APPENDIX II
DISAPPROVAL OF THE PLAN
1. Misunderstandings
A. Introduction. Some readers will wish to know what objections have been found or alleged against stabilizing the dollar.
The chief of these have already been disposed of in the text. The other objections are to be found, stated in the objectors' own language, in articles cited in the bibliography of Appendix V. Answers by me or other writers are cited in the same bibliography.[1]
Nevertheless it seems desirable, in order to make this book complete, to renew the arguments here. I shall therefore state and answer the alleged objections as fully as space permits. If difficulties still remain in any reader's mind, I hope he will do me the favor of communicating with me to the end that I may, if possible, clear them up by correspondence.
I shall try to treat seriously and on its real merits each objection which has been offered and to show how, in every case, the objection falls to the ground.
Most of the alleged objections turn out, on examination, to be mere misunderstandings. Of the remaining objections, most consist, at bottom, of unreasonable hostility, due to prejudice and fear of disturbing the status quo. The few objections still remaining amount simply to emphasizing the fact that the plan does not attain an ideally perfect standard of value.
In this section I shall consider the misunderstandings.
B. "The plan only corrects those deviations in the purchasing power of the dollar which are due to gold causes," and not those due, for instance, to causes connected with credit or commodities. On the contrary, it corrects all deviations indiscriminately. The criterion is the index number, and the plan operates against any deviation from par of the index number whether that deviation is due to gold or to any other cause whatsoever.[2] The reason, of course, is that all dollars are interconvertible so that if the value of the gold dollar is kept constant, that of every other dollar must be constant also.
C. "It assumes 'the gold theory'—that high prices are due to the abundance of gold." No; it merely assumes that the purchasing power of gold does change relatively to commodities. It does not assume any particular cause of these changes. Gold depreciation relatively to commodities may be due, for instance, to scarcity of commodities; it may be due to the inflation of money other than gold, circulating alongside of gold, such as silver and paper money; it may be due to credit inflation; or it may be due to causes speeding up the velocities of circulation of money and credit.
D. "It assumes the quantity theory of money." The impression that the plan is dependent on acceptance of the quantity theory of money is presumably due to the fact that I have espoused that theory (in a modified form) in my Purchasing Power of Money. But there is nothing in the plan itself which could not be accepted equally well by those who reject the quantity theory altogether. On the contrary, as one opponent of the quantity theory has pointed out, the plan should seem even simpler to those who do not accept the quantity theory but believe that a direct relationship exists between the purchasing power of the dollar and the bullion from which it is made, than to believers in the quantity theory.
It will be clear to any one who follows the reasoning and explanations in this book,[3] that the only money theory assumed is that common to all theories, and accepted universally; namely, that a large quantity of gold will buy more goods than a small quantity—a pound, than an ounce, for instance—and that an increase of the gold in a dollar will, somehow, increase the dollar's purchasing power. As to the exact process by which this acknowledged result is attained we need have no concern.
Personally, like the great majority of economists, I believe that this process is through the fact that increasing the weight of a dollar decreases the number of dollars in circulation (not only of gold but of fiduciary money and bank credit). But any one who reasons on some other theory cannot avoid reaching the same result; namely, that the plan would work, provided, as I have said, he admits simply that the heavier the dollar the more valuable it is.
To take an example cited in Chapter IV, if the Mexicans should change the weight of their dollar to the weight of ours, the price of wheat and other things would become about the same on both sides of the Rio Grande, just as they are at present (except for the tariff) the same on both sides of the Canadian border where the dollar is of the same weight on both sides.
E. "It contradicts the quantity theory." This objection, the opposite of the last, has been raised by some who believe in the quantity theory but imagine that the operation of the plan could not affect the quantity of money at all or not in the degree needed. But, as explained in the text (Chapter IV, § 9, and Appendix I, § 9), it is not assumed that a 1% change in the weight of the gold dollar will necessarily affect either the quantity of money or the price level by exactly 1%. It is only necessary to assume that it works in the right direction and that, if the first adjustment proves insufficient, its insufficiency will be registered in later index numbers and, in consequence, it will be reënforced by subsequent adjustments as required.
That a change in the weight of the dollar will change the number of dollars has been made evident already. It will affect the number of gold dollar certificates (see Chapter IV, § 7, and Appendix I, § 1) and the number of dollars of circulating credit (see Appendix I, § 7).
F. "It aims to fix all prices." On the contrary, it does not aim to fix any price, except the price of gold which is already fixed—though wrongly so—in our present system. The prices of wheat and sugar and everything else would be as free as now to vary relatively to the general level and to each other. The adjustment of the dollar would control only the scale or "level" of commodity prices and not interfere with the freedom of their relative movements.
Only the general level is fixed, a rise in one commodity being balanced by a fall in others. A fixed sea level does not prevent wave motions.
As Treadwell Cleveland, editor of the Newark Evening News, well says, "the aim is by no means to freeze all ratios of exchange fast" or to compel all prices in dollars to be "petrified into everlasting immobility."
The upper curve of Figure 13 shows the actual market price of wheat in terms of gold in contrast with the middle curve which shows the price of wheat as it would have been under stabilization, i.e. its price in terms of the commodity standard. The lower curve shows the course of the general price level in terms of gold. The middle curve exhibits abundant freedom to fluctuate, the fluctuations being due to harvests and other conditions connected with the production of this specific commodity, wheat. The upper curve shows these same fluctuations; but it shows also other fluctuations, mostly upward, due to the movement in general prices, which means the opposite movement of the
Fig. 13. The Price of Wheat in Terms of Gold and in Terms of Commodities
The curve for "wheat in gold" represents the movement of the actual market price of wheat.
The curve for "wheat in commodities" is the same as that in Figure 11 and represents the real purchasing power of wheat.
The curve for "all commodities" is repeated from Figure 10. We may say that the upper curve is a compound of the other two, the lower curve containing the monetary element and the middle curve the wheat element. The year to year fluctuations in the price of wheat seem to be due chiefly to wheat, while the general upward trend is chiefly due to money.
The middle curve shows how the price of wheat would behave if the dollar were stabilized. This price would fluctuate almost as much as it does now.
dollar. The upper curve is compounded, as it were, of the two lower curves, one representing changes in wheat, the other representing changes in the purchasing power of the dollar.
G. "It would interfere with supply and demand." Rather would it simply disentangle the supply and demand of, say, wheat, from the supply and demand of the money medium. As things are now the price of wheat always includes, besides the effects of the supply and demand of wheat, the effects of the supply and demand of gold, of credit, etc.
