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Inconveniences of an unstable value unit, 652.- Dr. Fisher's proposed remedy, 652.- Would his goods standard be stable? 658. — Unstable relation between goods and labor, 660.— Value dependent on human estimation, 661.- This not stable as to goods or as to labor, 665. — Can present monetary units be stabilized? 667. — Control of issues of paper money, 667.-Control of gold production, 668.- How would Fisher's plan affect the public debt ? 670.

Most of us have learned from experience that a dollar will not buy so much as it used to buy, but many of us remember a time when our experience was just the reverse of this; for it is scarcely twenty-five years since a period of falling prices came to an end. Then debtors whose contracts ran for a number of years were at the disadvantage of having to pay back dollars of larger purchasing power than was possessed by the dollars they had received. Now creditors, under like circumstances, have reason to complain that the dollars repaid to them have a smaller purchasing power than had the dollars which they lent; and people whose earnings have remained stationary, or failed to increase as fast as the prices of commodities, have found it increasingly difficult to pay their bills.

Dr. Irving Fisher in a pamphlet issued as a precursor of his forthcoming book on Stabilizing the Dollar in Purchasing Power, has expounded his plan for putting an end to such unpleasant experiences by keeping the variations in the purchasing power of the dollar within very narrow limits. That he somewhat underestimates the direct effect of the world war in raising the cost of living and, as I think, correspondingly overestimates

its indirect effects through its expansions of currency and credit, is a secondary matter. So also is his inclination to throw upon our unstable dollar more than its just share of blame for the existence of social discontent. What I am here concerned with is the plan itself and, as it seems to me, a fundamental error which underlies it.

Dr. Fisher recognizes the fact that, to a greater or less extent, he has been anticipated by others. The various writers who have discussed a "tabular" or "multiple" standard of value seem to have assumed that, if so constituted as to be accurately representative of goods in general, it would afford a just standard for deferred payments; and this is the assumption which underlies Dr. Fisher's plan of stabilizing the dollar. From this point of view, he has a considerable advantage over earlier writers on the subject in the fullness of the price records now available and the elaborate systems of index numbers based thereon. Yet one may be permitted to doubt whether it is possible to construct, even with all these helps, a standard which shall measure the price movements of goods in general with a very high degree of accuracy, tho Dr. Fisher compares the results at which he aims with those attainable through the yardstick in measuring length.

"What is needed," he says, "is to standardize the dollar, just as we have already standardized the yardstick, the pound weight, the bushel basket, the pint cup, the horse power, the volt, and, indeed, all the units of commerce except the dollar."

And his plan for accomplishing this object is to take, at a suitable time, a dollar's worth of carefully selected goods, which shall thereafter serve as a measure of value for goods in general, including gold.

"A true standard of value," he says, " should not be dependent on one commodity merely, whether that

commodity be gold or silver, or wheat or what not. Two commodities would be better than one "; and "a composite of gold, silver, copper, platinum, and all the other metals would be somewhat more stable than an amalgam of two, just as a number of tipsy men can walk more steadily arm in arm than two only, it being wholly unlikely that all the men in the line would lurch in the same direction at the same instant."

Metals, however, are not the commodities to which Dr. Fisher would assign a leading place in constructing his standard. He says:

In order to secure a dollar constant in its purchasing power over goods in general, it should, in effect, be a composite of those very goods in general. For instance, we might imagine a composite commodity dollar consisting of 2 board feet of lumber (made up of various kinds); 1/20 of a bushel of wheat; 3/4 of a pound of steers; 1/2 of a pound of meat; 30 pounds of coal; 1/100 of a barrel of white flour; 1 pound of sugar; 1/2 of a pound of hogs; 1/3 of a pound of cotton; 1/3 of a gallon of petroleum; 1 egg; 1 pint of milk; 1 ounce of butter; 1/30 of a bushel of corn; 1/25 of a bushel of potatoes; 1/100 of a pair of shoes; 11/2 pounds of hay; 1 ounce of hides; 1 ounce of tobacco at the farm; 1/2 of an ounce of manufactured tobacco; 1 1/2 ounces of lard; 1/2 of an ounce of leather; 1/7 of an ounce of wool; 3/4 of a pound of steel; 1 ounce of copper; 1/10 of an ounce of rubber; 1/300 of a gallon of alcohol; 2 ounces of soap.

