The following is by James Madison, the primary author of the US Constitution and fourth president.
For those who wish to get a further view on this, here is a paper from the Cleveland Fed on Madison’s essay: https://www.clevelandfed.org/newsroom-and-events/publications/discontinued-publications/economic-review/1998-economic-review/er-1998q1-james-madisons-monetary-economics.aspx
Observations written posterior to the circular Address of Congress in Sept. 1779, and prior to their Act of March, 1780.
It has been taken for an axiom in all our reasonings on the subject of finance, that supposing the quantity and demand of things vendible in a country to remain the same, their price will vary according to the variation in the quantity of the circulating medium; in other words, that the value of money will be regulated by its quantity. I shall submit to the judgment of the public some considerations which determine mine to reject the proposition as founded in error. Should they be deemed not absolutely conclusive, they seem at least to shew that it is liable to too many exceptions and restrictions to be taken for granted as a fundamental truth.
If the circulating medium be of universal value as specie, a local increase or decrease of its quantity, will not, whilst a communication subsists with other countries, produce a correspondent rise or fall in its value. The reason is obvious. When a redundancy of universal money prevails in any one country, the holders of it know their interest too well to waste it in extravagant prices, when it would be worth so much more to them elsewhere. When a deficiency happens, those who hold commodities, rather than part with them at an undervalue in one country, would carry them to another. The variation of prices in these cases, cannot therefore exceed the expence and insurance of transportation.
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