A study of the two curves of Figure 13 shows how the two sets of phenomena are now entangled as well as how natural is the error of overlooking the money ingredient in the price of wheat. In their year-to-year changes the two curves agree in moving up together or down together in 24 cases out of 26! A wheat merchant could doubtless see, for each of these 24 changes, a definite reason in the wheat market, without any apparent need to invoke the monetary element. He would be able to say that between 1914 and 1915, for instance, the price of wheat rose rapidly because of certain specific war conditions affecting wheat. And he would be substantially right qualitatively. Only a quantitative analysis such as Figure 13 gives could disclose the fact that of the 27% rise, only 25% was due to the causes he saw and 2% was due to the depreciation of the dollar.
Under a stabilization system the price of wheat would have gone up 25% as in the middle curve. The supply and demand of wheat would not be interfered with but simply separated from monetary fluctuations which would be registered in the price of gold.
Under our present system, the price of gold is cut off from the operation of supply and demand altogether. If gold were as plentiful as the pebbles on the beach, its price would, under the present arbitrary system, remain immovable at $20.67 an ounce!
This fixity of the price of gold might itself be called an arbitrary interference with natural supply and demand, as was indicated in Chapter V, § 3. Were the natural law of supply and demand allowed to take its course and not artificially restrained, the changes in the supply of, and demand for, gold and its substitutes would make themselves felt in the price of gold, and not in the prices of goods, as at present they are forced to do.
H. "It is a plan to control the value of gold." The valorization of coffee in Brazil, or the valorization of silver as proposed by some "friends of silver," has nothing in common with the plan here proposed. The latter plan does not attempt to impound gold. It does not attempt anything so colossal or useless as to raise the value of gold by cornering and storing it or by any other means. It does not aim to affect at all the value of gold per ounce, but aims simply to change the quantity of it in a dollar. It is the dollar, not gold, which we are trying to stabilize. The distinction is as important as the distinction between valorizing or fixing the price of a pound of sugar by controlling the sugar market, and adjusting the number of pounds of sugar to make up a dollar's worth, whatever the market conditions may be.
I. "It works only through the flow of gold." This misunderstanding is common. It pictures the regulative machinery as though the flow of gold into and out of circulation were the main factor. It implies that the only, or chief, effect of a change in the price of gold is to divert the flow of gold from one channel to another, overlooking the factor under a definite reserve (see Appendix I, § 1),—that a change in the price of gold and in the weight of a gold dollar changes the number of dollars in a given physical mass of gold.
Laboring under the above mentioned misapprehension, one correspondent imagines that if all the world adopted the plan the result would be to alternately "dump" immense quantities of gold on to the very limited jewelry market or denude that market of all its gold, and that the system would demoralize the gold market and ultimately break down, for the jewelry market is too small to be used as a regulator of the gold of the world. The tail could not wag the dog.
The truth is, of course, that, even if there were no jewelry use whatever, there would be ample regulation. Thus a lowered gold price, or raised dollar weight, can reduce any stock of gold, however large, into a small number of dollars simply by enlarging each dollar; while, contrariwise, a raised gold price, or lowered dollar weight, can multiply any stock of gold, however small, into an ample supply simply by breaking it up into a larger number. It is like multiplying the loaves and fishes,—except that there is nothing miraculous about it, since small dollars will feed our monetary needs as well as larger dollars, provided they buy as much.
A correspondent calls attention to the fact that, at critical times like that of the war, each nation tends to grab gold and reasons that this would destroy the regulatory action. On the contrary, while such action does destroy the regulatory action of our present system, thus revealing one of its worst defects, it would not affect that of the proposed plan. As explained in Appendix I, § 8, the stabilization system becomes independent of foreign influence. Under it we could let other nations take any part of our gold they chose and the remainder, by sufficient subdivision, would meet our needs. Likewise we could withstand any flood of gold—and without suffering inflation, or shutting gold out as did Sweden,—simply by enlarging the dollars and so diminishing their number.
J. "It would shift to the Government the losses now borne by private contracting parties." This confuses the losses and gains on contracts and understandings expressed in terms of gold with the losses or gains to holders of actual gold. Except where the Government is itself a party to contracts, the losses and gains of contracting parties do not affect the Government Treasury.
It may be added, incidentally, that if it were true that such a shift to the Government of all private gains and losses were really effected by stabilization the net resulting burden on the Government would be just zero! For the same number of dollars that the private creditor now loses from depreciation the private debtor gains and vice versa.
This is the reason that, above, in referring to contracts, the phrase "losses and gains" was used whereas, in referring to physical gold, the phrase "losses or gains" was used. When gold depreciates its holders suffer loss and no one else has any corresponding gain, just as when a case of eggs or a box of fruit spoils the owner loses and no one else gains. Contrariwise when gold appreciates the owner of gold gains and no one else loses.
This slight gain or loss from holding gold is transferred, by the stabilization plan, to the Government (or rather, is transferred from the pockets of the people back to their pockets through increase or decrease of taxation) as was shown in Appendix I, § 1, D. But the colossal gains and losses to contracting parties are not so transferred by stabilization. They are simply destroyed altogether.
K. "It would make a pretext for raising prices." This idea is probably an echo of the fact that dealers have often used the excuse that prices in general were high to raise their own. The excuse was usually valid. Retail prices must adjust themselves to wholesale prices and vice versa.
But it is precisely this excuse which the stabilization system would take away; for the general price change which it presupposes is avoided. It would certainly be a curious excuse for a dealer to tell his customers that he had to change the price of coal because, last month, the mint price of gold had been changed with the expressed object of making such changes in other prices unnecessary!
L. "It would 'tamper' with the standard of value." In truth it would prevent the standard of value from being tampered with by all sorts of influences which at present do tamper with it constantly. The discovery of gold in California tampered with the standard of value ; the cyanide process of extracting gold tampered with it, and so did the abolition of bimetallism, the introduction of the gold exchange standard, the rapid growth of bank deposits, and the inflation of the currency in war-time.
At first sight the plan seems to many people a plan to change the dollar, while in fact it would keep the dollar from changing. It would change the present system, the fault of which is that it lets the value of the dollar change. The plan aims at an invariable dollar. If preventing the dollar from changing is tampering with the standard of value then the Bureau of Standards is constantly tampering with weights and measures.
One sarcastic objector asks: "Why not change the weight of a pound of coffee?" If the dollar served the purpose merely of a unit for weighing gold, it would be as absurd to alter it as to alter the number of ounces in a pound of coffee. A unit of weight ought certainly to remain invariable in weight. But we do not need the dollar as a unit of weight. We need it as a unit of value, and the trouble is that its constancy in weight makes it inconstant as a unit of value.
M. "Changes in the weight of the dollar cannot affect its value because only Government fiat can fix the value of money." Can any one believe that if the weight of a dollar were increased from the present twentieth of an ounce to an ounce, or a pound, or a ton, or the entire mass of gold in the world, that the dollar would buy no more than it does at present? If any one by taking a ten-dollar gold certificate to the Sub-Treasury or Assay Office could get with it a cartload of gold, would that certificate not command more, not only of gold, but of things in general than it does now?
