# Stabilizing the Dollar/Chapter 3

CHAPTER III
THE EVILS
1. The Evil of High Prices is Not General Impoverishment
Price movements, then, are usually, and for the most part, of monetary origin. We must not be deceived by appearances. Just as he who would picture the astronomical movements as they really are must conceive a mental image not of a sun and stars concertedly rising and setting around a fixed earth, but of a sun and stars, substantially fixed, shining on a whirling globe, so he who would picture economic movements as they really are must likewise conceive not of the concerted dancing of numberless commodities relatively to a fixed dollar, but of the dance of the dollar relatively to a nearly fixed mass of commodities.
But here the reader may be tempted to conclude that the high cost of living is merely nominal! If prices have doubled not because goods have become scarce but only because the dollars in which they are expressed have been cut in two, what of it? If we use twice as many dollars because we have twice as many to use, where is the harm? We are thus brought to the third question, "What of it?"
Now it is quite true that our high cost of living is not so great an evil as some people think it to be; it is not so bad as though the cost of living had risen while ​incomes had not risen. That would mean that, for the average human being, economic effort was producing less and less. But the fact is that, in general, throughout the world—certainly before the war—goods had not been growing scarce. Incomes were rising all over the world and, in general, they were rising faster than the cost of living. Recurring to the figures of Professor W. I. King, we find that the estimated per capita income in the United States increased between 1900 and 1910 by 41%, whereas the price level rose only 25%.
This average improvement, however, does not settle the matter. The evil is not one of average well-being but one of its distribution, and the question remains: Who has got the benefit of this increased production? Some incomes change less than others and some do not change at all. It is in this inequality—an inequality in the change of individual incomes—that the chief evil of general price movements is to be found.
If, for each of us, the rise of income were to keep up with the rise in the cost of living, then the high cost of living would have no real meaning. The rise would be merely on paper.
2. Contracts Upset
But no such perfect adjustment between rise in income and rise in cost of living ever occurs or can occur. Agreements made at various times to pay specific sums of money at later times make this impossible.
Consider the debtor and creditor relationship. If Congress should suddenly decree that the present fifty-cent piece should henceforth be known as a "dollar," it is clear that, in practice, the change would not be ​merely nominal; for while current prices would quickly be doubled the terms of contracts already made would not be adjusted. Therefore every creditor, every bondholder, every bank depositor, would clearly be cheated out of half his due.
If, on the other hand. Congress should decree that what has hitherto been a "dollar" should henceforth be fifty cents, every debtor would be suddenly saddled with a weight of debt twice as heavy as that which he had originally assumed.
In either case incalculable injustice would be wrought. One of the parties to every contract would be swindled for the benefit of the other; and the swindle would affect the fortunes for good or ill of almost every family in the land.
Now this same principle of hardship applies to any change in the purchasing power of the dollar.
It does not in the least matter whether the change is intentional. Moreover, it cannot properly be said that, for an unintentional change, there is no human responsibility. We, the people, neglect the problem, and therefore Congress which, under the Constitution, has the power to regulate the value of money, neglects it also. Consequently, with each change in the purchasing power of money (in other words, with each change in the price level), some people lose what properly belongs to them and others gain what does not properly belong to them.
3. Salaries and Wages Slow to be Adjusted
Nor does the injustice stop with actual outstanding contracts enforcible by legal process. There are many charges which remain fixed from mere custom or ​inertia and are only sluggishly adjusted to a change in the purchasing power of money. This is true of the salaries of clerks, teachers, and public officials, and of many professional fees. It is also true, to a considerable degree, of wages.
In recent years salaried men and wage earners have been losing; for, while salaries and wages have risen, they have not kept pace with the rise in prices. Some wages have remained unchanged for months or years after the cost of living has risen, and then they have only been forced up by strikes. According to the figures of the United States Bureau of Labor Statistics, real wages, i.e. their buying power, in 1917 when we entered the war were only a little over two thirds of what they were ten years before.
Furthermore, contrary to a common impression, the average workman (though not every type of workman) has lost ground during the war. The real wages in 1918 were only 80% of those of 1913.
