Page:Stabilizing the dollar, Fisher, 1920.djvu/273

1, G] ''G. "It would interfere with supply and demand." '' Rather would it simply disentangle the supply and demand of, say, wheat, from the supply and demand of the money medium. As things are now the price of wheat always includes, besides the effects of the supply and demand of wheat, the effects of the supply and demand of gold, of credit, etc.

A study of the two curves of Figure 13 shows how the two sets of phenomena are now entangled as well as how natural is the error of overlooking the money ingredient in the price of wheat. In their year-to-year changes the two curves agree in moving up together or down together in 24 cases out of 26! A wheat merchant could doubtless see, for each of these 24 changes, a definite reason in the wheat market, without any apparent need to invoke the monetary element. He would be able to say that between 1914 and 1915, for instance, the price of wheat rose rapidly because of certain specific war conditions affecting wheat. And he would be substantially right qualitatively. Only a quantitative analysis such as Figure 13 gives could disclose the fact that of the 27% rise, only 25% was due to the causes he saw and 2% was due to the depreciation of the dollar.

Under a stabilization system the price of wheat would have gone up 25% as in the middle curve. The supply and demand of wheat would not be interfered with but simply separated from monetary fluctuations which would be registered in the price of gold.

Under our present system, the price of gold is cut off from the operation of supply and demand altogether. If gold were as plentiful as the pebbles on the beach, its price would, under the present arbitrary system, remain immovable at $20.67 an ounce!

This fixity of the price of gold might itself be called an arbitrary interference with natural supply and demand, as was indicated in Chapter V, § 3. Were the natural law of supply and demand allowed to take its