PROPOSED REMEDY
The plan I shall here outline has received the approval of a large number of leading economists, business men, and organizations, including President Hadley of Yale; a committee of economists appointed to consider the purchasing power of money in relation to the war; Frank A. Vanderlip, president of the National City Bank of New York; George Foster Peabody, Federal Reserve banker of New York; John Perrin, Federal Reserve Agent of San Francisco; Henry L. Higginson, the veteran banker of Boston; Roger W. Babson, statistician; John Hays Hammond, mining engineer; John V. Farwell, of Chicago; Leo S. Rowe, Assistant Secretary of the Treasury: United States Senator, Robert L. Owen, one of the authors of the Federal Reserve Act; Ex-Senator Shafroth; the late Senator Newlands; Sir David Barbour, one of the originators of the Indian gold exchange standard; the Society of Polish Engineers; the New England Purchasing Agents' Association; and a few Chambers of Commerce.
WANTED—A STANDARDIZED DOLLAR
Our dollar is now simply a fixed weight of gold—a unit of weight, masquerading as a unit of value. 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. What good does it do us to be assured that our dollar weighs just 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 that we spend it for. What is needed is to stabilize or standardize the dollar just as we have already standardized the yardstick, the pound weight, the bushel basket, the pint cup, the horsepower, the volt, and, indeed, all the units of commerce except the dollar.
Money today has two great functions. It is a medium of exchange and it is a standard of value. Gold was chosen because it was a good medium, not because it was a good standard. And so, because our ancestors found a good medium of exchange, we now find ourselves saddled with a bad standard of value!
The problem before us is to retain gold as a good medium and yet to make it into a good standard; not to abandon the gold standard but to rectify it; not to rid ourselves of the gold dollar but to make it conform in purchasing power to the composite or goods-dollar. The method of rectifying the gold standard consists in suitably varying the weight of the gold dollar. The gold dollar is now fixed in weight and therefore variable in purchasing power. What we need is a gold dollar fixed in purchasing power and therefore variable in weight. I do not think that any sane man, whether or not he accepts the theory of money which I accept, will deny that the weight of gold in a dollar has a great deal to do with its purchasing power. More gold will buy more goods. Therefore more gold than 25.8 grains will, barring counteracting causes, buy more goods than 25.8 grains itself will buy. If today the dollar, instead of being 25.8 grains or about one-twentieth of an ounce of gold, were an ounce or a pound or a ton of gold it would surely buy more than it does now, which is the same thing as saying that the price level would be lower than it is now.
A Mexican gold dollar weighs about half as much as ours and has less purchasing power. If Mexico should adopt the same dollar that we have and that Canada has, no one could doubt that its purchasing power would rise—that is, the price level in Mexico would fall. Since, then, the heavier or the lighter the gold dollar is the more or the less is its purchasing power, it follows that, if we add new grains of gold to the dollar just fast enough to compensate for the loss in the purchasing power of each grain, or vice versa take away gold to compensate for a gain, we shall have a fully "compensated dollar," a stationary instead of fluctuating dollar, when judged by its purchasing power.
But how, it will be asked, is it possible, in practice, to change the weight of the gold dollar? The feat is certainly not impossible, for it has often been accomplished. We ourselves have changed the weight of our gold dollar twice—once in 1834, when the gold in the dollar was reduced 7 per cent., and again in 1837, when it was increased one-tenth of 1 per cent. If we can change it once or twice a century, we can change it once or twice a month!
HOW GOLD CIRCULATES
In actual fact, gold now circulates almost entirely through "yellowbacks," or gold certificates. The gold itself, often not in the form of coins at all but of "bar gold," lies in the government vaults. The abolition of gold coin would make no material change in the present situation.