New-York tribune., 1921-12-11
Part of Problem

fP0rt OF PTOblem
But the mere stopping of imitation
is only part of the problem of none
tary stability We must stop def1ation
as we'll. These two, imitation and de-
fation, are twin evils and not, as many
unthinkingly assume, antidotes one of
the other. BY imitation is meant an
increase in means of payment beyond
the needs of business. If there be such
an increase, that is, if there be more
currency than is needed to maintain a
given level Of prices, prices will rise.
By defiation is meant, contrarywise, a
decrease in the means of payment
relatively to the needs of business.
When such a decrease occurs prices
will fall. A stable price level can ex-
ist only when both imitation and de-
hation are absent.
The instability Of the level of prices,
that is, Of the purchasing power of
money, presents itself to our notice
through three sets Of market phenom
ena, namely, first, fluctuations of the
mark, franc, dollar, ETC., in foreign ex-
change; second, fluctuations in the
premium on gold in paper money
country; and third, fluctuation in the
"index number" of prices.
These phenomena have begun to
teach the public, what it seems so 10th
to believe, that money can and does
vary in value.
Public opinion received it's first gem
cral education on this subject in Eng
land after the Napoleonic wars, from
the now famous Bullion Report" to
Parliament 1t was then shown that
the high price of bullion ought rather
to be considered a low value of paper
money; in other words, that gold had
more right to clain stability than
paper. And now, full century later,
after another great world war, a sec
ond and similar great step forward in
public opinion is in process of being
taken. This is the recognition of the
fact that gold itself is not stable.
Though long known to'economists this
idea will be just as rude shock to
the average man of affairs to-day as to
EIcoC-S HQ4dtii IL was SlOCh
to discover that the paper money of
the Realm was not stable.
That those who wrote the Bullion
Report" did not go further than they
did and recognize the instability of
gold itself is due, I believe, to the
fact that they had no means of measur-
ing the value OF gold relatively to COM
modities. That is, the modern device,
called the Index Number, was unknown
to them.
Fall in Cold Value
1t was keen English economist,
Jevons, who, generation ago, by
means of an index number, first showed
"a Great Fall in the Value of Gold"
Since his day the index number has
been increasingly used as an instru-
ment for measuring the relation be-
tween commodities and money.
Jevons showed that between 1889
and 1909 prices doubled, that is the
value Of money was cut in two, and
that between 1909 and 1849 prices were
cut in two, that is the value of money
was doubled. Between 18A9 and 1873
prices rose so per cent, that is the
value OF money shrunk by one-third.
Between 1873 and 1896 in gold standard
countries money appreciated by about
one-quarter, and between 1896 and the
outbreak of the great war it depreci-
ated about one-third. During the war
money in the United States lost half
of it's purchasing power, while in the
rest of the world, which went onto
various paper bases, the purchasing
power OF money shrunk still more. In
England it shrunk to nearly a third
Of its pre-war purchasing power; in
France it shrunk more; in Italy still
more, and in increasing order in Ger
many, Austria and lastly Russia, where
prices have risen thousandfold, or the
purchasing power of the ruble shrunk
below the thousandth part of its for
mer value.
This picture Of depreciation is not
one of paper currency only. In the
United States the whole depreciation
was in gold itself. Displaced from Eu-
rope by paper, it became O. drug on the
market in the United States and lost
over half its value in terms of COM
modities, incidentally causing great
loss to producers Of gold, and so re-
duction in its production and an in
crease in it's consumption in the arts
Finally. during the last year defla-
tion has taken place in most countries.
raising the purchasing power of money
in the United States and England
about half way to its pre-war level.
The gold dollar has thus danced up
and down as really, If not as much, as
fho porav %r~uc t..