The general notion is that money, especially gold, possesses a constant value. Yet any one who has had experience in making purchases over a period of time, realizes that a gold dollar will, in general, buy less at one time than at another. His conclusion is likely to be, not that the value of the dollar has changed, but rather that prices of goods have changed. In general these two changes are but opposite aspects of the same economic phenomenon. A rise in prices means a fall in the value of money, while a fall in prices indicates that the purchasing power of the dollar has risen. If all exchanges were made by barter there could be no change in the general price level - that is, the value of all goods could not rise or fall. If some fell others would rise, while if some rose others would fall. To get a simple illustration, let us suppose that a bushel of wheat will exchange for two bushels of corn, or for ten pounds of meat or for twenty oranges; and, further, that there are no other goods under consideration. Let us suppose further that a short wheat crop causes the value of wheat to rise until a bushel will exchange for three bushels of corn, or fifteen pounds of meat, or thirty oranges. Truly the value of wheat has risen, but what of the value of each of the other goods in respect to wheat or to each other? Clearly corn has fallen in value if we compare it with wheat; it has not changed in value, if measured in terms of oranges. Thus, if corn were the medium of exchange we would say that wheat has risen in price and that the price of meat and oranges has remained the same. If, on the other hand, wheat were the medium of exchange, the fact that a unit of wheat exchanges for more corn, meat, or oranges would indicate a general fall in price level. Since money is the medium by which all other values are measured, its value rises and falls inversely with the rise and fall of the price level.

Fluctuations in Price Level: 1890-1918.