an influence of ½% per 1% of adjustment (i.e. of 1% per 2% of adjustment) makes an influence of 1% per 1% of deviation, which is the ideal.
As a matter of fact the conditions as to adjustment and influence assumed in the standard case are, doubtless, approximately true to life. At any rate if the "definite" reserve system (described in Appendix I, § 1, B, F) and the method of regulating the volume of bank credit (favored in Appendix I, § 7) are adopted so that the entire volume of circulating media is controlled as a whole in direct proportion to the percentage change of the dollar, a 1% adjustment in the weight of the dollar would have a 1% influence.
Even to employ the "indefinite" reserve system would, as we have seen in Appendix I, § 1, D, not greatly change the situation, unless or until a very large part of the world adopted that system. In that case there would be some advantage in increasing the adjustment to l½% per 1% of deviation or even to 2%, the exact ideal figure depending on the results of an investigation of the repercussive effect of adjusting the weight of the dollar on the value of a given weight of gold.[1]
We come next to the ideal lag relatively to the adjustment interval; or, to express it in more practical terms, the ideal length of the adjustment interval relatively to the lag, or the ideal frequency of adjustment.
As we have seen, the ideal frequency is not the greatest possible frequency, but is such a frequency as will make the interval equal to the lag.
The lag for Dun's index number is probably about 1½ months. The lag for the index number of responsive commodities described in Appendix I, § 3, is probably less than 1 month. The ideal frequency is therefore probably somewhere between a fortnight and a month and a half. In the calculations of "H" below it is conservatively taken as two months.
- ↑ A study of this sort has been made by Professor J. M. Clark in his able paper "Possible Complications of the Compensated Dollar," American Economic Review, September, 1913, pp. 576-588.