These happen to be the relative quantities of some of the three hundred commodities used by the United States Bureau of Labor Statistics in making up its index number of prices. The entire list, of which the articles specified are the more important, was actually worth one dollar in 1909.

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If at that time we had established such a dollar as our unit — that is, a composite dollar consisting of a big basket containing those three hundred bits of goods that composite basketful of commodities or "goods-dollar," let us call it would evidently have to be worth a dollar at all times; and the cost of living - at least the cost of the representative assortment in that basket could not rise or fall. That assortment would always cost a dollar simply because a dollar is that assortment.

Accepting the "goods-dollar," or " composite basket of goods," as a thing of stable value, Dr. Fisher would

stabilize the gold dollar by preventing its value from diverging materially from that of his proposed goods standard, and this he would do by making it heavier, if its value, as compared with that of the "goods-dollar," is found deficient or lighter if its value, when tried by the same test, is found too great.

To avoid the confusion and inconvenience of having gold dollars or gold eagles of different size and weight circulating side by side or jingling together in the same pocket, Dr. Fisher proposes that the money in actual circulation shall be of paper only. He proposes that gold certificates be used instead of gold coins, as, indeed, they already are in most cases. He says:

If gold thus circulated only in the form of paper representatives, it would evidently be possible to vary at will the weight of the gold dollar without any such annoyance or complication as would arise from the existence of coins. The government would simply vary the quantity of gold bullion which it would exchange for a paper dollar -the quantity it would give or take at a given time. As readily as a grocer can vary the amount of sugar he will give for a dollar, the government could vary the amount of gold it would give or take for a dollar.

Passing over certain details, I quote again from Dr. Fisher's pamphlet:

A definite and simple criterion for the required adjustments 1 is at hand the now familiar "index number" of prices. The Bureau of Labor Statistics, which now publishes an index number, the Bureau of Standards, or other suitable government office, would be required to publish this number at certain stated intervals, say monthly. That is, each month the Bureau would calculate from current market prices how much would have to be paid for our composite basket of goods. This figure it would publish and proclaim; and this figure would then afford the needed official sanction to the Secretary of the Treasury to change the amount of gold which the mint would give or take for a gold certificate, and thus increase or diminish the purchasing power of that certificate. The certificate would always be equal to the gold dollar; and the gold dollar would be kept equal to the goods-dollar, which is the ultimate standard.

The periodical changes in the weight of the gold bullion dollar.

After illustrating in some detail the small monthly changes in the weight of the dollar that would, as he anticipates, follow the adoption of the goods standard during a period of rising prices, Dr. Fisher says:

And, so, as long as the index number persists in staying even a little above par, the dollar will continue to be loaded each month until, if necessary, it weighs an ounce, or a ton for that matter.

It will be seen from Dr. Fisher's frank recognition of the extent to which the dollar might be weighted in case of necessity that hardly any conceivable increase in the supply of gold, either from the discovery of new sources or from improved methods of extracting the metal, could cheapen it too rapidly to permit the weight of the dollar to be increased with equal speed. Dr. Fisher's plan would, in fact, open an unlimited market for the produce of the gold mines of the world, and the incentive to their rapid exhaustion which it would thus offer is enough to make the hair of a conservationist stand on end. For this, however, the plan makes some atonement, and we must accompany Dr. Fisher a little further in his account of its operation. He says:

Or, suppose the index number falls below par, say 1 per cent below. This fact will indicate that the purchasing power of one dollar has gone up. Accordingly, the gold dollar will be reduced in weight 1 per cent, and each month that the index number remains below par the now too heavy dollar will be unloaded and the purchasing power of the certificate brought down to par. Thus by ballast thrown overboard or taken on, our index number is kept from wandering far from the proper level that is, from the price of one dollar per composite basket of goods. In short, the adjustment, like all human adjustments, takes place "by trial and error." There is always a slight deviation, but this is always in process of being corrected...

All dollars, bank notes, etc., yellowbacks, and gold bullion would be absolutely equivalent to one another and would be approximately equivalent to the composite or goods-dollar. We would then be substantially rid of a fluctuating price level with its long train of

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