"Minimum wage" laws lose their meaning under these circumstances; for a minimum wage which is at one time sufficient to maintain the standard of life is later, although sanctioned by the law, quite insufficient.
4. Rates Fixed by Law or Custom also Slow
Then, too, there are the numerous prices and rates fixed by law or custom, payable to public utilities and to the government. These include, for instance, licenses and fines, and transportation fares on railroads and trolleys.
Before the war, railroads, under their legally restricted rates, found difficulty in doing business, because, while ​the prices they charged were fixed, their costs of operation had gone up with the rise of the general price level.
Street railways have likewise suffered because their fares were fixed by law, or charter, or custom, at five cents. Only after two decades, ending in bankruptcy or near-bankruptcy, have they secured, in some cases, a rise of fare to six, seven, eight, and sometimes ten, cents. In fact the plight of street railway companies is one of the facts most eloquently proclaiming the depreciation of money. Mr. Roger Babson has calculated that the street railways of the country have lost a billion dollars from this cause.
When street railways or water power rights are leased for fifty or a hundred years with the right of "recapture" by the Government, it makes a vast deal of difference what the dollar will be at the end of that time. The Wisconsin Supreme Court has had some interesting cases along this line.
Bengal is assessed for taxation on a permanent settlement fixed in rupees when they were worth 2 1/2 shillings each. They are now worth only 1 1/3 shillings each in gold, and gold itself has depreciated rapidly! As Major W. E. McKechnie, who calls my attention to this fact, well says, "Those who made the permanent settlement could have had no idea that money fluctuated in purchasing power." Similar absurdities could be cited in reference to Chinese customs, and legal settlements in England and other countries.
5. Periods before and after 1896 Contrasted
The evils both of rising and of falling prices are well illustrated by two recent sharply contrasted periods: that from 1873 to 1896 and that from 1896 to the close of the Great War.
Prices were falling during the first of these two periods. People who had things to sell—the farmer and the active business man—complained that their profits were being cut down or entirely wiped out; for the prices of their products kept falling while many of the charges they had to meet—interest, rent, etc.—remained fixed. On the other hand, people who had money to lend—the "bloated bondholder" and the "dead hand" (estates, foundations, hospitals, endowed churches and universities, for instance)—were coming to "own the earth." Their money incomes were fixed, but each dollar would buy more and more every year. For the same reason salaried clerks were waxing fat and comfortable.
But from 1896 to the present, with prices rising instead of falling, the luck changed. The creditor, in his various guises of bondholder, savings-bank depositor, lessor, salaried man, and wage earner, became the victim; while the stockholder, the farmer, the business "enterpriser," and the bull speculator were the winners in the lottery. In a word, good luck befell the man who took what was left after paying a nearly fixed number of dollars (each with a diminished purchasing power) for his operating expenses,—his interest, rent, salaries, wages, etc.
Before the war, the loss to the creditor was proceeding at the rate of nearly three per cent per annum. ​During the war, it proceeded at about eight times that rate.
It was during falling prices that such money-lenders as Hetty Green and Russell Sage made their fortunes. After 1896 and up to the present, this would have been impossible. For even had they saved every penny of interest and compounded it, they would have had only their labor for their pains and less actual purchasing power in the end than when they began! Because of our shrinking dollar no one could have accumulated fortunes by simple saving and investment at interest since 1896.
Hence it is that a new class of rich now inhabit the palaces on Fifth Avenue. The "bloated bondholders" could not keep up the old magnificence under the growing strain of high prices. They have given place to the "profiteers." In these two phrases the great untutored public shows a curious intuitive sense for the truth which it cannot quite comprehend. It knows at least "who got the money."
Shakespeare stated an economic truth when he said "there is a tide in the affairs of men which, taken at the flood, leads on to fortune." This tide between 1873 and 1896 carried the bondholders on to fortune and made them "bloated," while between 1896 and to-day it carried the stockholders on to fortune and made them "profiteers."
