Chapter 6: The Standard of Deferred Payments

REFERENCES.

_Fisher, Irving_, Appreciation and interest. A. E. Assn. Pubs., 11:
331-442. 1896.

_Fisher, Irving_, A remedy for the rising cost of
living--standardizing the dollar. A. E. Rev., 3 (no. 1, supp.):
20-28. 1913. Round table discussion of above, 29-51.

_Fisher, Irving_, Objections to a compensated dollar answered. A. E.
Rev., 4: 818-839. 1914.

*_Jevons_, ch. XXV.

*_Johnson_, chs. XI, XII, XVII.

_Kinley, David_, Objections to a monetary standard based on index
numbers. A. E. Rev., 3: 1-19. 1913.

*_Materials_, 787, 788 (extract from _Brown, H. G._,), 788, 789
(extract from _Clark, W. E._, in "How to invest when prices are
rising." 1912).

_Noyes, A. D._, Forty years of American finance. 1909. Chs. I-III.

_Patterson, E. M._, Objections to a compensated dollar. A. E. Rev.,
3: 863-874. 1913.

*_Phillips_, chs. VI, VII, XIII.

_Taussig, F. W._, The plan for a compensated dollar. Q. J. E., 27:
401-416. 1912-1913.

_United States Bureau of Labor Statistics_, Bul. 173. 1915.

_Walker_, chs. III, VI, VII.

QUESTIONS.

1. In which year between 1890 and the present year would a fixed
salary of $1,000 have gone farthest? In which year would its
purchasing power have been least? If a sum of $1,000 loaned in 1897
was returned in 1902, what was the difference in its purchasing power
on its return and when it was loaned?

2. Will a day's work of a common laborer buy more to-day than it would
a half century ago? Why?

3. The Bureau of Labor's index number for 1912 was 133. What was the
percentage change in the value of money from the base period to 1912?
Give your reasons and your work.

4. _Average prices for
years 1860-65._ _Prices for 1900._
Coffee, lb. $ .12 $ .18
Coal, ton 3.00 3.60
Sugar, lb. .08 .06
Wool, lb. .30 .20
Wheat, bu. .80 .90

Upon the basis of the prices of the above commodities estimate the
general price level for 1900, showing the percentage of its decline or
advance from the basal price level. Indicate some of the causes which
may have brought about this decline or advance.

5. At a given time the following commodity prices prevailed: cotton
(raw), $.10 per lb.; wheat, $1.00 per bu.; sugar, $.07 per lb.;
potatoes, $1.00 per bu.; beef (for roasting), $.25 per lb.; shoes,
$5.00 per pair; cotton cloth of a standard grade, $.12 per yd.; woolen
cloth of a standard grade, $1.25 per yd.; men's hats, $4.00, and coal,
$7.00 per ton.

At a later date the prices of the same commodities were respectively
as follows: $.13, $1.05, $.06, $1.10, $.30, $5.75, $.15, $1.20, $4.50
and $6.50.

Tabulate these facts and compute index numbers, which will show:

(1) changes in the price level of all ten commodities.

(2) changes in the price level of the articles of food.

(3) changes in the price level of the articles of clothing.

6. In the preceding exercise, do the data afford sufficient grounds
for saying that the cost of living has moved either upward or
downward?

If an affirmative answer be assumed, what has been the change in the
value of money?

7. Assign to each of the commodities listed above a "weight" which
represents, in your opinion, its importance as an article of popular
consumption. Using this system of weights compute index numbers to
show changes in the price levels of the same groups of commodities.
How does the weighting affect your first conclusions regarding the
changes in the cost of living? What is the importance of a system of
weighting?

8. If the world's annual production of gold should suddenly increase
five-fold, what would be the probable effect: upon the welfare of a
stock exchange speculator as compared with the welfare of a teacher;
upon the welfare of the creditor class as compared with that of the
debtor class; upon prices?

9. What is the function of the standard of deferred payments? What is
that standard now in America? What change in it has lately been going
on? How is this affecting the incomes of various classes?

10. What ought to be the characteristics of a standard unit of value?

11. Can you get a kind of money that will make the things that are
sold, dearer, and the things that are bought, cheaper?

12. Is the fact of one man's gain and another man's loss by chance of
any economic or political importance?

13. If every piece of money should miraculously be doubled in a night,
whose interests would be affected?

14. Compare the effect of an increasing gold output upon the price of
outstanding bonds with its effect upon the price of common stock
already issued.

15. X is an isolated industrial country with a certain volume of
money. Its government on a given day doubles the amount of currency.
What will be the effect upon the rate of interest.

(a) of long-time loans,

(b) of short-time loans, and

(c) of demand loans?

16. The rate of interest on long-time investments in a certain
isolated community has been six per cent. The amount of money in this
community is increased so as to raise the general level of prices by
100 per cent. Assuming that the increase in money has come wholly from
the more copious output of money-metal from the mines, to what extent
will this rise in the general level of prices affect the rate of
interest when thereafter capital is loaned for long-time periods?

17. Could a railway in the United States advantageously float a large
issue of 20-year bonds in the year 1916? Give reasons for your answer.
Show clearly what you mean by "advantageously." Would a railroad wish
to float such an issue if it could? Why?

18. Is there anything in the nature of mining that keeps the ratio of
the supply of gold and silver nearly uniform?

19. Some say Providence has indicated gold and silver as the materials
for money. How has this been done?

20. What are the main reasons given for the ratio of 16 to 1?

21. Does the principle of the substitution of goods have any bearing
on the value of metals under bimetallism?

22. What is the theory of money held by bimetallists?

23. "Inasmuch as gold (before 1848) was more valuable on the world's
market than at the French mint, relatively to silver, it was
impossible that gold should circulate in France." Is this a necessary
conclusion?

24. What arguments advanced in favor of bimetallism in 1896 are
inapplicable to-day?

25. What is the extent of the influence one nation can have on the
ratio of the two precious metals?

26. How would the adoption of international bimetallism to-day at the
ratio of 32 to 1 affect (a) the circulating medium, (b) the standard
of value in different countries? Consider both the immediate and the
eventual results.

27. What would have happened if a free silver law had been enacted in
the United States in 1900?

28. Would an ideal monetary standard always measure the same quantity
of goods?

29. A owes B a long term debt, which falls due just before the
commencement of a commercial crisis; would it be to the advantage or
disadvantage of A if the contract called for payment in terms of a
tabular standard?

30. Why has not the tabular standard of deferred payments come into
common use? Is the tabular standard sound or unsound in principle?
Would your answer apply to the labor standard?