As to Government fiat, the mere calling pieces of paper by certain names without reference to the amount in circulation has been proved both by theory and by experience to be illusory.
N. "It is a fiat money system." This misunderstanding is the opposite of the last and even more absurd. It is not a fiat money system ; for the paper money, under it, is redeemable and dependent for its value on the gold in which it is redeemed.
2. Alleged Defects
A. "A goods-dollar is not ideal." Doubtless this is true. But our present gold dollar is still further from the ideal! It is significant that those who offer this "objection " do not suggest some third kind of dollar which might, practically, be used.
The discussion of an ideal dollar is purely academic. It will be time enough to discuss the merits of a marginal-utility unit of value, a labor unit, or a unit consisting of a given fraction of the National income, when any of these units can be statistically fixed, that is, when an index number in terms of such a unit is forthcoming. Until that time the ideal standard, if such there be, has about as much practical availability for human use as the money of the planet Mars. The only practical question is that already discussed in Appendix I, § 3, as to what is the best index number available.
It might be advantageous, were it possible, to distinguish between that part of a given change in the value of the dollar which is due to money and that part which is due to goods. And this could be done by the plan if there were any reliable index number of "absolute value." By employing such an index number, if it existed, we could stabilize the dollar "absolutely." Practically, of course, we can only measure the value of money relatively to other goods.
This same answer applies to those who have the idea that, instead of a constant price level, a slightly falling or a slightly rising or a cyclically changing price level is more ideal. If those who set up such standards in theory will set them up in practice, i.e. will show, in figures, exactly how much the price level ought to change, it will be as easy to make the index number follow that prescribed course as to keep it uniform. This can be accomplished by precisely the same methods as those described above for stabilization. Let us, for example, assume that, ideally, prices ought to rise 1% per annum instead of remaining constant. It would evidently be as easy to apply exactly the same method of regulation as that described in Chapter IV except that, instead of hewing to the 100% line, we would hew to a moving par. If, at the start, the par were 100%, a year later it would be 101%. At that time, therefore, if the index number should happen to be 101% no change in the dollar's weight would be made; if, instead, the index number should be 102, or 1% too high, the dollar's weight would be increased 1%; if, instead, the index number should be 100, or 1% below par, the dollar's weight would be decreased 1%. Likewise if the ideal course of prices could be shown to be first in one direction and then in the other, all we should need to do would be to map out that course in figures and hew to that line.
B. "People could 'contract out,'" i.e. they could frame their contracts in terms of ounces of gold or any other units than the new dollars. So they could,—just as they can now. But they wouldn't—not even as much as they do now! There would be no need for such action and no desire for it. "Contracting out" is a phenomenon which is frequent only when it is necessary to escape from some flagrant case of instability as in the days of greenbacks or of Colonial paper money. It was such a case, or the danger of it in the '90s, which gave rise to the "gold clause" in bonds.
When the railways adopted "standard time" there were those who predicted that many people and communities would refuse to shift their watches. One country town in Maine did! But more than 99% of the country were led by the convenience of the new system to adopt it, just as, later, they adopted the similar shift for "daylight saving," at which time also similar predictions of failure were made.
If any contracting parties should fancy that a stabilized dollar was less suitable to their needs than some other standard, their preferences should be and could be gratified. But such people would be very few and far between.
C. "It would be destroyed by war." It is true that war is apt to put a strain on whatever monetary system exists at the time. It does so when the fiscal needs of the belligerents require or seem to require resort to inflation. It is also true that there would be more strain on a system which combats inflation than on one which yields to it. Inflation affords the cheapest and easiest, although the worst, way to pay for a war. It is, therefore, inevitably the resource of war finance when all others fail.[4] As we have seen (Chapter II, § 9) it has many subtle forms. If the dollar is to be kept stable, it will be necessary to raise the whole revenue of the Government in ways other than by inflation (i.e. by taxes or by loans out of the savings of those who make the loans). If the Government or the banks or the people who finance the Government cannot, or will not, finance it completely, without resort to inflation, stabilization will have to be sacrificed.
We have already noted (Appendix I, § 7, A) how this breakdown would come about under paper money inflation. The same principle would apply under any kind of inflation (by paper issues of the Government, or of authorized banks, or by creation of new bank deposits put to the credit of the Government, or to the credit of individuals who borrow of banks to loan to the Government). In short, stabilization and inflation are mutually incompatible. If stabilization is to be retained during a war emergency, inflation must be sacrificed as a method of war finance. Or, if inflation is to be resorted to, stabilization must be sacrificed. When the emergency comes choice between the two must be made.
In all ordinary wars there is no need of inflation and the stabilization process could go on unmolested. But if we were to have another world war and if the fiscal need were so great that there was, or seemed to be, no way to secure all the needed funds without resort to inflation, then, it is quite true, the stabilization machinery, if left to work, would break down. It would be better under such circumstances not to leave it to work but to suspend it temporarily just as the Bank Act for the Bank of England is temporarily suspended at critical times.
In practice, an intermediate course between a stabilization left helpless to break down, and its suspension would probably be the result. The brassage limitation would prevent perfect stabilization when the tendency of prices to rise was greater than the brassage, and yet the rise could be mitigated and sufficient revenue from taxes could be secured to keep the system thus working at half speed, so to speak. This is illustrated by Figure 12.
A friend insists that a stabilization system must be devised which will withstand any war. One might as well say that an automobile should be built to withstand any collision.
Furthermore, it should be emphasized that the present system not only contains the danger of monetary depreciation in war time among warring nations but involves neutrals as well. In fact the war inflation in the United States was almost wholly suffered while we were neutral and before we entered the war. It was a secondary effect from European inflation and the upset of international trade through which we were inundated by gold imports. From such a catastrophe in future wars, stabilization would deliver us; for, as shown (Appendix II, § 1, I), the only result of an influx of gold would be to make our gold dollars larger. Our price level would remain intact, for the neutral would not be under the necessity of paper and credit inflation as a fiscal expedient.
Another sort of answer to this objection is the League of Nations! We are not likely for a long time, if ever again, to have such an exigency as a World War. In short, the full answer to the objection of inadequacy in war time is:
(1) In all ordinary wars stabilization would be adequate.
(2) Wars in which it would not be adequate are now extremely unlikely
(3) In such an emergency the system might still work "at half speed," which would be better than nothing.
(4) Or, it could, if necessary, be suspended, which would leave us no worse off than under the present system.
(5) It would, in any case, safeguard the standards of non-belligerent nations.
(6) In no case would it leave us worse off than before.
D. "It could not check rapid changes." Owing to the narrow limits, e.g. 1% or 2% as stated, imposed on bi-monthly adjustments of the dollar's weight, it is quite true that a sudden and strong tendency of prices to rise or fall, should such occur, could not be completely checked. If, for instance, prices were tending to rise 18% per annum and the plan permitted no more rapid shift than 12% per annum, this would leave 6% per annum uncorrected.