6. The Fault Is Not Personal but Social
It will do no good, of course, to rail at the lucky winners in the lottery. The public was greatly mistaken in attributing low prices to the "strangle-hold" of wicked bondholders and is equally mistaken to-day in ​attributing high prices to the personal turpitude of profiteers. The fault is not theirs. While they have, in a sense, won their neighbors' stakes or picked their neighbors' pockets, they did so without intent to defraud. They have simply played the game. We should stop the game, not blame those who play it. How can we blame a business man (especially one who, as officer of a corporation, acts in the interests of others whose capital he is managing) for getting the best prices he can? We cannot expect him to sell below the market. In fact, if market conditions cause profits to fall into his lap, he would be recreant in duty to throw them away. What we should aim to do is to make such abnormal market conditions impossible.
7. Two Illustrative Cases
Consider a working girl who in 1896 put a hundred dollars in the savings bank. To-day if she has allowed it to accumulate at 3% interest, she has two hundred dollars. But things now cost about three times what they did in 1896, and when she sets out to spend her two hundred dollars she finds she cannot get as much for it as she could have got at the beginning for her original one hundred dollars. After a score of years of self-denial, where is her reward, her interest? She has (without the intention of anybody) been cheated out of it all, and more too, merely through the depreciation of the "dollars " in terms of which her savings account has been kept. Her interest accrued not even fast enough to offset the depreciation in her principal. Like Alice Through the Looking-Glass, she had to run as fast as she could in order to stay in the same place!
​The bondholder is in the same plight. Perhaps nominally he has been "living on his interest"; but meanwhile the purchasing power of his principal has been decreasing, so that really, although without knowing it, he has been living on his capital. For, to keep the value of his capital unimpaired, he would have had to reinvest all his interest and more! Meanwhile the stockholder has made what the bondholder has been losing.
Dr. J. Pease Norton, referring to the first part of this period, has said: "The investor in bonds by saving all his interest payments and reinvesting would have been able to maintain his principal in purchasing power, but had he done this he would have had no income. Measured in purchasing power, the investment in stocks shows 6% per annum better than the investment in bonds."
8. The Extent of Social Injustice
The total financial interests thus affected by changes in the price level are colossal. Shortly before the war, Alfred Neymarck estimated the total securities then circulating in the world at 175 to 200 billions of dollars.
And to-day the volume of securities is greater, and the war-bonds have increased the total by probably more than 50%. ​Besides negotiable or circulating securities there are many private debts which never circulate. There are savings-bank deposits and deposits in ordinary banks, running up into scores of billions and held by over a score of million of depositors. There are scores of billions of dollars in insurance contracts of various kinds, many of them running for long terms, such as the span of human lives. The widow whose husband twenty years ago insured his life for her benefit gets to-day only a little over one third of the purchasing power contemplated in the policy.
Between the fall of 1915 and the armistice the dollar suffered a loss of purchasing power of about 25% per annum. Consequently bondholders not only lost all of their interest (of, say, 5%) but 20% per annum of their principal besides! The stockholders, in the same period, have had enormous earnings. Professor Friday has shown that the dividends of corporations in the United States in 1915-1917 were eleven billions as against seven and a half billions in 1911-1913. This increase of itself would scarcely keep pace with the rising prices and increase in number of corporations. But there is to be added the fact that the corporate reinvestment in "surplus" account was thirteen billions in 1915-1917 as against four billions in 1911–1913!
Now, at the end of the war, millions of people in the United States own Liberty Bonds; millions hold war savings certificates; millions are financially interested in the soldiers' insurance, which totals about forty billion dollars. And all these are in addition to the ​millions who already held savings in banks or owned mortgages or bonds.
In Europe, of course, the shift between contracting parties was even more rapid, because the depreciation of their moneys went on more swiftly. The German bondholder must have been essentially ruined and the reported repudiation of the Russian debt only completed openly a process that had, under the cover of inflation, already gone far.
The total unjust shift of income and principal (assuming the present high price level to continue) from shrinkage of dollars, pounds, francs, and other monetary yardsticks, since 1896, doubtless exceeds a hundred billion dollars, half or more being during the war. Almost every year untold billions of dollars' worth of social injustice is endured.
One ultimate result (except so far as a reverse movement may affect the matter) will have been, in effect, to extort the major cost of the war from widows and orphans, colleges, and hospitals, savings-bank depositors, salaried men, and wage earners. These are those with relatively "fixed incomes."
