Irving Fisher

“ If we do not do this; if we do not provide a really scientific remedy; if we take the ground that we must drift with the tides of gold and credit, that we are helpless to rectify or prevent in the future the great social injustices which history warns us will surely come, as between creditor and debtor, wage earner and employer, salaried man and profit-taker, we shall be simply fertilizing the soil of public opinion for a crop of dangerous radicalism. Then surely some demagogue will flourish, and offer some ill-considered remedy which will sweep everything before it. ”

“ They seek the causes wholly in the goods, the prices of which have changed, and not at all in the gold dollar, in terms of which those prices are expressed.
Which of these—goods in general, or the dollar in particular—is the more likely to vary? Is it credible that commodities should rise and fall so concertedly without some simple common cause? Is it not more probable that the dollar, which, as such a common cause, affects all the commodities it buys, should fall in value than that hundreds of individual changes in the values of other commodities should all happen to occur in concert? ”

“ Though many big criminals were thus exposed, their machinations were scarcely enough to explain a fraction of one per cent of the evil which our shifting dollar has done, and probably are not more than could have been uncovered at almost any time in our history if the same detective work were undertaken.
This muckraking, itself bred of discontent and suspicion, has intensified that suspicion and discontent; for it has exhibited in the limelight of the public press the enormous profits made by big business and high finance, in contrast with the pitiful pay of common labor. ”

“ It is not pretended that to stabilize the purchasing power of the dollar would banish all complaint in the financial, business, and industrial world, much less serve as a substitute for progressive economies. A stable monetary unit would be no more a substitute for the fertility of the soil than a stable bushel basket. Yet a reliable bushel will indirectly help even the tilling of the soil; and a reliable dollar would remove a heavy handicap now put on our productive energy and so indirectly help all production. ”

“ The price of butter at the corner grocery is lifted on this tide without our being able to observe the connection of the rise with inflation, just as a fisherman's boat is lifted by the tides of the sea without his being able to connect the rise with the action of the moon.
To answer categorically, therefore, the question, How does inflation raise the price of butter at the corner grocer's, we may say: (1) partly because his customers have more money to spend, and (2) chiefly because the prices he pays to the wholesaler have been raised ”

“ The real culprit being the dollar, the real remedy is to fix the purchasing power of the dollar. Our dollar is now simply a fixed weight of gold—a unit of weight, masquerading as a unit of value. A twentieth of an ounce of gold [1] is no more truly a unit of value or general purchasing power than is a pound of sugar or a dozen eggs. It is almost as absurd to define a unit of value, or general purchasing power, in terms of weight, as to define a unit of length in terms of weight, to define a yardstick as, let us say, any stick which weighs an ounce. ”

“ Before action upon these alleged evils can be based on sure ground, it is essential to find out the facts; but the fluctuating dollar hopelessly conceals the facts. It blinds the eyes of the mass of men whose right it is to know the facts and whose duty it ultimately is, under our democratic form of government, to choose one or more remedies for such evils as exist. The fluctuating dollar keeps us all in ignorance; whereas a stabilized dollar would lay bare the facts. ”

“ We ourselves have changed the weight of our gold dollar twice; once in 1834, when the gold in the dollar was reduced 7%, and again in 1837, when it was increased one tenth of one per cent. If we can change the weight of a monetary unit once or twice a century, we can change it once or twice a month!
And if we circulate gold only through paper representatives redeemable only in gold bullion and discontinue gold coins, these periodical changes in the weight of the gold dollar can be made even more easily than the occasional changes which history records. ”

“ Imagine a society with a stable dollar but yet with the very same injustice we now experience except that it is deliberately administered.
To make this supposition definite suppose the United States had had a stable dollar during the last few decades but had, with some strange malice, used the index number of prices in Canada or Europe (which, it is assumed, held to the old unstable system) to produce extraneously the identical evils we have actually experienced. ”

“ Thus, as during the present rise of prices, strikes, riots, violence, and the other secondary effects of rising prices destroy the profits of the winners by blocking the wheels of industry and even destroying its tools. If we are going to have discontented workmen smash our windows and run the wooden shoe through our machinery, it is not so much a question of who is going to get the profits as a question of whether there are to be any profits. If we want workmen to be contented, we must let them have a fair share of prosperity and not let a shrinking dollar defraud them. ”

“ I venture to predict that the Great War will have left at least one other indelible impression, marking a new era in popular intelligence on this subject. This new idea, which I believe will sink into the minds of millions of people, is that, just as gold is a stabler standard than paper, so are goods a stabler standard than gold.
The chief reason that the writers of the famous bullion report did not take this step forward is that, in their day and generation, no index number by which to contrast the two existed. They could not go back of gold to commodities. ”

“ In short, the process by which inflation raises prices is misunderstood because, at any stage, it is almost invisible. The only big reason the grocer can give for raising his prices is that the wholesaler has raised his. The only big reason any expert on a particular price can give is that other prices have risen. But when one price thus boosts another it simply transmits the boosting power of the underlying inflation. ”

“ It ought not to be surprising if succeeding generations should criticize the inflationistic financiering of the Great War, especially of the European belligerents, as severely as we criticize that of the Civil War.
In any case, we shall gradually come to feel that our technical prevention of "depreciation" was a hollow mockery, that we have erred in thinking of depreciation as relative to gold instead of as relative to commodities.
The many adjustments of wages during the war by an index number of prices are really a confession that the dollar does change and needs correction. ”

“ The large number of misunderstandings is what we always expect in the subject of money. But the large number of trumped up and trivial objections is what one might expect when a deeply rooted prejudice against a plan, as a "novelty," is combined with a lack of any real ammunition with which to attack it. The impression is forced on us that those who find so many objections to the new plan really have just one—that it is new. ”