But this 6% would be only one third the rate at which prices would rise if wholly uncorrected. Half a loaf (or, in this illustration, two thirds) is better than no bread.
Moreover, such cases are extreme and rare. When they do occur there is all the keener need for their mitigation. If an 18% correction is needed we cannot argue that we ought to make no correction rather than correct by 12%! Furthermore it should be noted that ultimately, of course, after the rapid spurt had abated, the accumulated weight of the dollar would overtake the escaped price level and bring it back to par.
E. "It is too inelastic." This is the opposite of the last objection. The one objector who makes this claim thinks the limitation complained of in the preceding objection is a positive advantage of the plan. He would prefer to limit the possible change of the weight of the dollar to 2% per annum! His idea is that only secular, or long continued, changes in the purchasing power of money are injurious while shorter cyclical changes are desirable as an expression of the changing spirit of business.
To me this is more fanciful than practical. The "credit cycle " is one of the very evils which stabilization aims to remedy. The satisfaction the enterpriser has while the boom phase lasts is partly gained because of false hopes and therefore nullified later when the depression comes—like the joys of a drunken debauch—and partly gained at the expense of others of more "fixed" incomes—a species of social injustice.
I have little doubt that crises and panics would be practically impossible if we had a stable dollar and that the wide fluctuations in credit which precede and follow a crisis would be practically out of the question. In short, crises would be nipped in the bud. If there be, ideally, a normal credit cycle it has never been shown and any hit or miss restriction would be just as apt to make the actual cycle less normal as to make it more normal.
But, even if it could be granted that there is some substance to this objection, it cannot be denied that the plan proposed would be a great improvement over the present system.
F. "The correction comes too late." It is objected that the plan does not make any correction until an actual deviation has occurred, and so the remedy always lags behind the disease. This is true. The corrections do follow the deviations and so the correction can seldom be absolutely perfect. The practical point, however, as cannot be too often emphasized, is that it is approximately perfect and far nearer perfect than our present system. When steering an automobile, the chauffeur can only correct the deviation from its intended course after the deviation has occurred; yet, by making these corrections sufficiently frequent, he can keep his course so steady that the aberrations are scarcely perceptible. There is no reason why the monetary automobile cannot be driven very nearly straight.
It is also pointed out that, after the correction is applied, it may happen that prices will take an opposite turn, in which case the remedy actually aggravates, for an instant, the disease. But, taking the extremely fitful course of prices since 1900, and correcting it, according to the plan, every two months[5], we find that this does not often happen and never for long. Even in the few remaining cases the deflections caused were very slight and were soon corrected immediately after the following adjustments.
G. Conclusion on " Alleged Defects." It will be seen that the objections which have been mentioned in this section are all on the ground of inadequacy. They are partly answered directly and all are answered by the argument that, however inadequate the proposal may be, our present standard is even more so. Nothing practical is ever perfect and the imperfection of a plan does not condemn it if it is better than the plan which it replaces and if no plan still better is available.
If those who object to stabilization as proposed, because it is not perfect, are sincere, they should either supply a criterion of the imperfection they emphasize in the form of a better index number, or—if the plan as proposed, though not perfect, is more nearly so than our present crude fixed-weight-of-gold standard,—they should support it heartily as a big step toward their own ideals. They should certainly not oppose it. In the terse phrase of modern slang, they should "put up or shut up."
Those who press the above six objections do not treat the question as a practical one but as purely academic. So far as the objectors have any other purpose than intellectual gymnastics their purpose is, subconsciously at least, obstructive rather than constructive. They seem to think that, by finding some shortcoming in the plan, they have justified the monetary system which we now have. They are, if I catch their spirit correctly, staunch defenders of the status quo, trumping up excuses for their temperamental hostility to change. This emotional attitude is discussed further in the following section.
3. The Obstacle of Conservatism
A. "It has never been tried." Not as a whole; but every feature in it has been tried and tested—the index number, issue and redemption ad libitum of gold certificates, varying the redemption rate (as in the gold exchange standard), etc. It is simply a combination of these tried elements.
Perhaps the nearest existing approach to the plan as a whole is the "gold exchange standard" of India which has virtually converted the silver rupee into the gold standard somewhat as the proposed plan would virtually convert the gold standard into the composite standard.
The system here proposed would really be no more of an innovation in principle than was the Indian Gold Exchange System when introduced and developed between 1893 and 1900, while the evils it would correct are similar to, but vastly greater than, the evils for which the Indian system was devised. It was conservative England which, in order to get rid of the comparatively trifling inconvenience of a fluctuating rate of exchange with India, adopted this gold exchange system.
It is true that it is often better to " bear the ills we have than fly to those we know not of," But that bit of practical wisdom was never intended to blind us to the ills we do bear. These ills are not only far greater than the ordinary business man has imagined, but they are, I believe, destined in the future to become greater still. The reason for this prophecy is found in the ever-growing tendency to spread and multiply the ramifications of business contracts and understandings.
Sometimes this same objection takes the form of the innuendo: "The plan is altogether too simple not to have been adopted long ago." This is an inarticulate suggestion that, while the plan looks sound, we must beware of it; for surely our wise fore-fathers would long ago have discovered and applied anything so simple.
While this objection will seem to most people who think for themselves merely inane, it really constitutes a serious obstacle in the minds of many to whom all new ideas are suspect. They do not realize that their own attitude answers their own question. It is just because so many people like themselves distrust any change, that any change is so slow in coming.
The truth is, however, that neither the idea of stabihzation, nor its application, is as new as it seems to most people, as is shown in Appendices V and VI. To my mind, considering how slowly new ideas usually spread, the wonder is that the progress toward acceptance of the idea has been so rapid. A generation ago index numbers, a vital element in the plan, were suspect; now they are almost universally used among intelligent business men. At the beginning of the Great War the correction of wages by means of an index number was a purely academic idea and was ridiculed when first suggested seriously. To-day, as recorded in Appendix V, § 2, it is in use among a number of progressive industrial concerns and some official agencies.
The present stabilization plan has itself received the approval of several hundred prominent economists, educators, bankers, business men, lawyers, publicists, and officials, as is shown in Appendix IV, § 3.
B. "The tide may turn." This suggestion is to let well enough alone because perhaps the wrongs of the present may be righted in the future by a reverse movement of the price level.
But, even if there should be such a reversal in store for us, two wrongs will not make a right. If prices are to fall, there is the same need of a stabilizer as though they were to rise. When prices were falling the same sort of cheer was offered us: " Wait, prices may rise!"
If this reasoning were correct we ought now to be thankful for the rising cost of living as a providential compensation for the falling prices of 1873-1896!
In order to prove the needlessness of standardization it must be shown that, in the future, we have reason to expect neither a rise nor a fall of prices but a stable price level—a condition of things which, so far as index numbers show us, has never yet existed, and which we feel safe in saying can never exist under our present monetary system.
