Page:Stabilizing the dollar, Fisher, 1920.djvu/186

132 1900 and consider the situation in 1915. The price level would then have been kept unchanged, but there would have been an increase of the dollar's weight of more than 30% although there was only a 30% rise of prices to be overcome.

F. A 50% Minimum Reserve. The maintenance of the 100% Government gold reserve, as described in "B," is only one of several possible solutions of the reserve problem. It is the one which would fit in with the idea implied in our present system of gold certificates, namely, the idea that the certificates are circulating proxies for gold.

But there are other ways of solving the problem. One is simply to let the reserve alone so long as it remains in excess of a specified safe minimum and to replenish it only when, if ever, it falls below that minimum, i.e. to keep the indefinite-reserve system until a definite-reserve system became necessary. When, if ever, the reserve should fall to that minimum, say 50%, the principles described under "B" for maintaining a 100% reserve would thereafter apply. If the reserve became insufficient, in other words, if, at any time, the number of dollars of certificates outstanding were in excess of double the number of dollars of reserve, the excess of certificates would be retired.

The 50% limit would be reached if, for example, the present gold reserve remained unchanged in physical amount but, after a time, the dollar's weight grew to be double what it now is.

G. How Soon Might the "Indefinite" System Reach Its Limit? The time required for such a change, should such a change ever occur, would depend, of course, on the rate of change in the dollar, following the rate of depreciation of gold. Let us take a case which is extreme for rapidity of depreciation in times of peace. Suppose that gold should depreciate at the rate it did between 1896 (the low ebb of prices) and 1914 (the coming of the Great War). During this period the price level rose in the United States at the average rate