Page:Stabilizing the dollar, Fisher, 1920.djvu/196

142 effectually stop injurious speculation, might, in some cases and for the time being, prevent the full adjustment in the dollar's weight (and in the price of gold) called for by the index number.

Thus the index number might indicate a change of 2% in gold prices, while only 1% was permitted under the restriction mentioned. Suppose the redemption-price of gold to be $18.00 and the deposit-price 1% less, or $17.82. Suppose, further, the index number at some adjustment period to be found to be 2% above par. Then, it is true, the price of gold could not be changed more than 1%, or 18 cents. Instead of being reduced the full 2%, or 36 cents, as would be the case if there were no restriction, the redemption price would, on account of the 1% restriction, only be reduced from $18.00 to $17.82 (instead of to $17.64) and the deposit price from $17.82 to $17.64 (instead of to $17.46).

The sacrifice in efficiency of the system here implied is, however, insignificant, assuming, of course, that the fee or margin is wisely chosen in reference to the adjustment period. And even if the sacrifice of efficiency were greater, the superiority of a merely partial adjustment over the present unyielding system of no adjustment at all would be very great.

If the adjustment is to occur monthly, or bi-monthly, a brassage of 1% would seldom hamper stabilization appreciably; if quarterly, 2% might better be used, as giving more latitude. I incline, however, toward a bi-monthly adjustment period and a 1% fee, the prices being quoted, let us say, for the first Wednesday of January and of every alternate month and the resultant index number proclaimed and made effective on the Wednesday following or earlier. Calculations with a 1% fee applied to the actual prices of 1900-1914 seem to justify this choice.

B. Speculation beyond One Adjustment Period. The only kind of speculation thus far considered is the "overnight" variety based on a foreknown change in