Hou Pobl suo with the conferents ar putemail ne suzano 1510 Úwers on cle . STABILIZING THE DOLLAR THE MACMILLAN COMPANY NEW NETHER YORK - A GOSTOSABOSTON • CHICAGOCHICAS PARA• DALLAS ATLANTA • SAN FRANCISCO MACMILLAN & CO . , LIMITED LONDON · BOMBAY · CALCUTTA MELBOURNE THE MACMILLAN CO . OF CANADA , LTD . TORONTO STABILIZING THE DOLLAR A PLAN TO STABILIZE THE GENERAL PRICE LEVEL WITHOUT FIXING INDIVIDUAL PRICES BY IRVING FISHER PROFESSOR OF POLITICAL ECONOMY IN YALE UNIVERSITY EX - PRESIDENT OF THE AMERICAN ECONOMIC ASSOCIATION New York THE MACMILLAN COMPANY 1920 All rights reserved VARD UNIVES JUN ahi 1942 Fuh ORADUATE SCHOOL UNE AO MINISTRATIONS COPYRIGHT , 1920 . BY THE MACMILLAN COMPANY . Set up and electrotyped . Published January , 1920 . Norwood Press J . 8 . Cushing Co . - Berwick & Smith Co . Norwood , Mass . , U . S . A . to JOHN ROOKE SIMON NEWCOMB ALFRED RUSSEL WALLACE AND ALL OTHERS WHO HAVE ANTICIPATED ME IN PROPOSING PLANS FOR STABILIZING MONETARY UNITS PREFACE The fundamental fact on which the proposal of this book is based is that the purchasing power of the dollar is uncertain and variable , that is , that the price level is unstable . The war has caused the greatest upheaval of prices the world has ever seen . Inseparably connected with this upheaval is grave and world - wide industrial dis content . Because of this and because of the perplexity of business men as to future movement of prices , there has been much discussion going on of the question whether the level of war prices will drop or whether it can be stabilized . To show that permanent stability can be secured is the chief aim of this book ; and a specific and de tailed plan for this purpose is presented . The first sketch of this plan was published in 1911 ( in my Purchasing Power of Money ) . It was later presented before the International Congress of Cham bers of Commerce at Boston , September , 1912 , and again before the American Economic Association , December , 1912 . The plan was elaborated in the Quarterly Journal of Economics , February , 1913 . In October , 1917 , I gave the Hitchcock lectures at the University of California , using much of the ma terial published now , for the first time , in this book . In the spring of 1918 a Committee of the American Economic Association , on the Purchasing Power of vii viii PREFACE Money in relation to the War , indorsed the principle of stabilization and commended the subject to the earnest attention of statesmen and economists . By this time academic economists had been largely won over to the idea , it having run the gantlet of their criticism for several years . The general support of economists marks the first milestone in the progress of the idea . Latterly a beginning has also been made toward arresting the attention of the business and industrial world , the interests of which are most at stake . Their general approval , if obtained , will mark the second milestone . Until recently it has seemed premature to ask men in political life to press for the actual adoption of the plan . Their action , if taken , will mark the third and final milestone . Appendix IV , § 3 , gives the names and comments of prominent leaders in all three fields — economics , business , politics — who have approved the idea . When I first propounded the plan for stabilizing the dollar I supposed that I was the first to do so . It soon appeared , however , that the same thought had occurred independently to a number of others . The bibliography in Appendix VI gives references to the published writings in which substantially the very plan here presented has been outlined by others . There are a few anticipators who have never pub lished their views but have kindly sent me copies of manuscripts or letters describing them . The following is a complete list in chronological order of anticipators , so far as known to me : John Rooke , 1824 ; the late Simon Newcomb , astronomer and economist , 1879 ; PREFACE ix Professor Alfred Marshall , Cambridge , 1887 ; Aneurin Williams , M . P . , 1892 ; Professor J . Allen Smith , now Dean , University of Washington , 1896 ; D . J . Tinnes , Hunter , North Dakota , 1896 ; William C . Foster , Boston , Mass . , 1909 ; Professor Harry G . Brown , University of Missouri , 1911 ; Henry Heaton , Atlantic , Iowa , 1911 . This list could be lengthened considerably if the authors of plans radically different , but having the same purpose in view , were to be included . Among these authors is the late Alfred Russel Wallace , the naturalist . The only essential feature of the plan in which , apparently , I have not been anticipated is the pro vision (mentioned at the end of Chapter IV and de scribed , in detail , in Appendix I , § 2 ) regarding specula tion in gold . The fact that the plan has been worked out inde pendently in so many cases and by men so able and clear - headed