Page:Stabilizing the dollar, Fisher, 1920.djvu/224

170 maintaining monetary standards, and any stabilization plan might have to be temporarily suspended as one of the emergency measures of war, just as the English Bank Act is temporarily suspended during a crisis. Stabilization could be maintained provided the war could be financed without recourse to inflation, i.e. could be paid for out of taxes and loans from savings. Inflation, which is really a forced loan, puts the otherwise unpaid cost of the war on the shoulders of those of "fixed" incomes, in the form of a high cost of living.

In the future, we have reason to believe, no such world crises are in store. But should they come, and stabilization were suspended, we would, of course, be no worse off than if there had been no stabilization. (See also Appendix II, § 2, D.)

C. Maintenance of Redemption. Thus stabilization, to be successful, implies the maintenance of redemption. The typical or ideal, though by no means the only efficient, type of a redemption-law is one which keeps deposits and paper money more or less proportional to bank reserves (of gold bullion dollar certificates) together with a Government reserve law (as described in § 1) which keeps the volume of gold bullion dollar certificates proportional to the volume of gold dollars in the Government reserve. Under such conditions all parts of the circulating medium tend to expand or contract in unison and a change in weight of the basic gold dollar carries with it a control of the whole mechanism of exchange, cash, and credit.

Bank credit, paper, and the gold reserve (in dollars) would then expand or contract as needed (by the requirements of trade, etc.) to keep the price level constant.

D. The Rôle of Bank Discount. It would be going somewhat outside the scope of stabilization plans to discuss, in detail, the banking procedure for keeping the credit superstructure more or less proportional to the redemption base of gold or gold certificates.

Suffice it, in this connection, to call attention to one