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SCIENCE 



[N. S. Vol. XXXVII. No. 959 



out plan for changing the price of gold and 

 for preventing the government from being at 

 the mercy of gold speculators. He gives de- 

 tailed tables and charts to show vyhat, on cer- 

 tain assumptions, would have been the results 

 if his system had been in operation for cer- 

 tain periods of years. His suggestions have 

 called forth a very large number of com- 

 mendatory comments from a great variety of 

 persons eminently able to judge of their value 

 from many diverse points of view. There 

 seems to have been but small adverse criti- 

 cism from any quarter. As for ourselves, un- 

 trained in such matters and deprived of the 

 direct guidance of the equation of exchange, 

 we will acknowledge that a bewildering vacil- 

 lation is in possession of us, swinging us now 

 to complete confidence in the plan, and again 

 to absolute distrust of it. 



At the present moment we are extremely 

 pessimistic about the efficacy of Dr. Fisher's 

 remedy. Statistics show very well that the 

 term in the equation of exchange which 

 causes the trouble is M'V. To keep prices 

 constant we have to keep the increase of M'V 

 sensibly equal to the increase of trade. Now 

 if a gold miner has to take fewer dollars from 

 the government for a given amount of gold, 

 there is a slight diminishing of the increase 

 of M, and if he deposits the gold certificate 

 subject to check, there is a slight reduction of 

 the increase of M'. But these small altera- 

 tions of the increases of M or M' would make 

 only an insignificant effect upon the equation 

 of exchange. Of course, if the price of gold 

 were lowered enough to shut down some of the 

 gold mines, the effect would be of considerable 

 magnitude, and thus ultimately the regulation 

 might be accomplished. But this would be at 

 a very much altered price of gold; for gold 

 mining is a pretty profitable business. More- 

 over, it would probably be an extremely un- 

 stable stabilization of the dollar; we have only 

 to look at the market for copper metal over a 

 long series of years to see how violent are the 

 swings of prices when regulation of demand 

 and supply takes place through the closing 

 down or opening up of the less efficient mines. 



When the government requires more gold 

 for a dollar all the gold certificates outstand- 

 ing, though presumably redeemable in the new 

 ratio for gold, are actually backed by less than 

 the requisite amount. Within moderate lim- 

 its there would be, as the author says, no 

 danger in this arrangement. Indeed, there has 

 been at times a great cry against the waste- 

 fulness of gold practised by the United States 

 in keeping a great hoard at par with the gold 

 certificates,' whereas if the gold were available 

 for banking purposes, it would serve as the 

 basis of an enormous credit. But this is pre- 

 cisely what we do not want if we are intent 

 on keeping prices down. It would add much 

 to the possible efficacy of Fisher's regulatory 

 plan if the goverimient were required to main- 

 tain all the gold certificates at par with the 

 new weight of gold. The author, however, 

 specifically states that this need not be re- 

 quired. The matter is not so important as it 

 might be, owing to the smallness of the term 

 MV in the equation of exchange. 



What about the banks? 11 the government 

 is not to keep its certificates at par with the 

 new figure for gold, are the banks to be com- 

 pelled to compute their percentage gold re- 

 serve on the new basis? If so, the scheme is 

 not very sure of enthusiastic support from 

 bankers. For instance, if a banker has de- 

 posits of one million dollars on which he must 

 keep a reserve of 20 per cent, in gold, he has 

 a reserve of $200,000, or 5,160,000 grains in 

 gold, at the present exchange ratio of 25.8 

 grains to the dollar. If the ratio is altered to 

 25.9 grains to the dollar and he is still re- 

 quired to keep a 20 per cent, reserve, he must 

 add 200,000 grains, or $775, at the old evalua- 

 tion, to his reserve. This, so far as he is im- 

 mediately concerned, is equivalent to leaving 

 the exchange ratio for gold unchanged and 

 raising his gold-reserve requirement to 20.0775 

 per cent. This would undoubtedly have the 



' We believe we are right in saying tliat R. 

 Goodbody once suggested tliat some of the evils 

 of our inelastic currency system could be alleviated, 

 if not remedied, by calling in the certificates and 

 paying out the gold. 



