Page:Stabilizing the dollar, Fisher, 1920.djvu/194

140 would be in danger of sustaining loss every time a prospective change of the dollar's weight and the price of gold was known. For instance, if, at any time, the Government stood ready to buy or sell gold at, say, $20.00 per ounce and if it were known that to-morrow that price would be raised to $20.10, speculators could to-day buy, of the Government, gold bullion at $20.00 and sell it back to-morrow at $20.10, thus pocketing a profit of 10 cents an ounce overnight at the expense of the Government. Were this operation allowed or made possible, it would be costly to the Government Treasury and might temporarily deplete its gold reserve.

The opposite speculation would, were it not prevented, accompany a drop in the official price. Speculators who possessed stocks of gold could conceivably sell to the Government to-day at, say, $18.00 and buy back to-morrow at $17.90, likewise profiting 10 cents an ounce at the expense of the Government. This last operation would also be costly to the Government, though it would (during the period of operation) increase its gold reserve.

But the "brassage" requirement would effectually protect the Government from either sort of speculation. The Treasury would be put thereby in the usual position of any merchant or broker, charging, at any time, a slightly higher price than it pays at that time and making a profit. This profit, or brassage, would be the Government's fee for its services in maintaining the monetary system. Wedged between the two Government prices, it would remain a fixed percentage, say, 1%, so that the pair of prices would rise or fall together.

In order that this margin should always fully safeguard the Government it should be provided in the plan that the extent of any one shift in the pair of prices, whether that shift be upward or downward, must never exceed the margin or brassage fee. Thus, if the fee is 1%, no one shift could be more than 1%.