9. Uncertainty
"Fixed incomes"! What a mockery inflation and the consequent depreciation of the dollar in its purchasing power make of that phrase ! We who, through our laws, guarantee the inviolability of contracts and compel trustees to protect their wards by investing trust funds in such securities as bonds, permit, in fact sometimes cause by legislation, the loss, it may be, of half of these "inviolable" funds.
​Of course, if its victims could clearly foresee a rise or fall of the price level, they would forestall it or offset it more or less successfully. And this is actually done to a slight extent. When prices are rising the rate of interest usually rises a little to compensate partially for the depreciated principal. People then realize that bonds are a poor investment and so the price of bonds goes down, that is, the rate of interest realized rises, while the opposite happens when prices are falling. But experience shows that this compensation is seldom or never complete. Most people pay no attention to what has happened, much less attempt to forecast the future and to be guided by their forecast. Indeed, not many can escape even when they see the breakers ahead; for they are already tied up by long-time contracts.
And the few who do bother their heads over price movements are mostly professional speculators. One of the consequences of a shifting price level is speculation. The speculator, if he guesses right, makes money and lets the other fellow pocket much of the loss. And the other fellow includes the general public. The more the price level shifts and the more difficult it is to foretell it, the more active will be the speculator. So it was that, after the Civil War, with our fluctuating green-back dollar, speculation was rampant.
Already, after the World War, speculation has become rampant again and for the same reason. Unless we stabilize the gold dollar, it will continue. No one really knows now which way prices will move. The general expectation is, or has been until recently, of a fall, but ​great borrowing, slowness of liquidation and of contraction of war currencies, economies of gold use and increase of deposit banking will tend to prevent it.
The chief indictment, then, of our present dollar is that it is uncertain. As long as it is used as a measuring stick, every contract is necessarily a lottery; and every contracting party is compelled to be a gambler in gold without his own consent.
Business is always injured by uncertainty. Uncertainty paralyzes effort. And uncertainty in the purchasing power of the dollar is the worst of all business uncertainties. To mention but one specific instance, uncertainty as to the price level makes it dangerous to loan on mortgage. The banker fears that a great shrinkage of farm values may wipe out the margin which protects his mortgage and so requires a large margin. A stabler dollar would make a smaller margin sufficient, thus permitting the farmer to mortgage up to a large fraction of his farm value and so helping him and the banker as well.
One of the chief marks of a high civilization is the reduction of risks and the lessening of the many perils of life and property to which human beings are exposed. Judged by this criterion our unstable dollar is a relic of barbarism.
10. Trade Cycles
One of the results of such uncertainty is that price fluctuations cause alternate fluctuations in business; that is, booms and crises, followed by contractions and depressions. An upward price movement is apt to end ​in a business crash, after which there is a long fall causing an industrial depression, followed by another climb to the next crash. Yet the rank and file of business men do not realize the close connection between these cycles of trade and the instability of the dollar.
Briefly, the process is this: when prices rise, great profits are made because, as we have seen, the "profiteer" or stockholder wins without effort from the bondholder and from the employees on salary or wages. His easy profits lead him to "extend himself" until, when interest charges, rents, salaries, and wages do catch up, his prosperity ceases, he gets caught in debt, becomes a bankrupt, and involves others in a chain of bankruptcies.
A general crisis or even panic may ensue. In fact, a crisis is defined by Juglar as the culmination of an upward price movement,—that is, of a downward movement in the purchasing power of the dollar. Such crises have followed the exaggerated prosperity which often comes shortly after a war—for instance, after the Napoleonic Wars (in 1818), the Crimean War (in 1857), the Civil War (in 1866), and the Franco-Prussian War (in 1873). Then when prices fall the "fixed charges" are felt as a most serious drag on business and a depression of trade follows.
Yet it seldom occurs to business men that business thus staggers about because the dollar staggers.
11. Resentment and Violence
There may be persons' who, at this point, are inclined to make the smug observation that what we don't know we suffer we don't really suffer. But we cannot take so easy-going a mind cure. On the ​contrary, not only are the evils of the redistribution of wealth and of the fluctuations, booms, crises, recessions, and depressions, which have been described, very real, but the fact that people do not understand them is itself an evil. For when people are hurt but do not know what hurts them, they become suspicious of almost everything and everybody.
