Page:Stabilizing the dollar, Fisher, 1920.djvu/184

130 whereas under the "definite-reserve" system there would be, in addition, an inflow and outflow of certificates through special issues or cancellations to keep the total outstanding volume of certificates in tune with the gold reserve.

Under the "indefinite" system the only regulator of the price level consists in adjusting the weight of the dollar. Under the "definite" system there is the added regulator of directly adjusting the volume of certificates.

Both regulators, however, act on the price level by influencing the volume of certificates. The indefinite system does so indirectly. Under this system, as noted in Chapter IV, §9, when the dollar's weight is decreased, i.e. the price of gold is increased, the deposit of gold is encouraged (as compared with what it would otherwise be) and its withdrawal comparatively discouraged, and, as we know, each deposit or withdrawal of gold implies an issue or cancellation of certificates.

In short and practically, the "indefinite" system depends for its stabilizing effect on affecting or preventing the international movements of gold which would otherwise happen, whereas the "definite" system dispenses with the need of interfering with the gold movements as they now occur.

The "indefinite" system is always subject to the risk of a breakdown, whereas the "definite" system is not. Under the "indefinite" system the reserve might sometime sink to zero and redemption become impossible, whereas under the "definite" system the adequacy of the reserve is always safeguarded.

The "definite" system would act more promptly to stabilize the price level than would the "indefinite," because, for one reason, the change in the circulation would be more prompt. The instant any change in the dollar's weight is made there is a change in the number of dollars of the reserve, and the volume of certificates is readjusted to this changed reserve immediately. Under the "indefinite" system, on the other hand, the