C. "It requires governmental interference." In these days of Governmental participation in economic problems this objection will not frighten many people, especially as the increase in Governmental functions over those already existing in the regulation of the value of money is infinitesimal. The Government already buys and sells gold, handles gold reserves of several kinds, and publishes an index number. The plan does little more, except to use the index number to set the price at which the Government buys and sells gold, in order to make the dollar a real standard of value instead of leaving its value to chance. The Government also standardizes every important unit other than the dollar.
Furthermore, the Constitution of the United States in Section 8 expressly authorizes Congress "to coin money, regulate the value thereof,—and fix the standard of weights and measures,"
While, when the Constitution was adopted, there could have been no thought of employing an index number for regulating the value of money any more than there was thought of using aeroplanes for carrying the mails, there was thought of stabilizing the purchasing power of money. In fact it was the instability of the Colonial and " Continental " paper money which was doubtless largely responsible for this clause and for the clause forbidding the individual states from coining or issuing money.
Therefore, not only should we not complain of the plan as giving new functions to the Government but we may complain that this ancient Constitutional function has not been performed as it should be to keep pace with modern methods of measuring the value of money.
We may go further and say that some Governments have not only been negatively guilty (of neglect to provide a stable yardstick of commerce) but positively guilty (of disturbing the monetary standard).
In our own Colonial, Revolutionary, and Civil War history our American Colonies and national Government depreciated their monetary standards. In the Great War every belligerent country did so and incidentally ruined the monetary standards of neutral countries. It should be added, however, that our own Government officials, from the President down, strove to avoid inflation and succeeded more nearly than did the officials of any other belligerent country—a fact in which we may take some pride.[6]
D. "We could not interest other countries." The force of this objection has been greatly weakened by the war which has created world-wide interest in the problem of reconstructing monetary standards. No country can fail to be interested in all proposals toward that end. Furthermore, as has been shown in Appendix I, § 8, the adoption of stabilization in one country, especially if that country be the United States, would probably lead to its general adoption elsewhere.
E. "The evils are unreal." So far as this objection is definite it has been answered in Chapter III which shows how real the evils are. One ingenious objector seriously suggests that the increase in gold may be due to " some as yet unknown social law which brings out this increased supply to meet or to stimulate the growing and changing needs of industry." It is difficult to answer this objection specifically, until the "as yet unknown social law" is discovered. As yet no one has been able to discover such a law. Surely the quest for gold is instigated by private gain and not by any desire to "meet or stimulate industrial needs" nor is the gain which the gold prospector receives or hopes for proportionate to the occult public service suggested. His success can surely have no quantitative relation to social needs. On the contrary, the discoveries of gold are fortuitous and conform to no "law" of social benefit, known or unknown. This objection is clearly born of the discredited tradition of laissez faire with its fallacious dogma that the public interest is always served by allowing rampant individualism. Under this idea we used to have unplanned streets without standard building lines, unsanitary and fire-trap tenements, wildcat banking, railway rate discrimination, unsound insurance, chaotic and fraudulent weights and measures, private coinage. Our present difficulties as to monetary standards are due precisely to this rampant individualism. We have intrusted the termination of our yardstick of commerce to the luck of the gold prospector, to the inspirations of geniuses in metallurgy, to changes in banking systems, and to policies of Government finance.
F. Conclusion. Unless I am greatly mistaken the foregoing objections—that the plan has never been tried; that it is suspiciously simple; that it would mean Governmental interference; that it would be impossible to enlist the interest and cooperation of foreign countries (even granted that, after much labor and pains, we secured the requisite attention at home); that, rather than go to so much, possibly futile, trouble, it is far better to wait and see if the price situation will not right itself; that, after all, it is not so bad that it might not be worse; and that, anyway, we should rather" bear the ills we have than fly to those we know not of,"—are at bottom not intellectual but emotional objections. They are, as the modern psychologist might put it, the "rationalized" excuses by which a preexisting and temperamental hostility to anything new is defended.
The contrast between the great number and the small importance of all the objections offered is note-worthy. The large number of misunderstandings is what we always expect in the subject of money. But the large number of trumped up and trivial objections is what one might expect when a deeply rooted prejudice against a plan, as a "novelty," is combined with a lack of any real ammunition with which to attack it. The impression is forced on us that those who find so many objections to the new plan really have just one—that it is new.
This impression is further strengthened when it is observed how the various objections so often destroy each other. I have sometimes observed that when many different objections are offered to any proposition they are mutually inconsistent. If the plan were wrong, some glaring defect would presumably stand out in the foreground. But in this case every oponent has his own set of objections. In fact, as the objections show, they are often mutually contradictory. It is "too simple" and "too complicated"; "too slow" and "too sudden"; it is wrong " because it is fiat money "and "because it is not fiat money"; "it is simpler to make extraneous adjustments by index numbers" and "adjustments are unnecessary anyhow"; "gold is stable enough as it is" and "the adjustment would not be sufficiently accurate"; "it ties us up to the quantity theory" and "it is inconsistent with that theory"; "it would not permit cycles of credit "and "it would produce crises "; "it fails to be ideal" and "it is too idealistic"; "a national stabilization would isolate us too much" and "an international stabilization would entangle us too much"; "it would offer the government a dangerous chance to secure profit "and" it would cost the government unduly"; "it is too radical" and "it is mere temporizing with evils requiring the total abolition of money or capital"; "it would not permit needed inflation in war time" and "it would be totally destroyed by war," and so on.
After careful examination, I think every fair-minded man who has any serious wish to see the world in which he lives improved will agree that all the objections brought against the plan are, without exception, either fallacious or trivial. Long experience with pubhc propaganda has taught me how intensely stubborn is the temperamental resistance to change, and perhaps quite as much so among the intelligent as the ignorant, especially as the intelligent have the advantage of being more fertile in inventing objections.
Gold has become a sort of fetish of business men, almost worshiped with superstitious awe. Our fathers had told us that "nothing is so solid as gold." Only recently are people awakening to the fact that the fetish is erratic and tricky. The argument that we ought not to try to improve our monetary unit cause of the purely mythical wisdom of those who unconsciously and accidentally handed it down to us is only an appeal to that curious and baneful prejudice against progress which every hoary tradition creates.
Our present standard, or lack of standard, is due to an historical accident and yet we go on traditionally using it simply because we got started in that groove, just as Boston still uses its crooked streets, never originally chosen with any reference to modern traffic; or just as we still use the original railway gauge, set by the horse carriage; or just as we left our National banking system virtually undisturbed for two generations after the passing of the Civil War conditions which gave it birth; or just as until May 19, 1828, we had no standard weight for determining the contents of coins; or just as until after 1832 we had no standard units of length, weight, or volume for the use of the custom-houses.
