Monetary standard

“ A common monetary standard will be established, with the consent of the various governments, by which industrial transactions will be greatly facilitated. Three spheres made respectively of gold, silver, and platinum, and each430 weighing fifty grammes, would differ sufficiently in value for the purpose. The sphere should have a small flattened base, and on the great circle parallel to it the Positivist motto would be inscribed. ”

“ Likewise the degree of civilization to which a country has attained is reflected by the perfection of its monetary machinery. After having tried nearly every unwise experiment condemned by the teachings of history, the United States has finally reached a position where its currency meets the two fundamental requirements of sound finance, namely, (1) the standard of value is that in use among the great commercial states of the world; (2) all of the currency is either directly or indirectly convertible into the standard coin. ”

“ THE CONSEQUENCES TO SOCIETY OF CHANGES IN THE VALUE OF MONEY Money is only important for what it will procure. Thus a change in the monetary unit, which is uniform in its operation and affects all transactions equally, has no consequences. If, by a change in the established standard of value, a man received and owned twice as much money as he did before in payment for all rights and for all efforts, and if he also paid out twice as much money for all acquisitions and for all satisfactions, he would be wholly unaffected. ”

“ And it should be perceived that the adoption of a monetary system consisting of paper representatives of value, based upon the result of human effort, will be an important step toward the determination of an absolute standard or measure of value. The attempts to invest gold or silver, or both, with the attributes of such a standard are the underlying causes of a current phase of the monetary problem that is uppermost in discussion. ”

“ Every increase in the world's money supply has been followed by a rising in prices or a fall in the value of money. If the fall is not commensurate with the increase in amount, it is because the quantity of money is not the exclusive factor in fixing the value of money. Monetary legislation endeavors to adjust supply to demand by providing an automatic regulation of the quantity of money. Under a metallic currency system we usually find provisions for the free coinage of the standard money metal. Should money increase in value, i.e. ”

“ Those who advocate the return to a gold standard do not always appreciate along what different lines our actual practice has been drifting. If we restore the gold standard, are we to return also to the pre-war conceptions of bank-rate, allowing the tides of gold to play what tricks they like with the internal price-level, and abandoning the attempt to moderate the disastrous influence of the credit-cycle on the stability of prices and employment? Or are we to continue and develop the experimental innovations of our present policy, ignoring the “bank ratio” ”

“ The grounds, upon which the general power to coin money, and regulate the value of foreign and domestic coin, is granted to the national government, cannot require much illustration in order to vindicate it. The object of the power is to produce uniformity of value throughout the Union, and thus to preclude us from the embarrassments of a perpetually fluctuating and variable currency. Money is the universal medium or common standard, by a comparison with which the value of all merchandise may be ascertained, or, it is a sign, which represents the respective values of all commodities. ”

“ We recognize that interest rates are potent factors in production and business activity, and for the purpose of further equalizing and of further lowering the rates of interest, we favor such monetary legislation as will enable the varying needs of the seasons and of all sections to be promptly met in order that trade may be evenly sustained, labor steadily employed, and commerce enlarged. The volume of money in circulation was never so great per capita as it is to-day. ”

“ Those who hold this objection point out that an ideal standard would not be one which always smooths out the price level but one which discriminates and leaves unchanged such rises and falls as are due to general scarcity and abundance of goods. There is much to be said in favor of such discrimination as an ideal. It must be admitted that the compensated dollar plan would not discriminate between changes in the price level due to the scarcity or abundance of goods in general and those due to changes in money and credit. ”

“ If all prices were altered in like proportion [Pg 24] as soon as money varied in value, no one would lose or gain, except as regards the coin which he happened to have in his pocket, safe, or bank balance. But, practically speaking, as we have seen, people do employ money as a standard of value for long contracts, and they often maintain payments at the same variable rate, by custom or law, even when the real value of the payment is much altered. Hence every change in the value of money does some injury to society. ”

“ The system which I have stated for measuring money itself is believed to be perfect. It is not the individual dollar, relatively to the half dollar or the hundred dollars, that has failed to be measured or fixed; but the rate of increase relatively to other values, of all the Government currency afloat. By the convertibility of any excess of issue sinking its value below a certain standard into interest-paying bonds, any over-issue is immediately absorbed, while a deficiency of issue will be revealed by the fact that absolutely no bonds will be sold. ”

“ The Government already buys and sells gold, handles gold reserves of several kinds, and publishes an index number. The plan does little more, except to use the index number to set the price at which the Government buys and sells gold, in order to make the dollar a real standard of value instead of leaving its value to chance. The Government also standardizes every important unit other than the dollar. ”

“ For, as is now well established by economic theory and reinforced by the observations of practical men, while any increase in the supply of loanable funds on the call-money market temporarily [Pg 642] reduces the "money rate," an increase in the general supply of standard money in the community, on the contrary, raises not only the price level of all commodities, but the price for the use of capital, which we call the general rate of interest. The increase of money as the standard of value inevitably tends to increase the general rate of interest. ”

