DISCOVERY 



189 



referred above. As this number indicates variations 

 in the general level of prices, it can be used to correct 

 these variations. When the index number shows that 

 the monetary unit will purchase more than previously, 

 the scheme provides that sufficient gold shall be taken 

 out of the unit to cause its purchasing power to be the 

 same as before. This would not, of course, be practic- 

 able if gold coins were in circulation, as was the case 

 before the war. It is, accordingly, proposed that no 

 gold coins be issued, but that the national stock of gold 

 be kept in a central reserve and that gold certificates 

 be issued in exchange for it and circulated as currency. 

 These certificates would always be payable in gold on 

 demand — in the same way as Bank of England Notes 

 were payable in gold at a fixed rate (always 123' 2744 

 grains of standard gold for one pound sterling). The 

 new certificates would be redeemed at a rate published 

 periodically — say every two months — by the Govern- 

 ment. If, at the end of two months, the purchasing 

 power of a pound had fallen (i.e. general prices had risen) 

 by I per cent., the weight of gold given for a one-pound 

 gold certificate might be increased i per cent. At the 

 end of the next two months, if prices had continued to 

 rise, the weight of gold to be given might be again in- 

 creased. As soon as prices began to fall again the weight 

 of gold to be taken as the equivalent of the pound would 

 bedecreased. Just as few people ever trouble to go to the 

 Bank of England now for gold in exchange for Currency 

 or Bank Notes> so at any time the alteration in the 

 weight of gold that could be got would probably pass 

 unnoticed by many individuals. While the monetary 

 unit would always represent a varj'ing amount of gold, 

 it would much more nearly represent a constant value 

 in commodities. As most of us wish to exchange money 

 for goods and only the jeweller and a few others wish to 

 exchange it for gold, the sj'stem would be much more 

 reasonable from the point of view of the individual. 



To the financial and commercial worlds the ad- 

 vantages would be equally great. At times when 

 prices had been rising and the amount of gold to repre- 

 sent one pound had been increased, the store of gold 

 held as national reserve would represent a less number 

 of pounds than before, and if, as before the war, an 

 attempt is made to preserve a constant ratio between 

 the gold reserve and liabilities of bankers, a reduction 

 of liabilities must take place. This w^ould probably be 

 effected by calling in some gold certificates, and thus 

 banks, deprived of some of the legal tender paper, 

 would call in some of their loans in order to balance 

 their own positions. Thus, an increase in the published 

 gold equivalent of the pound would result in the 

 desired reduction in prices by decreasing the amount 

 of currency available to do the money work. A 

 decrease in the published gold equivalent of the pound 

 would operate in exactly the opposite direction. In 



this way would be avoided most of the difficulties 

 resulting from the " trade cycles " of the last century 

 referred to above, for, in place of the jerky adjustments 

 of the volume of the currency by bankers, the adjust- 

 ment would be automatic and uninfluenced by the 

 waves of optimism and of pessimism which used 

 alternately to pass over the business world. 



The stabilisation of the purchasing power of money 

 would be of inestimable benefit in eliminating the 

 present uncertainty introduced by our money into all 

 relations between buyers and sellers, employers and 

 workers, borrowers and lenders, insurers and insured, 

 and all those classes entering into contracts expressed 

 in terms of money. It should go far to eliminate mis- 

 direction of productive power through variations in 

 money prices due to monetary influences. Any stand- 

 ard but an unvarying one involves uncertainty, un- 

 fairness, and hardship. 



In conclusion, it is fair to say that one of the reasons 

 which hinders the general adoption of the plan is the 

 fact that the stabilisation aimed at is measured by the 

 use of an index number. An index number for the 

 whole world is, at present, an impossibility owing to 

 there being no list of commodities which are purchased 

 everywhere — demands of purchasers vary according to 

 the place and conditions. It is also somewhat widely 

 felt that even local index numbers are unreliable. 

 There can be little doubt, however, that stability 

 according to the best available local index number 

 would be a very great step forward. 



The other objection often put forward is that the 

 alterations in the content of the monetary unit are 

 left to the Government, and it is felt that opportunity 

 for " adjustments " is thus given. If the inde.x number 

 were published, as is now the case, such " adjustments " 

 would become obvious, for it would always be possible 

 for the index number to be checked. The present 

 system does not, however, prevent Government action 

 from inflating the currency and depressing its purchas- 

 ing power — for this was done during the war. During 

 periods of war it is quite possible that the system 

 might break down, but this cannot be lodged as a 

 valid objection to its adoption in times of peace, for it 

 need not break down in times of war. 



The attempt to stabilise the purchasing power of 

 money is an attempt to substitute exactness and cer- 

 tainty for random variation and uncertainty, and 

 Professor Irving Fisher's scheme provides a reasonable 

 method of doing this, and to him is due the credit for 

 an invention which may prove to be of the most far- 

 reaching importance to the world. 



BOOKS 



Stabilising the Dollar, by Irving Fisher. (Macmillan.) 



The Purchasing Power of Money, by Irving Fisher. (Macmillan.) 



