Page:Appreciation and interest.djvu/18



We must begin by noting the distinction between a foreseen and an unforeseen change in the value of money. Only the losses or gains of the former can be forestalled. A sudden and unexpected inflation, as in the United States in 1862, works enormous losses to creditors while an unforeseen contraction is equally harmful to debtors.

How far foresight in such matters actually exists will be discussed in Part II. At present we wish to discover what will happen, assuming this foresight to exist.

If a debt is contracted optionally in either of two standards and one of them is expected to change with reference to the other, will the rate of interest be the same in both? Most certainly not. Only a few months ago the Belmont-Morgan syndicate offered the United States government the alternative of taking some 65 millions at 3% in gold or at 3¾% in "coin." Everyone knew that this additional ¾% was due to the mere possibility of free silver coinage. If the alternatives had been between repayment in gold and—not possible but actual—repayment in silver, the additional interest would certainly have been much more than ¾%.

To fix our ideas, let the two standards be gold and wheat, and, while today a bushel of wheat is worth a