The general price level fluctuated, but on the whole tended downward between 1884 and 1893 (the year of panic), and reached a minimum in the year 1895 in Germany, 1896 in England, and 1897 in America. It is noteworthy that the very year 1896, which marked the height of the political agitation to abandon the gold standard for silver, saw the gold production for the first time in all history surpass the two hundred million dollar mark. The gold output had caught up with, and began to surpass, the normal monetary demands of the world, meaning by that phrase, the amount of gold needed to maintain a stationary level of prices.
§ 12. #Rising prices after 1896#. The whole character of the monetary problem then changed. A period of rising prices set in, which has continued to the present time. By 1913 prices had risen just about 50 per cent above the low level of 1896. The rise has been, and still is, at the average rate of nearly 3 per cent each year. This caused a reversal of the former positions of advantage and disadvantage on the part of debtor and creditor respectively. The purchasing power of a 3 per cent annual interest on notes and bonds has been offset by the decrease in the purchasing power of the principal of the debt. The burden of the average debt began relatively to decrease. A wide field for enterpriser's profits was opened up by the rapid displacement of prevailing prices in all quarters of the industrial world. The price of manufacturer's products rose in advance of the rise of costs of many raw materials and especially of the labor costs of manufacture. The average enterpriser's gain was the average wage-worker's loss. Wages (and salaries), as nearly always in the case of a change of price levels, moved more slowly than did the prices of most of the commodities which are bought with wages, thus causing great hardship to large classes living on comparatively slowly moving incomes.[19] Extremes meet, and these classes include both those living on passive investments, and those dependent on their daily labor for a livelihood.
Thus we escape the evils of a rising standard of deferred payments, only to meet those of a falling standard. And as long as we have so fluctuating a standard these difficulties must arise again and again, continually repeated, causing unmerited gains and losses to individuals. Let us conclude with a brief consideration of the fundamental principles involved in this problem.
§ 13. #Defectiveness of the gold standard#. Money is, in general, for both borrowers and lenders the most convenient standard of deferred payments. But from the usage of speaking of all things in terms of gold, arises the popular notion that the value of gold is always the same, while the value of other things changes. In truth, a fixed objective standard of value is not possible of attainment. Altho the value of gold is stable as compared with most things, it rests on the estimates made by men and is constantly changing with conditions. The current new supplies of gold are comparatively regular. For centuries at a time there was little change in the methods of mining gold and there were no radical changes in its output. The nature of the use of gold, likewise, is such as to made changes in the amount of it needed, under ordinary conditions, more stable than is that of most other goods. Moreover, the stock of gold in monetary uses is but slowly worn out; it is, therefore, a large reservoir into which flows a comparatively small stream of annual production; the existing stock is twenty or thirty times the annual output. Yet the value of gold expressed in other things is never quite stable, and sometimes several influences combine to affect it greatly and suddenly. Recent inventions, chemical and mechanical, moreover, have considerably altered the conditions of production. While, therefore, it is the best standard yet devised and put into actual practice, it is very imperfect. A standard better than a single metal, more stable than a single commodity, is desirable if it can be found.
§ 14. #Various ideal standards suggested.# It may, perhaps, be agreed that the ideal standard of deferred payments is one that would insure justice between borrower and lender. Yet different views may be and have been taken as to what constitutes justice in this matter. The suggestion is attractive that repayment should involve the return of enjoyment equal to that which could be purchased with the sum at the time of the loan. Such a standard is impossible of perfect realization in any general way, for men's circumstances are constantly changing. To insure even to the average man the same amount of enjoyment is only roughly possible. The same goods do not afford the same enjoyment when conditions, either subjective or objective, have changed. Another suggestion is that the goods returned should represent the same sacrifice as those loaned. Here again the difficulty is in the lack of a standard applicable to all men. Whose sacrifice? That of the lender, who may be rich, or that of the borrower, who may be poor? Some have supposed that the condition of equal sacrifices was met by the labor standard, according to which the sum returned should purchase the same number of days of labor as when borrowed. But what kind of labor is to be taken, that of the lender or that of the borrower or that of some one else? Labor is of many different qualities, which can be exactly compared only through their objective value in terms of some one good.[20]
It must be recognized that any possible concrete standard of deferred payments will sometimes work hardship in individual cases. The best average results for justice and social welfare will be secured by measuring debts in some standard that will change least often, and least rapidly, in relation to the great majority of people of all classes in the community.
§ 15. #The tabular standard.# Apart from the difficulties of its practical operation, a standard better than a single metal and more stable than a single commodity would be a tabular standard, consisting of a number of leading commodities in fixed proportions, such as is used in calculating index numbers expressing the general scale of prices. Such a standard averages the fluctuations of particular goods and would give a fair approximation in practice to the ideals of equal sacrifice and equal enjoyment (on the average tho not in individual cases). While some natural materials are growing more scarce and call for more sacrifice, other products are by industrial progress becoming more plentiful. This kind of standard has been viewed with favor by many monetary authorities, and despite the administrative difficulties ways may yet be found for putting it into practice.
After determining the tabular standard, the actual regulation of the quantity of money to make prices conform to the standard might be accomplished in one of several ways. It might be done by letting the value of the gold dollar fluctuate as it does now, while requiring a greater or less number of dollars to be given in fulfilment of all outstanding contracts. For example, if prices by the tabular standard fell from 100 to 95 in the time between the origin of a debt of $100 and its payment, the debt would be discharged by paying $95; if prices rose to $110, the debt would be discharged only by the payment of $110.
By the plan of a "compensated gold dollar" the legal weight of the gold coins would be increased or decreased from time to time to conform with the tabular standard. Still a third method would be to regulate the issue of standard paper money, contracting and expanding its amount by issue and redemption, by deposit in and withdrawal from depository banks, at regular intervals to bring prices into conformity with the tabular standard. These are as yet but distant possibilities, and for some time to come gold will continue to serve as the standard money in the same manner as in the past.
[Footnote 1: The amount of silver is here expressed at its coining value; this is not the commercial value, but rather the number of silver dollars 371.25 fine grains weight that could be made out of the silver produced. Silver and gold of equal coining value are, therefore, as to weight always in the ratio of 16 to 1.]