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Full text of "Stabilizing The Dollar"
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Full text of "The making of index numbers; a study of their varieties, tests, and reliability"
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SUMMARY BY SECTIONS xxxvii offered gets a hearing. Some of these are bad. Such
was " free silver " proposed in 1896 and such is much
of the reckless radicalism of to-day.
16. The Loss Is General. Few gain permanently
either from rising or falling prices, for the envious losers
contrive in some way to balk them, e.g. by sabotage.
Again when prices fall foreclosures are forced which
throw the management of industry into hands often
ill fitted for the task. In short, in the end, almost every
one loses from an unstable dollar.
17. Conclusion. An unstable dollar is the unsus-
pected cause of many of the greatest events, including
the greatest evils and injustices, which history records.
CHAPTER IV. A REMEDY
1. Remedies Which Have Been Proposed. The 43
remedies proposed almost ignore the money side of
the problem. They aim at economy and efficiency,
and concern the problem of our incomes rather than that
of the purchasing power of the dollar.
2. The Dollar the Only Unit as Yet Unstandardized.
The dollar is now a unit of weight, not a unit of power
to purchase goods, which is what we need. We have
gradually stabilized or standardized every other unit
used in commerce, including the yard, pound, bushel,
horsepower, volt. Formerly these were as roughly
defined as the dollar is now. The yard was once the
girth of the chief.
3. An Imaginary Goods-Dollar. Two commodities
like gold and silver make a better standard than one and
many make a better standard than two. The dollar
standard should be worth a specified bill of goods such
as one board foot of lumber, fifteen pounds of coal, 82 STABILIZING THE DOLLAR [CHAP. IV value or general purchasing power than is a pound of sugar or a dozen eggs. It is almost as absurd to define a unit of value, or general purchasing power, in terms of weight, as to define a unit of length in terms of weight, to define a yardstick as, let us say, any stick which weighs an ounce. What good does it do us to be assured that our dollar weighs just as much as ever? Does this fact help us in the least to bear the high cost of living? What we really want to know is whether the dollar buys as much as ever. We want a dollar which will always buy the same aggregate quantity of bread, butter, beef, bacon, beans, sugar, clothing, fuel, and the other essential things for which we spend it. There used to be a song about a shopkeeper who, being asked the price of a box of socks, replied, " One dollar a box." " I'll take the box/' said the customer, handing over his dollar; whereupon the shopkeeper took out the socks and handed over the box. " I sold you the box, not the socks," said he ! Our dollar is somewhat like that box. It keeps its form, but loses its content. The removal, in this case, is not intentional or committed by one of the parties to the contract, but so much the worse ! for the in- jured pa.rty has no recourse. It is as though the buyer of the box of socks were forced to agree in advance to let a bystander remove or insert socks ad libitum. What is needed is to stabilize, or standardize, the dollar just as we have already standardized the yard- stick, the pound weight, the bushel basket, the pint cup, the horsepower, the volt, and indeed all the units of commerce except the dollar. All these units of
SEC. 4] A REMEDY 89 the spot. When a man was about to make a cash pur-
chase it was immaterial to him what the monetary unit
was.
But to-day if a man buys an article and promises to
pay for it in three months, the case is different. When
the time for payment arrives it is very important for
him to know whether the " dollar " is the same as was
contemplated when the agreement was made.
With our modern contracts, running months, years,
generations, or even centuries, including hundreds of
billions of dollars' worth of agreements to pay money,
promissory notes, mortgages, debentures, railway
bonds, Government bonds, leases, insurance contracts,
etc., the function of a standard of value, that is, a
standard of deferred payments, has grown to be perhaps
the more important of the two functions of money.
Yet because our ancestors found a good medium of
exchange we now find ourselves saddled with a bad
standard of value. What we need to do, therefore, is to
retain gold as a good medium and yet to make it into
a good standard ; not to abandon the gold standard but
to correct it ; not to rid ourselves of the gold dollar, but
to make it conform in purchasing power to the composite
or goods-dollar.
Under the plan about to be presented, gold is retained ;
and there is essentially the same mechanism by which
it freely enters or leaves the circulation. But under
this plan the gold dollar becomes a standard of value
instead of a standard of weight.
We now have a gold standard with the " standard "
left out ! When I am asked with a horrified air, whether
this proposal is not really one to " abandon the gold
standard " I like to answer : " No ! it is to put the standard into the gold standard ! " But abandon the present
gold standard, so called, it certainly does, by converting
or rectifying it into conformity with the composite
standard. p.90 5. Merely the Weight of the Gold Bullion Dollar
to Be Varied
But how can we rectify the gold standard ? That is
the question which we set out in this chapter to answer.
In brief the answer is : by varying, suitably, the weight of
the gold dollar. The gold dollar is now fixed in weight
and therefore variable in purchasing power. What we
need is a gold dollar fixed in purchasing power and
therefore variable in weight.
I do not think that any sane man, whether or not
he accepts the theory of money which I accept, 1 will
deny that the weight of gold in a dollar has a great deal
to do with its purchasing power. More gold will buy
more goods. Therefore, more gold than 23.22 grains
will, barring counteracting causes, buy more goods than
23.22 grains will buy. Therefore if the dollar, instead
of being 23.22 grains, or about one twentieth of an
ounce of gold, were an ounce or a pound or a ton of gold,
it would, other things equal, surely buy more than it
does now, which is the same thing as saying that the
price level would be lower than it is now.
A Mexican gold dollar weighs about half as much as
ours and therefore has less purchasing power. If Mex-
ico should adopt the same dollar that we have, no one
1 Thus B. M. Anderson, Jr., probably the ablest writer among
the few who still dissent from the "quantity theory " in any form,
nevertheless approves of the proposal to stabilize the value of a
dollar by adjusting its weight.
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