Page:Stabilizing the dollar, Fisher, 1920.djvu/189

. 1, J] idle gold surplus into an active bond surplus would, theoretically at least, have its own effects on the value of gold. It might either lower or raise that value. The net effect would be the resultant of two opposite tendencies.

Of these two the tendency to lower that value will be explained first. This tendency can be clearly pictured if we follow the processes involved, step by step. These processes are best followed if pictured, not as one immediate sale of the entire gold surplus for bonds, but as a gradual sale, extending over a number of adjustment periods.

The gold thrown on the market to buy up bonds would mostly find its way out of circulation, i.e. go abroad or into the arts. This outflow would be indirect; for presumably the original bondholders would not wish personally to deal in the gold bullion supposed to be given them for their bonds. They would hand back this bullion to the Government in exchange for gold dollar certificates, just as though it were new gold from the mines.

The result would be substantially the same as though the bonds were bought not with gold, but with newly created certificates, the gold remaining in the surplus.

But this extra output of certificates would not remain in circulation but would disappear again and be canceled; for they would tend to raise the index number and lead to an increase of the dollar's weight, i.e. a decrease of the price of gold, and there would be a decreased inflow of gold from the mines and imports and an increased outflow into the arts and abroad, i.e. a decrease in certificates issued by the Government to miners and gold importers and an increase of certificates received by the Government from jewelers and gold importers.

The upshot is, substantially, that, while gold would not find a welcome among bondholders, it would, as gradually cheapened at successive adjustment periods, find a market abroad, or in the arts. That is, in effect, the gold displaced by the bonds, after being bandied