198 STABILISING THE VALUE OP MONEY. 



varies and prices vary therewith. In England prices fell roughly 

 40 per cent, between 1873 and 1895, and rose 35 per cent, between 

 1890 and 1914. 



Need of a Stable Standard of Value. 



The one great need of our currency system at present is a 

 standard of value, a money unit which shall always, on an average, 

 exchange for the same amount of goods, or, in other words, which 

 will keep the price index number constant or approximately con- 

 stant. Other units of measurement have been stabilised. Can we 

 stabilise the unit of value 1 Stabilisation will be attained when 

 the amount of money in circulation increases and decreases in 

 proportion to the volume of goods seeking exchange. There is no 

 reason to believe that the chance fluctuations of gold mining stand 

 in any necessary relation to the volume of trade. Therefore, a 

 mere return to the crude gold standard, while it is preferable to 

 a paper currency with its erratic movements, will not provide an 

 ideal or even a satisfactory standard of value. It is preposterous 

 to state financial contracts in a fluctuating standard. 



Irving Fisher's Proposal. 



Professor Fisher proposes the establishment, or in the United 

 States the continuation, of the gold standard, and the free deposit 

 and withdrawal of gold from the Treasury. But in place of making 

 the pound or the dollar equivalent always to a stated weight of 

 gold which necessarily varies in value, he proposes to vary the 

 weight in order to make it equivalent always to the same value. 

 This is to be achieved 



(a) By withdrawing gold coins from circulation and concen- 

 trating all the gold used for currency in the hands of the Govern- 

 ment or its agent (Mint, Treasury, Central Bank, as the case might 

 be). 



(b) By issuing gold certificates corresponding to the amount 

 of gold so held and by the free exchange by the Treasury of gold 

 for certificates and of certificates for gold on demand. 



(c) By varying at intervals of not less than two months the 

 amount of gold to be exchanged for a gold certificate in accord- 

 ance with the rise or fall of prices as shown by the national index 

 number. It is suggested that as prices rise one per cent, the 

 amount of gold to be exchanged for a gold certificate should also 

 be increased by one per cent., thus the amount of currency would 

 be decreased and prices would tend to fall. On the contrary, if 

 prices fell one per cent., the amount of gold exchanged for a gold 

 certificate would be decreased by one per cent., the number of gold 

 certificates would be increased and prices would tend to rise. 



Technical Details. 



(a) It is admitted that the system would break down unless 

 accompanied by sound banking, that is, a system in which the 