“ The business world would be as unconscious of the operation of stabilization as a healthy man is of his stomach or liver. Only the changes in the price of gold would register the operation of the system and few persons besides the gold exporter, importer, jeweler, and miner would ever notice what the price of gold was. The ordinary man would, just as to-day, buy and sell with yellowbacks or other money or checks, blissfully unaware that these have any relation to gold. ”

“ How can we know that if the index number is one per cent above par, a one per cent increase in the weight of the gold dollar will be just sufficient to drive the index number back to par? The answer is we do not know, any more than we know, when the steering wheel of an automobile is turned, that it will prove to have been turned just enough and not too much. ”

“ We should have escaped much of the embarrassment of the railroads, street railways, and other public-service industries which, with rates fixed by law, could not pay just wages to labor and, at the same time, make money or invest new capital and give the public the service it needed. Finally, while gold would still have come to us during the war, we should have escaped the inflation of prices which, under our present system, we have suffered. ”

“ Business, now periodically disturbed by the pranks of our mischievous dollar, would be put on a foundation more secure than ever before because the greatest and most universal uncertainty or gamble, all the more disastrous because unseen—the gamble in gold—would be removed. ”

“ Any noticeable change in the price level is practically sure to produce a crop of complaints and of proposals to remedy the disturbance. At first these popular complaints and proposals ignore money, for the reason that, as explained in Chapter II, the popular mind is full of fallacies about money. To look to the dollar as a cause of great price movements in food, steel, and cotton, is literally the last thing to occur to the ordinary man. When those more versed in monetary theory suggest that the dollar may have any such rôle to play, the idea is at first greeted with derision. ”

“ What good does it do us to be assured that our dollar weighs just as much as ever? Does this fact help us in the least to bear the high cost of living? What we really want to know is whether the dollar buys as much as ever. We want a dollar which will always buy the same aggregate quantity of bread, butter, beef, bacon, beans, sugar, clothing, fuel, and the other essential things for which we spend it. ”

“ Since then, of course, we have witnessed, in gold itself, more than this amount of depreciation,—a gold dollar to-day being worth scarcely a third of what the gold dollar of 1896 was worth. Yet who thinks of that depreciation as atoning for the "Crime of '73"! On the contrary, we regard that depreciation (as shown in the rising price level) as but another evil. We now wish to find a remedy for it as well; and so to-day we are being threatened with other unscientific remedies, such as revolutionary socialism, syndicalism, and Bolshevism. Reckless radicalism rides in on the wave of high prices. ”

“ Implied in the last would be the emancipation of our price level from its entangling alliance with foreign price levels. The price level of each country now depends on that of those other countries which have the same monetary standard. The "High Cost of Living," one of the manifestations of inflation, communicates itself from one country to another having the same standard and no one country can avoid the common contagion so long as it has the common unstable unit. ”

“ The second effect to be emphasized is the release of the United States from the danger of alternate gold famines and feasts. At present foreign countries may deluge us with gold or drain it away. The only effectual stop to the inflowing tide comes from the rise of our price level and our only important defense against the continued ebb of gold is from the fall of our prices. Thus is our gold reserve now at the mercy of Europe. Their banking and currency policies, over which we have no control, their trade and tariffs, their wars, all affect our gold supply. ”

“ He lacks the temperament and training to be a captain of industry. Nevertheless, after years of falling prices during which he has been draining, unobserved, the life blood of the enterprise whose bonds he holds, until there is no profit left for the captain of industry who has been managing it, the mortgage is foreclosed and the captain, held responsible for the shipwreck, is forced out, discredited, and humiliated, and wholly unable to articulate or even to understand that it was not wholly his fault, if at all, but the fault of his instrument of reckoning, the dollar. ”

“ Are we going to let the value of our American dollar and of the billions upon billions of dollars' worth of American contracts be the shuttlecock of unknown and unknowable European policies after the war? Are we forever to be at the mercy of conditions over which we have no control? ”

“ But here the reader may be tempted to conclude that the high cost of living is merely nominal! If prices have doubled not because goods have become scarce but only because the dollars in which they are expressed have been cut in two, what of it? If we use twice as many dollars because we have twice as many to use, where is the harm? We are thus brought to the third question, "What of it?"
Now it is quite true that our high cost of living is not so great an evil as some people think it to be; it is not so bad as though the cost of living had risen while incomes had not risen. ”

“ Furthermore, resistance by the gold miners to accepting a variability in the price of their product which every other industry has to accept, when the object of the plan is to relieve all industries, their own included, of the variable unit of value, might be shortsighted; for the world will not forever tolerate the intolerable evils of an unstable dollar, and if the gold standard cannot be rectified it will some day be abandoned altogether. ”

“ As we have seen, most other proposals for remedying the "high cost of living" would operate through economy and efficiency. Nothing could be more laudable and nothing needs to be preached more persistently, in season and out of season. An increase in production and the cessation of industrial warfare between labor and capital should, now and always, be striven for. To whatever extent these objects are gained, the world will be better off, whether prices are high or low.
But he who expects, from such measures, any appreciable reduction in the index number of prices is doomed to disappointment. ”

“ The fact of the buying and selling of gold by the Government at variable rates would itself be informative as to the object in view; and the constant clinging to par of the published index number of prices would be eloquent testimony of how the system worked.
Under our present system inflation can be suggested without the question of changing the purchasing power of the dollar being so clearly thrust forward, since our present system does not even pretend to, or afford any mechanism for, such stability. In fact, inflation almost invariably comes by subterfuge and indirection. ”