“ Substantially the same kinds of money would be passed from hand to hand as before the system was adopted; and the ordinary man would be quite unaware of any change in system,—as unconscious, in fact, of the operation of the new system as he is now unconscious of the operation of the present system, or as were the inhabitants of India when the "gold exchange" standard went into force a quarter of a century ago. ”

“ No one who holds to the doctrine that the general range of prices is determined by the relation between the quantity of commodities and the volume of the circulating medium, and that the volume of the circulating medium in the end depends, ceteris paribus, on the amount of coined money, can do otherwise than admit the logical soundness of the scheme. He who maintains that the rise in prices during the last fifteen years is due to the greater gold supply must admit that a restriction of the monetary supply of gold will check the rise. ”

“ In order to prove the needlessness of standardization it must be shown that, in the future, we have reason to expect neither a rise nor a fall of prices but a stable price level—a condition of things which, so far as index numbers show us, has never yet existed, and which we feel safe in saying can never exist under our present monetary system. ”

“ The cautious and conservative reader will ask: if the evils of our present dollar are so great and the remedy so simple, why did not our civilization improve its monetary units years ago, as it improved all other units? ”

“ But the limiting case for the commodity theory is not the actual case. Standard money is also commonly a medium of exchange. Standard money is particularly desirable in bank and government reserves. Its employment in these and other ways is a valuable employment, and adds directly to its value both as money and in the arts. There is a marginal equilibrium between its values in the two employments. ”

“ So with the price level, while the strong-arm method is not only costly and vexatious but futile, the simple regulation of our instrument for measuring prices, the dollar, will accomplish the same result not only without cost and effort but, what is more to the point, with success. ”

“ I would myself prefer a more general standard than food, although almost any standard based on a number of commodities would be superior to the gold standard based on one alone. If a very general standard were adopted, it is quite true that the "cost of living" in any restricted sense (such as the cost of food alone) could change somewhat, though not greatly. Furthermore an index number must serve not simply the purpose of stabilizing the value of money to wage earners but serve the purposes of transactions generally. ”

“ Even if our shifting dollar were guiltless of most of the offenses charged, even if the high cost of living had no relation to the dollar, there would still be excellent reasons for standardizing it—on the same general principle on which we have standardized all other units. ”

“ If a country used paper money not exchangeable for specie, and therefore not regulated by any fixed standard, the exchanges in that country might deviate as much from par, as its money might be multiplied beyond that quantity which would have been allotted to it by general commerce, if the trade in money had been free, and the precious metals had been used, either for money, or for the standard of money. ”

“ It is evident then that a true standard of value can only61 be found in a composite unit containing a definite quantity of every commodity, or practically speaking, a definite quantity of each of a large number of the most important commodities. This is what is known as the “multiple standard,” or the “commodity standard,” and has long been in use by economists in the form of tables of index numbers to show fluctuations in general prices, or what is the same thing, changes in money values.
The only function of money is to facilitate the exchange of goods. ”

“ The condition of our monetary laws to-day is such that, except by the slow increment of gold production, which must be shared by all the world, we possess no means of meeting either the increasing demand for money that expanding population and commerce bring, or the sudden demand that a failure of credit may bring at any time. ”

“ If the purpose is to measure capital, the prices of services should not be included, but only the prices of the different articles of wealth existing at any point of time. If the purpose is to obtain means to measure real wages, only those things should be included which workingmen buy; and they should be included according to the values bought during a given period, these values being measured at standard prices.
X.80 The question of justice between borrower and lender, where the purpose is to fix on the best index number as a standard for deferred payments, was also considered. ”

“ Thus by the universal competition to get it the value of the dollar is made to depend upon the number of dollars that are out. This is a principle that lies at the very foundation of the science of money. The law, stated broadly, is that the value of each unit of money in any country at any given time depends on the whole number of units in circulation in that country. The larger the number of units out, population remaining the same, the less must be the value of each unit; the smaller the number of units out, population remaining the same, the greater the value of each. ”

“ The only part of our monetary medium that has elasticity is the bank-note currency. The peculiar provisions of the law requiring national banks to maintain reserves to meet the call of the depositors operates to increase the money stringency when it arises rather than to expand the supply of currency and relieve it. ”

“ Evidently the increase of money of credit is not to meet increased demand, but to increase trade independently of demand; and its decrease is not to meet decreased demand, but because trade, having been increased beyond the demand, under the stimulus of credit, must be returned to its proper support or perish. The rate of the currency is not an element of political economy. Those elements are population, demand, industry, supply, consumption, and savings or wealth, which, being mutually dependent, are not properly subject to great or sudden variations of relations. ”

“ At certain times there are greater and less demands for money, which, under our present practices, make a dollar, to-day, worth four per cent. per annum interest, and to-morrow increase it to ten per cent. It must be remembered that we are now speaking of an irredeemable currency, the representative of the wealth of the nation: that the government representing the nation has uttered it, in behalf of the people, upon the soundest and, in reality, the only sure basis of value any money can have—the productive power and capacity of the nation. ”

“ It is very hard to control any individual price in the face of the economic forces of supply and demand, but it is very easy to control the general scale of prices; for the general scale of prices depends, among other things, on the weight of the gold dollar and the weight of the gold dollar is whatever we choose to make it. ”