Secondly, he draws a sworn warrant for each of these lots of goods and presents at the Treasury the total assortment of such warrants, i.e. in the proportions required to constitute goods-dollars. He receives, in exchange, $100,000 of certificate-dollars. He has then virtually coined his goods into money or, at any rate, deposited 100,000 goods-dollars and received 100,000 certificate-dollars.
After the operation the Government then owns the miscellaneous bill of goods, or, let us rather say, a credit or right against the warrant-brokers to furnish 100,000 goods-dollars on demand or short notice (a right which would be enforced whenever the goods were needed for redemption of certificates).
The above process, simulating free coinage, would prevent the goods-dollar falling much below the certificate-dollar; for, as long as it is low enough to make such "coinage" of goods into money profitable, such coinage or deposit would continue. Thus if the merchant described above found that, at current prices, he could buy up the commodities constituting 100,000 goods-dollars for only $90,000 he would, after depositing them for $100,000, be making a profit of $10,000 (less expenses). The volume of money would then expand, prices would rise, and the profit on such operations would cease.
In short, the "free coinage" of goods-dollars would keep prices up because holders of goods, rather than sell at very low prices in the open market, would avail themselves of the Government's standing offer to buy 1000 goods-dollars for 1000 certificate-dollars.
E. Summary. These two processes, equivalent to our present free or unrestricted coinage and redemption, would keep prices from falling much below, or rising much above, par. They would thus put limits on the possible fluctuations of the index number, redemption taking place when the upper limit was reached and "coinage" or deposit taking place when the lower limit was reached. As long as the price level
