Irving Fisher

“ Were a railroad to double in money value, the result would be, since the money value of the bonds could not increase appreciably, that the money value of the stock would more than double. Stocks are shares in physical wealth the value of which, in money, can fluctuate. Since the money price of bonds is relatively inflexible, that of stocks will fluctuate more than the price of the physical wealth as a whole. ”

“ Whether or not due to monetary changes, a movement of interest will tend to make the prices of different things vary in different directions or to different extents. The prices of all goods, the benefits of which accrue in the remote future, depend on the rate of interest. The standard example is that of bonds and other securities. Another good example is that of real estate. In the case of farm lands yielding a constant rental, a reduction of interest causes an increase of value in the inverse ratio. If interest falls from 5 per cent to 4 per cent, the value will increase in the ratio 4 to 5. ”

“ Being based on contracts, the money terms of which during a given period must not be changed, they are not free to be influenced in the same ways as other property. The existence of such contracts constitutes one of the chief arguments for a system of currency such that the uncertainties of its purchasing power are a minimum. ”

“ The system becomes less arbitrary if we use, as the unit for measuring any goods, not the unit in which it is commonly sold, but the amount which constitutes a "dollar's worth" at some particular year called the base year. Then every price, in the base year, is one dollar, and therefore the average of all prices in that year is also one dollar. For any other year the average price (i.e. the average of the prices of the newly chosen units which in the base year were worth a dollar) will be the index number representing the price level, while the number of such units will be the volume of trade. ”

“ The fact that their face value is expressed in money sets very definite limits to their prices.*12 If, because of a doubling in the quantity of money, the value and profits of a railroad measured in money were doubled, the bondholder could not, on that account, realize more money for his bond. The value of the bond is not greatly affected by the valuation and profits of the railroad, so long as these are sufficient to guarantee the bond. The bond is an agreement to pay stated sums at stated times. It represents a limited money value carved out of the road. ”

“ IX.11 A special class of goods, the prices of which cannot fluctuate greatly with other prices, are those special commodities which consist largely of the money metal. Thus, in a country employing a gold standard, the prices of gold for dentistry, of gold rings and ornaments, gold watches, gold-rimmed spectacles, gilded picture frames, etc., instead of varying in proportion to other prices, always vary in a smaller proportion. ”

“ The reasons for dispersion are principally three: (1) Many prices are restrained by previous contract, by legal prohibition, or by force of custom. (2) Some prices are intimately related to the money metal. (3) Each individual price is subject to special variation under the influence of its particular supply and demand. There exists, however, a compensation in price movements in the sense that the failure of one set of prices to respond to any influence on the price level will necessitate a correspondingly greater change in other prices. ”

“ If, meanwhile, the price level doubles, he will receive no more. It is true that a change of price level will, in time, change the volume of new loans. A merchant, to lay in a given stock of goods, will need to borrow a larger sum if prices are high than if they are low. Personal notes and bills of exchange will be drawn for double the amount which would have obtained had the price level not doubled. Similarly, a corporation issuing bonds for new projects may have to issue a larger amount. ”

“ Just as an obstruction put across one half of a stream causes an increase in current in the other half, so any deficiency in the movement of some prices must cause an excess in the movement of others. ”

“ Coal is sold by the ton, sugar by the pound, wheat by the bushel, etc. If we now add together these tons, pounds, bushels, etc., and call this grand total so many "units" of commodity, we shall have a very arbitrary summation. It will make a difference, for instance, whether we measure coal by tons or hundredweights. ”

“ Some are far more easily adjustable than others. Only by extremely violent hypotheses could we imagine perfect adjustability in all. The order of adjustability from the least to the most adjustable may be roughly indicated as follows:*11—
1. Contract prices of properties and services, especially where the contracts are for a long time; these include bonds, mortgage notes, use of real estate by leases. 2. Contract prices of properties and services, where the contracts are for a shorter time; these include bills of exchange, use of rented real estate and commodities, services of workmen, etc. ”