Page:Stabilizing the dollar, Fisher, 1920.djvu/182

128 the essential fact that, in the last analysis, the retirement of certificates would be through taxes, or other revenues, while their issue would make possible a reduction in taxes.

C. The Reactions Involved Thereby. These operations of canceling old, or printing new, certificates to make the certificates even with the gold reserve would, as has been noted, be quite apart from the routine operations of redemption and issue in exchange for gold, although, of course, there would be reactions between the two sets of operations.

Thus, if gold is depreciating relatively to commodities, as shown by a tendency of the index number of commodity prices to rise, the consequences would be that: (1) the weight of the gold dollar would be increased, i.e. the price of gold would be reduced; (2) the deposit of gold (issue of certificates) would be discouraged, and the redemption of certificates encouraged, both operations tending to reduce the volume of certificates in circulation; (3) as the gold reserve would fall below 100%, some of the certificates in the Government's possession would be destroyed instead of being put back into circulation, thus further lessening the volume of certificates.

The third of these operations would thus reënforce the second in effecting contraction, would help bring down the rising index number to par, and would obviate, or reduce by that much, the need, at the next adjustment period, of a further increase of the dollar's weight.

If gold were appreciating, the opposite conditions would obtain, namely: (1) the dollar would be reduced in weight; (2) the deposit of gold (issue of certificates) would be encouraged and redemption discouraged; (3) new certificates would be created and issued to bring the total volume of certificates up, so as to equal the reserve. The effect of (3) would be to reënforce (2) in expanding the currency and bringing up the sinking index number; so that the need at the next