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) amount, in round numbers, to $200,000,000,000, and the money in the world amounts in round numbers to $10,000,000,000. That is, there are twenty dollars of credit to one dollar of money; and if credit exercises the same influence in fixing the general level of prices that money exercises, then it is absurd to say that the volume of money available for use fixes the general level of prices, and at the same time to contend that credit, dollar for dollar, is an equal factor in fixing prices. If credit affects the general level of prices in the same manner and to the same extent that money does, then credit exerts an influence on prices twenty times greater than that exerted by money, and we should say: The general level of prices is fixed by credit, modified, it may be, to some extent by the amount of money in circulation. The difficulty seems to be in distinguishing between money and credit. If we keep in mind the fact that anything which closes the transaction between the parties to the transaction (barter excluded) is money, and anything which leaves something still to be done is credit, we shall have no difficulty in making the distinction. Can credit affect the general level of prices? One of the most familiar and common illustrations given by those who contend that credit will raise the general level of prices, is that of a man entering the market to buy cotton.