This suspicion some years ago led to what has been known as "muckraking." Though many big criminals were thus exposed, their machinations were scarcely enough to explain a fraction of one per cent of the evil which our shifting dollar has done, and probably are not more than could have been uncovered at almost any time in our history if the same detective work were undertaken.
This muckraking, itself bred of discontent and suspicion, has intensified that suspicion and discontent; for it has exhibited in the limelight of the public press the enormous profits made by big business and high finance, in contrast with the pitiful pay of common labor. As the late Dean Carleton Parker of the Univversity of Washington has said, this sort of public muckraking has created a fixed idea of grievance in the minds of observant and reflecting workingmen, and has much to do with the growth and bitterness of the "I. W. W."
Every rise in the cost of living brings new recruits to these malcontents who feel victimized by society and have come to hate society. They cite, in their indictment, the high prices of necessities and the high profits of certain great corporations, both of which they attribute to deliberate plundering by "profiteers" or a social system of "exploitation."
​It never occurs to them that an impersonal cause could injure them and help others, and the idea of too much money they would hail as a grim joke.
To resentment and class hatred are also to be attributed, in part, overt acts of violence and sabotage in which sometimes the employer's factory is destroyed; and food riots in which sometimes the retailer's shop is wrecked.
12. Falling as well as Rising Prices Cause Discontent
Resentment and suspicion are equally rife in periods of falling prices. Some of us have not forgotten the resentment of the western farmers against Wall Street in the nineties, and the suspicion that the farmers' woes and the woes of poor debtors, as well as the depression of trade, unemployment, and even the panic of 1893, were due to the machinations of Wall Street. Bryan's famous speech before the Democratic convention of 1896, which made him the Democratic presidential nominee, was based on the idea that the laborer and the farmer were being crucified on a "Cross of gold," supposedly due to sinister influences. The political campaign of that year was full of allusions to the alleged "Crime of '73," meaning the demonetization of silver. Populism at that time took its cue from the intolerable burden of interest, just as socialism to-day takes its cue from the intolerable burden of the high cost of living. Recently a visitor in Kansas could find no populist. The reason given was that "there is too much money now for populism." This is an unconscious recognition of the fact that the farmers' interests now, instead of being injured as they once were by falling prices and ​increasing burden of mortgages, are improving under rising prices and lightened mortgages. And just as populism stopped a few years after the fall of prices stopped, so will I. W. W.ism be arrested a few years after the arrest of the rise of prices.
13. War Prices Cause Discontent
When the history of the war is written, it may well be that we shall find that the growing popular unrest caused by the high cost of living, and the atmosphere of suspicion engendered, had something to do in giving a pretext for, if not causing, the Great War. In fact, before the war, rising costs of living were fast making socialists all over the world, including Germany, and the German government must have weighed, as one of the expected dynastic advantages of war, the suppression of the growing internal class struggle which this high cost of living was bringing on apace.
And, when all the evidence is in, it may well be found that the desire of the Bolsheviki to withdraw from the war was greatly stimulated by the soaring prices from Russian paper money inflation, as well as from scarcity of commodities.
Even in Germany, formerly so well disciplined, there was rioting during the war because of high prices, a part of which was certainly due to inflation. More recently a keen observer, an American officer at Coblenz, reports that the most plausible theory of the sudden collapse of German morale was that the German people were indignant over high prices, profiteering, and grafting. The labor troubles in France and England are attributed to the same cause. Lord D'Abernon says, according ​to newspaper reports, that in his opinion 80% of the labor discontent of Europe is due to this cause. The labor discontent following the war is worldwide because the rise of prices is worldwide. This discontent is not confined to the countries which were actually engaged in the war, but is found in out-of-the-way places like Portugal and even in far-away New Zealand, once called "the land without strikes" but now afflicted with strikes because strikes seemed necessary to enable wages to overtake the high cost of living.