All our customary units of length, weight, and volume were changed on April 5, 1893, by order of the Superintendent of Weights and Measures, under authority of an international agreement.[7] Acts to standardize measures of fruits and vegetables (the standard barrel and box) have been very recently passed by Congress. The National Food Administration has lately ordered that potatoes be sold by the pound (which is uniform in all the states) instead of by the bushel, which varies in weight. The long-pending bills to substitute the metric for the customary standards are still pending. No standard unit has any sacredness of age. We have changed and perfected them throughout our history, and we are still busy with changing and perfecting them. Physicists are now beginning to suggest that our standard of length should be the wave length of light at a certain point in the spectrum. Why, then, should we be afraid to perfect the dollar?
After any new plan has been tried and established these same conservatives turn about and become its most staunch supporters. This fact has been often illustrated in our monetary and banking system. Nothing short of the shock of Civil War was able to divert us from a state system of banking to a national one. Later the proposal for a Federal Reserve system was objected to most vigorously by bankers accustomed to the old system.
The resistance of conservatism is strong at first but has no resiiency. It is not like the resistance of a steel spring which, when pushed in one direction, will press back, but rather like the resistance of a mass of dough or putty which, though it resists impact strongly, yet when it is once moved stays inert and does not return. Under these circumstances, even if progress is made an inch at a time, it is worth while to try to make it.
And now this obstacle of conservatism—the one great obstacle—has been considerably lessened by the Great War, which has shaken the whole world out of old ruts. Even Great Britain is considering giving up her ancient monetary system—of pounds, shillings, and pence—in favor of a decimal coinage. Such a change would be felt by the people generally far more than would the proposal here made.
The prejudice and ignorance on this subject of monetary standards may be overcome either (1) slowly, by education beginning in the universities, and filtering gradually through the business world, as education in the index number has, or (2) more quickly, under the stimulus of some sudden and spectacular change in the purchasing power of monetary units such as the war is now affording or such as may come later from some great chemical discovery of how to extract gold from the low-grade clays of the South, the gravel of the Sacramento River or from sea water.
Just now the all-sufficient answer to those who fear to take so "radical" a step should be that its so-called radicalism would save us from the real and dangerous radicalism with which the world is now threatened! Some time, sooner or later, the idea will cease to be new. We shall get as used to it as we have to Daylight Saving or the League of Nations, which were new ideas a short time ago; for the index number, more and more utilized, will continue to remind us of our present instability. Already in spite of the distinguished character of some opponents or semi-opponents, the weight of real authority is on the side of the plan and not of its opponents.[8]
But the number of those who have as yet studied the plan or even considered its basic idea is very limited. Before any control of the price level can be actually undertaken, a larger public, especially in the business world, must learn to realize its necessity. So long as the mass of business men fail to realize that they are daily gambling in changes in the value of money, a fact of which they are blissfully unaware, no great demand for preventing those changes is likely to be felt; and the business man is the party whose interests are chiefly involved.
4. The Obstacle of Special Interests
A. Debtor and Creditor. One of the supposed obstacles to the stabilization of the dollar is the opposition of interest between debtor and creditor.
This supposed obstacle takes two forms, one the fear that there would be a struggle for advantage at the outset over the par to be adopted for the price level and the other the fear that the subsequent operation of the system would give rise to disputes between these two general classes. The first supposition represents, it is true, what may prove a real difficulty. The settlement of this question will be like the adjustments of the interests of various classes of stockholders and bondholders in a reorganization or like retiring the greenbacks and resuming specie payments. This is a Gordian knot which will have to be cut when the time comes in the manner which then seems best in view of all the circumstances.[9]
But it is quite possible that even the introduction of the system would scarcely call for more than passing notice. This has usually been true when monetary standards have been changed whether for good or ill. The average Filipino, or the average inhabitant of India, had no real conception of the changes which were wrought by the adoption of the "gold exchange standard," if indeed he ever heard of it. The average American in 1873 paid little attention to the demonetization of silver, or in 1879 to "resumption," once that it had been decided on in 1875. So also to-day the average American is still unaware of the recent changes in our banking and currency laws, even of the extensive substitution of Federal Reserve notes for gold certificates.
But,—to turn to the second form of the supposed obstacle,—after the start-off had once been decided upon, the subsequent operation of the system would not arouse contests. On the contrary, it would avoid them. Experience proves that the creditor and debtor classes do not get aroused when the price level is fairly stable but only after the most drastic and long continued changes.
Thus it took over two decades of falling prices after 1873 to arouse the debtor class to a realization of its losses, and then only after much agitation.
Likewise to-day it is hard to make the average man realize that the depreciation of the dollar has affected the interests of creditor and debtor. Though economists may clearly show by index numbers that the bond-holder has not really been getting any interest, i.e. has been losing the equivalent of more than 100% of his income, yet the ordinary man who believes "a dollar is a dollar" gives scant attention to such a proposition and, if he finds any fault at all with rising prices, vents his wrath not upon inanimate gold or credit but upon the luckless "profiteers," the retailers, the landlords, the trusts, the middlemen, the tariff, or the trade unions.
So also the savings bank depositor, who during the last two decades has been defrauded of all his interest through the depreciation of the dollar, does not yet understand either this fact or its cause.
The reason for such astounding indifference to the colossal interests involved is that the loss is indirect and, until recent years, has not even been measured.
It has always been found that there is less complaint under indirect than under direct taxation. The ordinary tax payer feels, and complains of, direct taxation because he can see and measure it. But the economist cannot rouse the tax payer from his lethargy enough to make him cry out against the outrages of indirect taxation. All the cartoons and figures designed to show, for instance, how the tariff taxes the consumer, make comparatively little impression; and it has required several generations to bring the American consumer to the point of even mildly protesting against a high tariff.[10]
If, then, there is so conspicuous an absence of complaint over huge losses, because hidden, it is not to be expected that there will be complaint over the correction of these losses, especially as these corrections also lie hidden from view, or over the small fluctuations left uncorrected. To be specific: if, as experience proves, the price level has to change more than twenty-five per cent before eliciting protests we need not fear quarrels over one or two per cent.
In short, if the monetary system proposed were once adopted, there would be very little attention paid to it. The business world would be as unconscious of the operation of stabilization as a healthy man is of his stomach or liver. Only the changes in the price of gold would register the operation of the system and few persons besides the gold exporter, importer, jeweler, and miner would ever notice what the price of gold was. The ordinary man would, just as to-day, buy and sell with yellowbacks or other money or checks, blissfully unaware that these have any relation to gold.
