Stabilizing the Dollar/General Summary
GENERAL SUMMARY
The war has wrought havoc with monetary systems throughout the world. War finance has given us inflation of various kinds—paper money inflation and bank-credit inflation among belligerents and gold inflation among neutrals—with the result that everywhere prices have risen, i.e. the purchasing power of money has fallen, even where there has been no scarcity of goods.
The war has thus greatly aggravated the evil of a rising cost of living of which there had already been a growing and world-wide complaint. This pre-war high cost of living was, likewise, largely due to monetary inflation.
Prior to 1896 there was equal dissatisfaction over falling prices attributable, in part, to the fact that the volume of gold and other currency did not keep pace with the requirements of business.
These two experiences in a single generation have set a larger number of persons thinking on the instability of monetary units than ever before in history.
The cumulative effect is a rapidly spreading consciousness that the price level, on which business is conducted, is now largely at the mercy of monetary and credit conditions. To-day the general public is willing to acknowledge, as before the war it was not, that the tide of prices will rise with a flood of gold or paper money or bank credit. As a consequence there is coming, slowly but surely, a revolution in economic thought similar to the revolution in astronomic thought begun by Copernicus.
Just as we then learned that the sun and moon and stars do not really rise and set—though they move somewhat—but that what so appears is really the revolution of the earth on its axis, so we are now learning that commodities as a whole do not really rise and fall much but that what so appears is really the gyrations of the dollar.
The truth is, that the purchasing power of money has always been unstable. The fundamental reason is that a unit of money, as at present determined, is not, as it should be, a unit of purchasing power, but a unit of weight. It is the only unstable or inconstant unit we have left in civilization—a survival of barbarism. Other units, the yard, pound, bushel, etc., were once as unstable and crude as the dollar still is, but, one after another, they have all been stabilized or standardized.
There was, until recently, ample excuse for an unstable dollar. Up to the present generation no instrument for measuring its aberrations had been devised. In the same way, until the weighing scales were devised, weights could not be standardized, and until instruments for measuring electrical magnitudes were invented, electrical units could not be standardized. But for many years we have now possessed in the "index number" of prices the necessary instrument for measuring the value of the dollar in terms of its power to purchase goods.
One of the most suggestive signs of the times is that this instrument for measuring changes in the purchasing power of money has recently been utilized in adjusting wages and salaries to the high cost of living, i.e. to the depreciated dollar. A number of commercial concerns and banks, and some official agencies have amended wages by use of an index number of the cost of living.
I believe it is manifest destiny that this principle will be utilized more generally to safeguard agreements made at one date to pay money at another date. With our present unstable dollar, the just intent of such agreements is constantly being balked by a change in prices. Gradually such corrections of the dollar will break down the popular superstition that "a dollar is a dollar"; for every time we correct the dollar we convict it of needing correction. Ultimately the correction will surely be applied not, as at present, as a patch on the dollar from the outside, but by incorporating it in the dollar itself.
Various methods for accomplishing this have been proposed. The one elaborated in this book is to vary the weight of the gold dollar so as to keep its purchasing power invariable. We now have a gold dollar of constant weight and varying purchasing power; we need a dollar of constant purchasing power and, therefore, of varying weight.
In this way we can control the price level. The more gold in the dollar the greater its buying power and the lower the price level. If Mexico should adopt our dollar (instead of its present dollar of half the weight of gold), the price level in Mexico would be cut in two. Or, if we should adopt the Mexican dollar instead of ours, our price level would be doubled. So if prices tend to rise or fall, we can correct this tendency by loading or unloading the gold in our dollar, employing an index number of prices as the guide for such adjustments.
The process for doing this is as simple as clock-shifting for daylight-saving and would produce its effects as unobtrusively. Whether this or some other method be the particular one finally adopted for reaching the desired end, it is of the utmost importance, in the interests of justice to creditor and debtor, stockholder and bondholder, employer, employee, insurance beneficiary, savings bank depositor, trust foundations, public utilities, etc., that some method of stabilizing our monetary units shall be adopted as one of the fundamental measures of reconstruction, relating to the currency.
Otherwise we shall perpetuate a chief source of social injustice, discontent, violence, and Bolshevism. Only one real obstacle stands in our way—conservatism.
But to-day, as a result of the war, there is a new willingness to entertain new ideas. That is, the war has loosened the fetters of tradition. It was the French Revolution which led to the metric system. It would not be surprising if, as is being suggested, this war should give Great Britain a decimal system of money, revise the monetary units of the nations so that they shall be even multiples of the franc, give us an international money and stable pars of exchange and, as the greatest reform of all, as well as the simplest, give us a monetary system in which the units are actually units of value in exchange, as they ought, and were intended, to be.