a rise in the value of the standard commodity; and (d) from a fall in the value of the standard commodity. The first and fourth of these causes will result in a rise of prices, and the second and third in a fall.

By way of illustration of these propositions, let us consider the possible causes of changes in the price of wheat. Remembering that gold is our standard and that Congress has decreed that 23.22 grains of gold shall be called a dollar, by definition we know that when wheat is a dollar a bushel, 23.22 grains of gold are exchanging on the markets for one bushel of wheat. If subsequently, for any reason, the value of wheat should increase, that is, if people should desire it more intensely, or some new use for it should be discovered, or the supply of wheat should become short, the value of gold remaining unchanged, the price of wheat would certainly rise, since it would require more than 23.22 grains of gold to purchase a bushel. If wheat had just doubled in value, it would require 46.44 grains to make the purchase; that is to say, wheat would sell for two dollars a bushel. If, on the other hand, the value of wheat should diminish one-half, a bushel could be purchased with one-half the former amount of gold, and the price of wheat would be one-half of a dollar per bushel. Reversing the terms of our illustration, and assuming that the value of wheat remains unchanged, and that of gold rises and falls, we obtain corresponding results. When the value of gold rises, less gold will be required for the purchase of a bushel of wheat, and its price will fall; when the value of gold falls, more will be required for the purchase of a bushel of wheat, and its price will rise. If both wheat and gold were changing in value at the same time, it is evident that the result would be either rising or falling or stationary prices, according to the direction and amount of the changes. If gold should fall in value in exactly the same degree and at the same time that wheat was falling, prices would remain stationary. If, on the other hand, the changes were in opposite directions, the gold falling and the wheat rising, the rise in the price of wheat would be very great. Conversely, if gold were rising in value and wheat falling, the price of wheat would fall very rapidly.