The case would be quite different if the proposal were to adopt the "tabular standard" by correcting money payments through the addition to, or subtraction from, a debt of a certain number of dollars. Under these circumstances the extra dollars paid or withheld would stand out definitely like direct taxes as contrasted with indirect taxes. There might then be some disputes over the correctness of these extraneous adjustments of contracts. But, even in such cases, disputes would probably be rare. At any rate there seems no evidence of extensive disputes where the tabular standard has actually been used as it has, for instance, in Scotch Fiars prices, in the Massachusetts law of 1780 described in Appendix V, § 1, and in the recent adjustments of wages by various official bodies and private firms in the United States and elsewhere. This being the case, surely when the tabular standard is, as it were, incorporated in the actual money of the country, the ordinary debtor and creditor would be even less aware of how his interests had been safeguarded than he is now aware of how his interests are jeopardized under our present gold standard. He would simply note,—after a decade or two,—that prices had kept stable.
It is still more difficult to imagine a quarrel between debtor and creditor over technical details, over whether iodine ought or ought not to be included in the index number, or whether wheat ought to be given a "weight" of three per cent or four per cent of the total. As we have seen, the influence on the final index number of any one commodity or of any other single detail of the system is almost infinitesimal.
Sometimes the objection takes the shape not of fear that debtors and creditors would quarrel over the plan but that they would find ways to corrupt or pervert its administration.
But no room for abuse is open either in the Bureau of the Mint which would regulate the weight of the dollar, or in the Computing Bureau, which would calculate the index number. In either case the functions involved would be clerical; the acts required, specific. Departures from a strict compliance with the law would be instantly recognized, and would bring upon the culprit wrath and punishment proportionate to the gravity of the offense.
Thus, the Bureau of the Mint, which would regulate the weight of the dollar, would do so merely by buying and selling gold at specific prices fixed for it by the Computing Bureau ; and it would have to buy or sell at the pleasure of the public. It would have no more choice than does a broker who is ordered to buy or sell at specified prices.
In the Computing Bureau, the work of which is based on published market prices and is necessarily done in the light of day, the danger of abuse or fraud is also negligible. There is some experience to guide us here. The gold exchange system which has more of a discretionary element in it than the proposed system has not been found to be open to abuses but has been faithfully executed.
If manipulation of prices is to be expected at all we should expect to find it most in the Scotch Fiars prices already referred to. In this case money rents are determined by prices of wheat ("corn"). Complaints of unfairness have undoubtedly been made, but to leave money rent uncorrected was considered much more unfair. I have examined carefully the records of the only complaint of which I have found mention in the Yale University Library.[11] This complaint was simply that the jury was not wholly disinterested and did not take sufficient testimony. That the system itself was not in dispute is shown by the following interesting passage:
"It is evident, that Grain, sooner or later, and, probably, within a short period, will become the only standard, by which land-rents will be paid throughout the kingdom. Money, from its fluctuating character for the last thirty years, has proved a medium mutually unfair, and not less dissatisfactory, to both landlords and tenants. Taught by past experience, no landlord is now willing, without the assurance of an adequate rent, to alienate his property for any considerable length of time; and without lease of acre endurance, no tenant is disposed to embark his capital and skill in the adventure of cultivation. In Grain, as a measure of value, a medium has, at length, been found, which, while it preserves the just rights of the one, secures a return for the honest industry of the other."
Were the system very unsatisfactory it would scarcely have been continued through over two centuries.
It should be further emphasized that, whatever slight danger now exists of abuse of Scotch Fiars prices, would be almost infinitely reduced by the plan here proposed; because, in that plan, we are concerned with great public markets in big cities, with highly standardized grading of goods and standard price quotations instead of with small crude country markets, and because we have to deal with a large number of commodities instead of with only one. It is inconceivable that any sinister influence, in order to help the debtor or creditor, could manipulate a sufficient number of commodities to affect appreciably the index number. Even if some one could "corner" a market and double the price of one commodity this would not raise the general price level one per cent. To accomplish even such a feat is out of the question, while to corner or control a hundred commodities is unthinkable. Moreover, supposing such control of commodities possible, we are now far more exposed to the danger of a corner in gold than we could be to a corner in hundreds of other commodities!
The same argument applies to any supposed danger of misquoting of prices. Any gross misquotation such as doubling the true figure would be, of course, out of the question, while anything less would be of no use to the would-be rascal. And if there should be an effort to stretch some price quotations as far as this could be done without detection (which would be only a single per cent or two), the result would not affect the average more than a small fraction of one per cent, which likewise would not be enough to be worth while.
Furthermore, experience shows that the manipulation of weights and measures and moneys has not occurred where they were entrusted to official technical scientific bureaus but only where either private or political control was permitted.
One may still see in the museum of the old Hanseatic League at Bergen, Norway, two sets of weights. The heavier was used for buying and the lighter for selling! The modern official sealer of weights and measures has reduced such fraud to a minimum.
Similarly under the old private right of coinage there was confusion and fraud. But no modern official mint has been accused of making light-weight or counterfeit coins.
We conclude, then, that the fear of contests or manipulations arising from the operation of a stabilized dollar is quite groundless. We may go further and say that, on the contrary, such a dollar would remove the danger of contests and manipulations, which danger is not only now present, but is clearly due to our unstabilized dollar, ever affording grievances to the debtor against the creditor, or vice versa. In 1896 the "free silver" campaign derived its strongest support from the debtor class, which sought to "get even" for the losses and increase of debt-burden due to falling prices, i.e. to the rising purchasing power of the dollar.
The recent great rise of prices, i.e. fall in the purchasing power of the dollar, now threatens a similar conflict of interests. The millions of bondholders, creditors to the tune of hundreds of billions of dollars mostly growing out of the war, will have an interest in stopping inflation and creating contraction, while the debtor classes, including the governments and the taxpayers, will have an opposite interest.
The conflict will be mitigated, of course, by the fact that the bondholder and the taxpayer are, to a large extent, one and the same person. But this may not prevent the conflict becoming a bitter one. In fact already at least one bitter book has appeared in England against contraction, alleging that a conspiracy is now being plotted by the creditor class to destroy the war currency and produce contraction.
The abuse most common in currency history has been inflation in the interest of the debtor class, and especially of the Government exchequer. The proposed scheme would not only be free of this danger but, when once in operation, would be a strong safeguard against the whole idea of inflationistic legislation. There is always with us a latent danger of inflation; but if a stable dollar should be adopted, that danger would be greatly diminished.
The plan would involve a double education. For, first, it could not be adopted until it was realized that its object was to stabilize prices and maintain the constancy of the purchasing power of the dollar. In the second place, it would, therefore, always be a standing object-lesson as to the principle of stability. Its adoption, or even its discussion, would tend to increase the understanding of, and desire for, a stable standard and so fend off unsound schemes. The fact of the buying and selling of gold by the Government at variable rates would itself be informative as to the object in view; and the constant clinging to par of the published index number of prices would be eloquent testimony of how the system worked.
Under our present system inflation can be suggested without the question of changing the purchasing power of the dollar being so clearly thrust forward, since our present system does not even pretend to, or afford any mechanism for, such stability. In fact, inflation almost invariably comes by subterfuge and indirection. If a stabilization system were adopted any attempt to break it down would be an evident and deliberate departure from the principle of uniformity in the purchasing power of the dollar.