If I am not greatly mistaken, further trouble is now brewing over high prices. While the war lasted it served, and properly, as an excuse and explanation. But now that the war is over, the high prices seem, to many, inexcusable. If, as I anticipate, prices remain at high levels and the public fails to see why, they will wish to wreak vengeance, some on one luckless object of their wrath, some on others—profiteers, landlords, employers, speculators, middlemen, retailers, trusts, railways, labor unions, etc. If the price level stays high, profiteering will increase—as an effect not a cause.
One result which will probably occur will both surprise and anger the public. This is a further great increase of earnings of industrial companies and a great increase in the value of their common stocks. For, if prices are to stay double what they were before the war, gross earnings will tend to double and, after deducting the "fixed" interest, rent, and dividends on preferred stock, the net earnings accruing to common stock will ​tend to more than double. The I. W. W. and other radicals will put their own interpretation on such prosperity of "Wall Street," the figures of which they are always watching. They will be right in thinking that the high profits represent social injustice. What they do not realize is that the injustice is chiefly against the bondholders, and that the transfer between these two classes of investors is an effect of raised prices, not their cause.
14. Adjustments Most Needed, the Most Unpopular
One of the most interesting and curious by-products of the maladjustments we have seen and of the misunderstandings of the nature of the process is that the public is most angry at those latest to seek relief by higher prices, the very ones who need relief most.
It was this mental attitude on the part of the public which so long prevented a rise in railway rates. The Interstate Commerce Commission, consciously or unconsciously, reflected public opinion when, prior to the war, it refused repeated requests for relief through a rise of rates. The public, instead of seeing in the general rise of prices a depreciation of the dollar and the consequent need of a prompt and corresponding rise in such prices as had remained unadjusted to the cheaper dollar, demanded indignantly, "Haven't we suffered enough already from the high cost of living? While we are protesting against the other conspirators who are raising prices and while we are trying to force them to reduce prices, we certainly won't permit this further addition to the high cost of living." In thus thinking of their own grievances they overlooked the ​fact that the railways had been more long-suffering than themselves.
Until Mr. McAdoo, as director-general of railways in the war, raised the rates in 1918, they had been practically unchanged since 1896. Even including the advances of 1918, freight and passenger rates are but 12 and 20% higher, respectively, than they were in 1896 while the price level has risen 200%!
The same strong public feeling long prevented a rise in the fares of electric railway companies above the traditional five cents.
If a five-cent fare was just in 1896 and if the other factors in the case, wages, material, equipment, etc., have, on the average, risen proportionally with the general rise in prices, that is, are three times what they were in 1896, then the "fair fare" for the companies to-day should be fifteen cents! Or, if to-day a five-cent fare is just and expenses in 1896 were lower than now in proportion to prices in general, the just fare in 1896 should have been about two cents!
In the same way tenants have deeply resented the rise of rents, long belated though it was. Rents did not respond to the rise in general prices for many years, in fact were, in some cases in Europe, temporarily remitted on the principle of the moratorium. When finally they did respond, they went up suddenly and, to the tenant already long injured by the high cost of living, the rent raising seemed "the most unkindest cut of all." As this book is being written the "rent profiteer" in Europe is being lampooned, insulted, and even stoned.
​Even more curious is the fact that the beneficiaries of high prices are themselves indignant over the high prices charged by others. Employers who are getting high prices and high profits often object strenuously to raising wages and salaries. Farmers who are getting high prices protest vigorously against paying high prices.
There is a true story which illustrates this. A farmer inquired from the manufacturer the present price of a certain type of buggy such as he had bought once before. The price quoted seemed to him outrageously high and he accused the manufacturer of "profiteering," reminding him of what the former price of this buggy had been. The manufacturer, after looking up the record of the transaction, and discovering that the farmer had previously paid for such a buggy by a shipment of wheat, reckoned at the low prices then prevailing, replied: "If you will ship to me for the new buggy the same amount of wheat you shipped for your old one, I will gladly ship the buggy and in addition will ship you a piece of household furniture and a good kitchen stove!"
In short, everybody is eager to take advantage of rising prices, but feels aggrieved if anybody else snatches the advantage away. Thus the high cost of living becomes a veritable "apple of discord." If high prices have come to stay, of course the sooner all the adjustments are made the better. "Wages especially need to be raised, as do salaries, rents, and the rates of public service corporations. It will probably be less disturbing, on the whole, to level up the few such things than to level down the many other things.
