Page:Stabilizing the dollar, Fisher, 1920.djvu/227

8, A] the world, otherwise gold would flee entirely from or to the nation which should alter the present "uniform" price.

We shall see that these ideas are mistaken. In the first place let us see clearly the "fallacy of the mint price." Superficial reasoning, starting from the fact that our mint price ($20.67 an ounce of pure gold) and England's mint price (£3. 17s. l0½d. for gold $$\tfrac{11}{12}$$ fine) are now "the same," concludes that, if our price were lowered 1%, i.e. to $20.46, while the English price remained unchanged, all our gold would be sent to England to take advantage of the "higher" price there.

But $20.67 would then cease to be "the same" as £3. 17s. l0½d. and $20.46 would become "the same" as £3. 17s. l0½d. ! The reason is that comparisons between English and American prices are based on the "par of exchange" and this par would change. At present the par is $4.866 of American money for £1 of English money; but this par of exchange is based on the relative weights of the dollar and the sovereign! Consequently a change in the weight of the dollar and the price of gold will change proportionally the par of exchange. If the dollar's weight is changed 1% so that the mint price becomes $20.46 (instead of $20.67), the par of exchange will become $4.82 (instead of $4.86⅔).

It is true that each increase in the weight of the gold dollar in America—in other words, each fall in the official American price of gold—would at first tend to discourage the minting of gold in America. The miner might send more of his gold to London, where the mint price had not changed, and "realize" by selling exchange on the London credit thus obtained. But the rate of exchange would soon be affected through these very operations by which he attempted to profit, and his profit would soon be reduced to zero; the export of gold to England would increase the supply of bills of exchange in America drawn on London and lower the rate of exchange