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• Foreword
• On the Manipulation of Money and Credit Three Treatises On Trade-cycle Theory
• Stabilization of the Monetary Unit— From the Viewpoint of Theory
• Introduction *
• I: The Outcome of Inflation
• II: The Emancipation of Monetary Value From the Influence of Government
• III: The Return to Gold
• IV: The Money Relation
• V: Comments On the “balance of Payments” Doctrine
• VI: The Inflationist Argument
• VII: The New Monetary System
• VIII: The Ideological Meaning of Reform
• Appendix: Balance of Payments and Foreign Exchange Rates *
• Monetary Stabilization and Cyclical Policy
• Preface *
• Part I: Stabilization of the Purchasing Power of the Monetary Unit
• I: The Problem
• II: The Gold Standard
• III: The “manipulation” of the Gold Standard
• IV: “measuring” Changes In the Purchasing Power of the Monetary Unit
• V: Fisher’s Stabilization Plan
• VI: Goods-induced and Cash-induced Changes In the Purchasing Power of the Monetary Unit
• VII: The Goal of Monetary Policy
• Part II: Cyclical Policy to Eliminate Economic Fluctuations
• I: Stabilization of the Purchasing Power of the Monetary Unit and Elimination of the Trade Cycle
• II: Circulation Credit Theory
• III: The Reappearance of Cycles
• IV: The Crisis Policy of the Currency School
• V: Modern Cyclical Policy
• VI: Control of the Money Market
• VII: Business Forecasting For Cyclical Policy and the Businessman
• VIII: The Aims and Method of Cyclical Policy
• The Causes of the Economic Crisis an Address
• I: The Nature and Role of the Market
• II: Cyclical Changes In Business Conditions
• III: The Present Crisis
• A.: Unemployment
• B.: Price Declines and Price Supports
• C.: Tax Policy
• D.: Gold Production
• IV: Is There a Way Out?
• The Current Status of Business Cycle Research and Its Prospects For the Immediate Future
• 1.: The Acceptance of the Circulation Credit Theory of Business Cycles *
• 2.: The Popularity of Low Interest Rates
• 3.: The Popularity of Labor Union Policy
• 4.: The Effect of Lower Than Unhampered Market Interest Rates
• 5.: The Questionable Fear of Declining Prices
• The Trade Cycle and Credit Expansion: the Economic Consequences of Cheap Money
• 1.: Introductory Remarks *
• 2.: The Unpopularity of Interest
• 3.: The Two Classes of Credit
• 4.: The Function of Prices, Wage Rates and Interest Rates
• 5.: The Effects of Politically Lowered Interest Rates
• 6.: The Inevitable Ending

I

The Problem

1.

“Stable Value” Money

Gold and silver had already served mankind for thousands of years as generally accepted media of exchange—that is, as money—before there was any clear idea of the formation of the exchange relationship between these metals and consumers’ goods, i.e., before there was an understanding as to how money prices for goods and services are formed. At best, some attention was given to fluctuations in the mutual exchange relationships of the two precious metals. But so little understanding was achieved that men clung, without hesitation, to the naive belief that the precious metals were “stable in value” and hence a useful measure of the value of goods and prices. Only much later did the recognition come that supply and demand determine the exchange relationship between money, on the one hand, and consumers’ goods and services, on the other. With this realization, the first versions of the Quantity Theory, still somewhat imperfect and vulnerable, were formulated. It was known that violent changes in the volume of production of the monetary metals led to all-round shifts in money prices. When “paper money” was used alongside “hard money,” this connection was still easier to see. The consequences of a tremendous paper inflation could not be mistaken.

From this insight, the doctrine of monetary policy emerged that the issue of “paper money” should be avoided completely. However, before long other authors made still further stipulations. They called the attention of politicians and businessmen to the fluctuations in the purchasing power of the precious metals and proposed that the substance of monetary claims be made independent of these variations. Side by side with money as the standard of deferred payments,1 or in place of it, there should be a tabular, index, or multiple commodity standard. Cash transactions, in which the terms of both sides of the contract are fulfilled simultaneously, would not be altered. However, a new procedure would be introduced for credit transactions. Such transactions would not be completed in the sum of money indicated in the contract. Instead, either by means of a universally compulsory legal regulation or else by specific agreement of the two parties concerned, they would be fulfilled by a sum with the purchasing power deemed to correspond to that of the original sum at the time the contract was made. The intent of this proposal was to prevent one party to a contract from being hurt to the other’s advantage. These proposals were made more than one hundred years ago by Joseph Lowe (1822) and repeated shortly thereafter by G. Poulett Scrope (1833).2 Since then, they have cropped up repeatedly but without any attempt having been made to put them into practice anywhere.

2.

Recent Proposals

One of the proposals, for a multiple commodity standard, was intended simply to supplement the precious metals standard. Putting it into practice would have left metallic money as a universally acceptable medium of exchange for all transactions not involving deferred monetary payments. (For the sake of simplicity in the discussion that follows, when referring to metallic money we shall speak only of gold.) Side by side with gold as the universally acceptable medium of exchange, the index or multiple commodity standard would appear as a standard of deferred payments.

Proposals have been made in recent years, however, which go still farther. These would introduce a “tabular,” or “multiple commodity,” standard for all exchanges when one commodity is not exchanged directly for another. This is essentially Keynes’ proposal. Keynes wants to oust gold from its position as money. He wants gold to be replaced by a paper standard, at least for trade within a country’s borders. The government, or the authority entrusted by the government with the management of monetary policy, should regulate the quantity in circulation so that the purchasing power of the monetary unit would remain unchanged.3

The American, Irving Fisher, wants to create a standard under which the paper dollar in circulation would be redeemable, not in a previously specified weight of gold, but in a weight of gold which has the same purchasing power the dollar had at the moment of the transition to the new currency system. The dollar would then cease to represent a fixed amount of gold with changing purchasing power and would become a changing amount of gold supposedly with unchanging purchasing power. It was Fisher’s idea that the amount of gold which would correspond to a dollar should be determined anew from month to month, according to variations detected by the index number.4 Thus, in the view of both these reformers, in place of monetary gold, the value of which is independent of the influence of government, a standard should be adopted which the government “manipulates” in an attempt to hold the purchasing power of the monetary unit stable.

However, these proposals have not as yet been put into practice anywhere, although they have been given a great deal of careful consideration. Perhaps no other economic question is debated with so much ardor or so much spirit and ingenuity in the United States as that of stabilizing the purchasing power of the monetary unit. Members of the House of Representatives have dealt with the problem in detail. Many scientific works are concerned with it. Magazines and daily papers devote lengthy essays and articles to it, while important organizations seek to influence public opinion in favor of carrying out Fisher’s ideas.

[1. ]Standard of deferred payments is “Zahlungsmittel” in German. Unfortunately this German expression must be avoided today because, its meaning has been so compromised through its use by Nominalists and Chartists that it brings to mind the recently exploded errors of the “state theory of money.”

[2. ]Jevons, Wm. Stanley. Money and the Mechanism of Exchange, 13th ed. London, 1902, pp. 328ff.

[3. ]Keynes, John Maynard. A Tract on Monetary Reform. London, 1923; New York, 1924, pp. 177ff.

[4. ]Fisher, Irving. Stabilizing the Dollar. New York, 1925, pp. 79ff.