is , I venture to think , strong evidence of the soundness of the proposal . It also affords me the opportunity to promote the plan the more impersonally and , I hope , with more chance of success than if it were merely one man ' s idea . My thanks are due to the large number of persons who , through many years , by criticisms and suggestions , have helped me gradually develop the present formu lation of the plan . I wish especially to express my thanks to Prof . Wm . H . Taft and Mr . Morison R . Waite , who supplied important legal data bearing on the problems of Appendix I , § 6 ; to Dr . Royal Meeker , Prof . Wesley Clair Mitchell , Dr . B . M . An derson , Jr . , and Prof . Percy W . Bidwell , who supplied PREFACE valuable criticism of portions of the appendix ; to Mr . Philip P . Wells , formerly legal counsel of the National Conservation Association , who has helped frame the tentative draft of an act to stabilize the dollar given in Appendix I , § 9 ; to my brother Herbert W . Fisher , whose criticisms have assisted me in improving the form of presentation ; and to Miss Clara Eliot , for merly instructor in sociology in Mills College , who has helped at every stage of the work . Every objection or difficulty which has been raised has been , I believe , frankly faced and discussed . Such discussion has been relegated to the appendix , in order that the text might be confined to stating the plan which , as will be seen , is so simple that any one can readily grasp it . It has been my ambition to reach and convince every available reader . If the particular plan here proposed is not the best to accomplish its purpose , I hope a better one will be proposed . It is also my hope that readers will spread the idea of stabilization by whatever methods seem to them most effective for promoting legislative action , na tional or international . I should be glad to be kept informed of such activities as well as to receive sug gestions and criticisms . As a movement for stabilization , in some form , seems inevitable in the immediate future , I shall be glad to make the best use I can of the return postal card inserted here for the convenience of the reader , should be desire to stamp , sign , and mail it . IRVING FISHER . NOVEMBER , 1919 . SUGGESTIONS TO READERS 1 . The general reader will be chiefly interested in the five chapters of the text , of which Chapter IV is the chief . 2 . Those who find any difficulty in accepting the argument in the text are referred to Appendix II , of which § 1 and § 3 will probably be found of most general use . 3 . The General Summary is designed for those who think they have not time to read the book . 4 . The Summary by Sections will supply the start ing point for reading any special part of the text de sired . 5 . The analytical table of contents , the index , and the running page headings have been constructed to facilitate the use of the book as one of reference . 6 . Chapter II may help those who do not yet believe that the so - called “ high cost of living ” is , at bottom , a shrunken dollar . 7 . Chapter III is commended especially to those who imagine that there is little wrong with our present monetary system . 8 . Appendix IV , § 3 , is for those craving good company in espousing new ideas . 9 . Appendices I and III and Appendix II , § 2 , are intended chiefly for technical economists . 10 . Appendix VI gives references for further study and verification . SHORT TABLE OF CONTENTS CHAPTER I . THE Facts . CHAPTER II . THE CAUSES CHAPTER III . THE Evils . CHAPTER IV . A REMEDY . CHAPTER V . CONCLUSION . APPENDIX I . TECHNICAL DETAILS . APPENDIX II . DISAPPROVAL OF THE PLAN . 214 APPENDIX III . ALTERNATIVE PLANS . 252 APPENDIX IV . PUBLIC INTEREST 263 APPENDIX V . PRECEDENTS . 279 . APPENDIX VI . BIBLIOGRAPHY . 286 . iii ANALYTICAL TABLE OF CONTENTS PAGE GENERAL SUMMARY . XXV XXV SUMMARY BY SECTIONS . xxix CHAPTER I THE FACTS 1 . INDEX NUMBERS . 1 2 . MEDIEVAL PRICE LEVELS . 5 3 . A CENTURY AND A QUARTER OF PRICE MOVEMENTS BEFORE THE GREAT WAR . 6 4 . PRICE MOVEMENTS DURING THE GREAT WAR . 8 CHAPTER II THE CAUSES 1 . FALSE SCENTS . 10 2 . PROFITEERS , SPECULATORS , AND MIDDLEMEN 3 . CIRCULAR REASONING . 14 4 . THE ERROR OF SELECTING SPECIAL CASES . 5 . THE ARGUMENT FROM PROBABILITY . 6 . THE ARGUMENT FROM STATISTICS . 7 . PRICE MOVEMENTS VARY WITH MONETARY SYSTEMS 8 . PRICE MOVEMENTS VARY WITH THE MONEY SUPPLY . 9 . KINDS OF INFLATION . 10 . EXTENT OF WAR INFLATION . 11 . MONEY ILLUSIONS . 12 . THE INSTABILITY OF THE GOLD STANDARD AS COMPARED WITH AN EGG STANDARD AND OTHERS . 39 XV xvi ANALYTICAL TABLE OF CONTENTS PAGE 13 . SEEING OURSELVES AS OTHERS SEE US . 41 14 . A VISIT OF SANTA CLAUS . 15 . TRACING THE INVISIBLE SOURCE OF THE TIDE . 49 16 . OTHER CAUSES THAN MONEY . 51 CHAPTER III THE EVILS 1 . The Evil of High PRICES Is Not GENERAL IMPOVERISH MENT · · · · · · · · · · 2 .