15. Bad Remedies
In short, either a rising or a falling price level wrongs great classes of society and brings discontent, suspicion, and violence. The public fails to discern the great cause lying back of all the trouble; but it detects, almost unerringly, "who's got the money" and, though less unerringly, at whose expense. It demands a remedy without first knowing the correct diagnosis.
Thus any price disturbance gives a hearing to all manner of reform movements, whether apropos or irrelevant and whether good, bad, or indifferent. For instance, Henry George's single-tax propaganda was aided both by falling and rising prices. During the falling prices there was the spectacle of the tenant oppressed by an increasing burden of rent and the independent farmer oppressed by an increasing burden of interest. These evils thrust the "land problem" forward, especially in Ireland and Kansas, and any proposal to solve the land problem got a ready hearing.
When, later, prices rose it was natural to attribute this rise to pressure of population for subsistence on the margin of cultivation, especially as by the time this theory was urged the belated rise of rents and of land values began. The high cost of living seemed explainable by high real estate values and raised land rents, and indignation against the system of private ownership of land was readily aroused, especially as numerous instances were at hand of great fortunes made from the unearned increment and of land frauds, land grabs, and exploitation by great corporations of natural resources.
Not all the reforms which thus get factitious help from price movements are genuine reforms.
​The fact is that among the worst consequences of price convulsions are the vicious remedies proposed. Like the remedies of primitive medicine, they are often not only futile, but harmful. Yet the patient will always demand medicine. The let-alone policy will not do for him. He knows that the present condition of things is bad and needs changing. His attitude of mind is a frantic "I don't know exactly what's the matter or what needs to be done, but for Heaven's sake let's do something." It is clear, then, that unless a scientific remedy is found and applied there is always great danger of quack remedies.
In the nineties, after a prolonged fall of prices, which had begun in the seventies, when so much was said of the so-called "Crime of '73," several unscientific remedies were on the market. A book that went by the name of "Coin's Financial School" proposed the coining of all silver brought to the mint into silver dollars, each sixteen times as heavy as the gold dollar, although at that time a gold dollar would buy in the market not sixteen times, but about thirty-two times, its weight in silver. This book had a phenomenal circulation and influence; and the "16 to 1" remedy, which would have been worse than the disease, came very near being adopted. The movement for it was based on a consciousness of the true cause of the falling prices—inadequate gold; but, instead of regarding this impersonally and seeking merely to prevent further fluctuation, the "free silver" advocates put the blame on the "gold bugs of Wall Street" and sought to "get even" by a sudden debasement of the dollar equal to fifty per cent.
Since then, of course, we have witnessed, in gold itself, more than this amount of depreciation,—a gold ​dollar to-day being worth scarcely a third of what the gold dollar of 1896 was worth. Yet who thinks of that depreciation as atoning for the "Crime of '73"! On the contrary, we regard that depreciation (as shown in the rising price level) as but another evil. We now wish to find a remedy for it as well; and so to-day we are being threatened with other unscientific remedies, such as revolutionary socialism, syndicalism, and Bolshevism. Reckless radicalism rides in on the wave of high prices.
16. The Loss Is General
We have seen that the primary evil of these aberrations is social injustice, a sort of subtle pocket picking. At first glance it might seem that such a transfer is not a general evil; for what some lose others seem to gain, and they do—at first. But the secondary evils are very general, namely, the evils from speculation, uncertainty, crises, depression, resentment, violence, ill-considered "remedies." Moreover, curiously enough, as with ordinary gambling, even the ill-gotten gains of the winners are largely swept away in the end. Thus, as during the present rise of prices, strikes, riots, violence, and the other secondary effects of rising prices destroy the profits of the winners by blocking the wheels of industry and even destroying its tools. If we are going to have discontented workmen smash our windows and run the wooden shoe through our machinery, it is not so much a question of who is going to get the profits as a question of whether there are to be any profits. If we want workmen to be contented, we must let them have a fair share of prosperity and not let a shrinking dollar defraud them.
​Furthermore, the crisis which follows the "boom" period is of itself a day of reckoning, at which the profit-taker pays dearly for his prosperity.
