Page:Stabilizing the dollar, Fisher, 1920.djvu/183

. 1, D] adjustment period of a further decrease of the dollar's weight would be lessened.

In short, if we thus keep the reserve constant (relatively to the certificates), we thereby lessen the variations which have to be made in the dollar's weight. It will be noted that, if gold is depreciating, the value of the gold reserve diminishes and taxation (or other financing) is required to keep it up to 100%. Under such circumstances the Government is in the position of the holder of a perishable commodity. Its gold is like ripe fruit spoiling on its hands and the Treasury suffers a loss accordingly. It taxes the public to provide for the depreciation.

The loss from gold depreciation is not, however, due to stabilizing the dollar and maintaining the reserve. The same loss, in some form, occurs whenever gold is depreciating and whether or not the dollar is stabilized. Under our present system the loss falls on the individual holder of gold certificates instead of on the Government Treasury. Every dollar of these certificates now in our pockets shrinks in purchasing power whenever gold depreciates. To stabilize the dollar simply affords a specific measure of this loss, and the operation of maintaining the reserve translates that loss into taxes.

The same principle applies to the opposite case. Under our present system, when gold appreciates every individual holder of gold certificates receives an increment of value. The gold certificates grow in value in our pockets. Under the system of a stabilized dollar, and a constant 100% reserve, the Government Treasury would reap this advantage and bestow it back on the public by lightening, by that much, the tax burden.

Thus, maintaining the reserve constant at 100% merely changes the form of the gain or loss always involved when the gold in existence varies in value. Any gain or loss, under the stabilization plan, would simply be more conspicuous than at present, entering as it would into Government accounts.

Such gain or loss must, of course, not be confused with the gains and losses of contracting parties which would be annihilated altogether by stabilization. (See Appendix II, §I, J.)

D. The Definite- and the Indefinite-Reserve System Contrasted. The last sentence indicates only one of several interesting contrasts between the two forms of the stabilization system—the first, or indefinite-reserve system (described in A above), in which the reserve is allowed to drift, and the second, or definite-reserve system (illustrated in B), in which the reserve is regulated.

Under the "indefinite-reserve" system the only inflow and outflow of certificates would be through the deposit and withdrawal of gold, just as at present;