STABILITY OF THE EXCHANGE STANDARD 557
a fall in the value of a currency in terms of a particular commodity such as gold, then there has been no excess at all in terms of commodities in general. Now there was a time, particularly during the discussion on the Bullion Report, when the conception of a change in the value of the currency in relation to things in general was not quite clear even to the most informed minds,* and was even pronounced invalid by high authorities.† In view of the absence of the system of index numbers, this simple faith in the summary method of ascertaining depreciation by some one typical article, gold for instance, as a measure of value, was excusable. But the same view is without any foundation to-day. No one now requires to be shown that the price of each commodity has varied to the same extent and in the same direction as prices of commodities in general before admitting that there has been a change in the value of a currency. Why assume a single commodity like gold as a measure of depreciation ? It would be allowable, although it is short-sighted to do so, if the depreciation of gold was an accurate measure of the depreciation of a currency in terms of all other commodities. But such is not the case. Commenting upon the experience of the United States with the greenbacks during the Civil War, Prof. W. C. Mitchell observes‡ :
“The fluctuations in the price of gold which attracted so much attention were much more moderate than the extreme fluctuations in the prices of commodities. The gold quotations lay all the time well within the outer limits of the field covered by the variations of commodity prices....... During the war gold moved up or down in price more quickly than the mass of commodities...... When gold was rising in price the majority of the commodities followed, but more slowly...... When gold was falling in price the majority of commodities stood still or followed more slowly...... This more sluggish movement of commodity prices appears still more clearly after the war. Rapid as was the fall of prices it was not so rapid as the fall in gold. A more curious fact is that the price-level for
- Canning’s castigation of Lord Castlereagh’s definition of standard as “a sense of value” during the Bullion debates must be attributed to his ignorance on this matter.
† Ricardo, in his Proposals for an Economical and Secure Currency says :“It has indeed been said that we might judge of the value of a currency by its relation not to one but to the mass of the commodities...... Such a test would be of no use whatever...... To determine the value of a currency by the test proposed...... is evidently impossible.”
‡ Gold Prices and Wages under the Greenback Standard, 1908, pp. 39-41.