Similarly, during a period of falling prices, when the vampire is not the profit-taker but the creditor, the winner is also apt to lose his winnings when, as was shown in §10 above, the stipulated interest he exacts grows into an intolerable burden and bankrupts the debtor. A special injury to business comes when the creditor forecloses his mortgage on industry and undertakes to run it himself. The creditor—especially the ordinary bondholder—is, usually and normally, the simple investor of capital, the "silent partner" in business. He lacks the temperament and training to be a captain of industry. Nevertheless, after years of falling prices during which he has been draining, unobserved, the life blood of the enterprise whose bonds he holds, until there is no profit left for the captain of industry who has been managing it, the mortgage is foreclosed and the captain, held responsible for the shipwreck, is forced out, discredited, and humiliated, and wholly unable to articulate or even to understand that it was not wholly his fault, if at all, but the fault of his instrument of reckoning, the dollar. Thereupon the bondholder is forced to take control. Thus the management drifts into wrong hands, turns into mismanagement, and the bondholder is hoist with his own petard. Like Shylock, though unconsciously, he has been exacting his pound of flesh until he has overreached himself. As David Harum wisely said, "It ain't a bad idee to be willin' to let the other feller make a dollar once 'n a while."
The wage earner also is involved in the catastrophe. ​Primarily a gainer when prices are falling, because his wages fall more slowly than prices, he nevertheless suffers more unemployment during this lowered cost of living than during rising prices, and in the mismanagement, at the end, he suffers with the rest.
In short, almost no one gains long or gains much either from rising prices or from falling prices. To society as a whole, there is, in either case, a great net economic loss as well as great injury to social justice and good will.
17. Conclusion
Thus this seemingly simple little matter of shortening or lengthening the monetary yardstick, so far from being a merely nominal and unimportant change, is really more or less responsible for some of the greatest events in history. It causes mighty convulsions of prices and these, directly or indirectly, rock the social structure to its foundation.
* ↑ Under an existing treaty signed by eighteen powers, China cannot increase her import duties beyond a 5% ad valorem tax based on an average of the prices of 1897, 1898, and 1899. This amounts to only about 2 1/2% ad valorem, based on the prices of to-day.
* ↑ "Stocks as an Investment When Prices Are Rising," Securities Review, Scranton, Pa., Sept. 1912. Several other writers (e.g. Charles Rist in Revue Économique Internationale, Brussels, March, 1913) have shown clearly that dividends rise greatly during rising prices and fall greatly during falling prices.
* ↑ For the enormity, in more senses than one, of the evils of paper money inflation, see Sumner's History of American Currency, N. Y. (Holt), 1884; Bullock's Monetary History of the United States, N. Y. (Macmillan), 1900 (especially pp. 40 and 74).
* ↑ For a brief discussion of the grave problem ahead of us relative to war debts and price levels, see Appendix I, §4.
* ↑ See The Rate of Interest, Irving Fisher, (Macmillan), 1907, Chapter 14.
* ↑ See Irving Fisher, The New Price Revolution, Information and Education Service, U. S. Department of Labor, March, 1919.
* ↑ Intelligent business men in New Zealand understand that the basic cause of this reappearance of labor troubles is the depreciation of money, and, as a consequence, the New Zealand Board of Trade is now seriously considering the introduction of the plan for stabilization of money here proposed.
* ↑ See Theodore H. Price, "The Index Number Wage," Commerce and Finance, May 7, 1919.
* ↑ Besides the effects of price movements above cited, which are specifically evil, history is full of other great effects,—some even beneficent. Price movements, like wars, inevitably arouse, irritate, stimulate. Falling prices stimulated the great Irish land agitation and the Home-rule movement because of the pitiable condition of the Irish peasant debtors. Falling prices stimulated the idea of Protective tariffs. Rising prices stimulated the idea of Free Trade. England abolished the corn laws when the cost of living was rising, and under the same whip the United States adopted the Underwood low tariff and, earlier, the low tariff of 1857. It was as an antidote for the falling prices of the '20s and the '90s that the doctrine of protection scored its greatest successes in the United States. Not only economic history but political and social history would have been totally different had it not been for the aberrations of monetary units.