Page:Stabilizing the dollar, Fisher, 1920.djvu/229

8, B] dollar were doubled, i.e. were made a tenth of an ounce. The mint price in America would then be $10 per ounce which (the par of exchange being $$\tfrac{10}{4}$$ or $2½ per £) would be "the same" as £4 an ounce; for $10=$2½×4, or 10=$$\tfrac{10}{4}$$×4.

To turn from theory to experience, if those against whom I am reasoning were correct, everybody would now take his gold to the Mexican mint where he could get twice as many dollars as he can get from the United States mint! Obviously the fallacy lies in the fact that Mexican dollars are half as heavy as ours.

B. Gold Reserves and Price Levels as Internationally Related. So much for the effect of our individual action on the international exchanges. The second effect to be emphasized is the release of the United States from the danger of alternate gold famines and feasts. At present foreign countries may deluge us with gold or drain it away. The only effectual stop to the inflowing tide comes from the rise of our price level and our only important defense against the continued ebb of gold is from the fall of our prices. Thus is our gold reserve now at the mercy of Europe. Their banking and currency policies, over which we have no control, their trade and tariffs, their wars, all affect our gold supply. Thus the Great War, by dumping the gold of the belligerents on neutral countries (including, in 1915–1917, the United States), inflated prices in these neutral countries and a reflux of gold may deflate them whenever Europe deflates her currencies sufficiently.

The only methods used in the war to safeguard against these floods and ebbs of gold were: (1) — as against a flood — the action of Sweden, Holland, and Spain virtually stopping the free coinage of gold and (2) — as against an ebb — the "embargo" on the export of gold adopted by many countries, including the United States.

These were attempts at a partial control of a nation's gold supply by stopping the inflow of gold into the nation's circulation or its outflow therefrom.