We see then that as long as we leave monetary units crude, unscientific, unstandardized, we run far more risk of political manipulation than we shall when we intrust them, like other units, to standardization.
We should set about our search for a just settlement of this question before it is allowed to become a partisan or political question. To stabilize the dollar and intrust it to a scientific bureau would put it as much beyond the reach of manipulation as are the astronomical clocks of the Naval Observatory or the weights and measures of the Bureau of Standards.
B. Gold Producers. There is one special commercial interest which might, until it had thought the matter through, feel inclined to oppose the proposal,—the gold mining interest. The very crude fallacy that the stabilization plan would "throw the losses" now suffered generally on to the Government has already been answered (see Appendix II, § 1, I). The same crude fallacy has been adapted to mean that "the loss would be thrown" on to the gold miner.
Gold producers might, under some such notion, mistakenly prefer the present fixed price of gold to a variable price. They might on first thought regard a fall in the price of gold as a calamity.
Any who would take this view would overlook the fact that this lower price would be in terms of a heavier dollar. It really makes no difference whether the gold miner sells an ounce of gold for twenty dollars, of a twentieth of an ounce each, or for forty dollars, of a fortieth of an ounce each. In fact the former is approximately the case in the United States and the latter in Mexico. If the view were correct that a lower price of gold in terms of a heavier dollar were really injurious to the gold miner, why is it, as I have said before, that gold miners do not now sell all of their gold in Mexico instead of in the United States, so as to receive a price twice as high?
Again, it does not matter whether the gold miner receives a high mint price and has to pay dearly for his machinery, labor, supplies, and other costs of operation, or receives a low mint price and can buy his machinery, labor, and supplies more cheaply.
Still again, it does not matter whether the miner makes large money profits while the cost of living is high or small money profits while the cost of living is lower. In fact the former is true in Mexico and the latter in the United States.
In the long run, then, there is no advantage or disadvantage to gold miners from changing the price of gold. This is fundamentally because the price of gold is in terms of gold itself. It ought to be clear that the interests of the gold miner are not concerned with the price of gold in terms of itself! Their interests lie in exchanging their gold for real wealth.
This is well illustrated by recent history. Despite the "fixed price of gold," the war has, none the less, hurt the gold producer by inflating the world's currencies with credit substitutes for gold and so lowering the value of gold, in terms of other things.
Had the dollar been stabilized before the war and been kept stabilized during the war the gold miners would not have been hurt by the war. They have been hurt by inflation—the flooding of the currency with substitutes for their product. Consequently they have asked for relief. They were soon made to see the futility of any relief from raising the price of gold in terms of gold. They should have no difficulty, therefore, in seeing also that lowering the price of gold in terms of gold would not harm them.
On the other hand, while the gold miner would feel no special effect from the stabilization plan he would enjoy the same general advantages which it would bring to society.
Furthermore, resistance by the gold miners to accepting a variability in the price of their product which every other industry has to accept, when the object of the plan is to relieve all industries, their own included, of the variable unit of value, might be shortsighted; for the world will not forever tolerate the intolerable evils of an unstable dollar, and if the gold standard cannot be rectified it will some day be abandoned altogether.
It is clear, therefore, from several points of view, that only shortsighted gold producers would oppose the plan. In this connection it may be said that several prominent gold mine owners have approved of the plan.
C. Devotees of Panaceas. Another special class of objectors consists of reformers who have panaceas and who, therefore, consciously or unconsciously, object to the intrusion of any rival remedy. The socialist, the single taxer, and the devotees of various other reforms, when they object to the plan, usually do so merely because they think that their own pet remedy is adequate to solve the whole problem of social injustice. Anything else, they say, fails to "go to the root of the matter." They seize the opportunity, afforded by the general desire for a remedy, to make capital for their own proposals, however remote from the problem in hand. Socialists especially systematically pooh-pooh any method other than socialism as "mere temporizing."
Such objections answer themselves. We might as well object to standardizing the yard or the pound, on the ground that such a measure would not put a stop to social discontent while socialism or the single tax would.
The plan to stabilize the dollar is, needless to say, not put forward as a panacea or as a substitute for general schemes of social reform. It has simply one object,—to supply a dependable unit of value. That object is not in conflict with any other sincere plan for social betterment. Only those who wish to retain existing evils, confusion, discontent, and suspicion in order to make use of them to further their own pet plans can oppose stabilizing, the dollar.
In this connection I may mention an incident of a few years ago. Following an address by me on stabilizing the dollar, a prominent radical socialist addressed the same audience and attributed the high cost of living to "capitalism." Afterwards he frankly told me, privately, that he realized the truth of my contentions but that, as a socialist, he wanted to "make hay while the sun shines" and that the high cost of living was a good lever by which to make the people hate the existing social order!
D. Speculators. This is the only class which would be really deprived of great opportunities by stabilizing the dollar. Speculation feeds on uncertainty. It did so after the Civil War and is doing so after the Great War. The greatest beneficiaries and the greatest victims of great price movements are speculators. As long as uncertainty exists speculation will, and should, exist and the wise speculator in one way and another relieves the rest of society of some of its burden of uncertainty, while charging for this service a very high price. But every reduction of the hazards in business on which speculation feeds marks a step forward in civilization. Stabilizing the dollar would mark such a step forward, though of course it would by no means take away all opportunities to make money by taking chances.
- ↑ See especially my answers to objections in the New York Times, December 22, 1912, and "Objections to a Compensated Dollar Answered," American Economic Review, December, 1914.
- ↑ As to credit in particular see Appendix 1, § 7.
- ↑ See Chapter IV, §§ 4-9.
- ↑ Resort to inflation (which puts the burden of the war in the form of the High Cost of Living on those with relatively fixed money incomes instead of on the tax payer) is, at bottom, a reversion to Colbert's idea of Government Finance, "the art of plucking the goose with the least amount of squealing."
- ↑ As shown in Appendix I, § 9.
- ↑ As shown elsewhere American inflation was chiefly gold inflation before we entered the war, and our war inflation, such as occurred, was largely credit inflation of private persons borrowing of banks.
- ↑ History of Standard Weights and Measures of the United States, by L. A. Fischer. Bulletin of the Bureau of Standards, Vol. I, pp. 365–381.
- ↑ See Appendix IV, § 3.
- ↑ For my suggestions as to how to solve this part of the problem, see Appendix I, § 4.
- ↑ Even this protest was largely based on the recent general rise in the cost of living mistakenly attributed to the tariff as the chief cause.
- ↑ In the "Report of a Committee of The Commissioners of Supply for Lanarkshire; Appointed to enquire into the procedure by which the Fiars of Grain for that county were struck, for the year 1816; together with some investigation of its principles and some suggestions for its improvement," Edinburgh, 1817. Recorded in Tract 579, Yale University Library.