both lender and borrower even know how many grains of gold are represented by the dollars named.

Section 2: A new division of the Treasury Department handles the stabilintion process under strict rules which leave nothing to official discretion. The data and simple calculations in the weekly bulletin can be checked easily fu error by any reader while the week's prices are still fresh in mind.

Section 3: Prices are reported by agents in the proper markets and trade data by wholesalers. Only sales in dollars of each commodity are reported by whole salers. The term "wholesale" is made to include more than the sales commonly ranked as wholesale. Through an oversight, the words "sales to exporters" were omitted. They should be read into the bill.

Section 4 constructs a scientific gage of price level tendencies to be counteracted before they affect the retail level and the citizen's dollar. Details of its construction are not necessary to a full grasp of the plan if one knows that price level tendencies can be measured. Reports of price level changes are published monthly and the Government now constructs also a weekly index which is but an averaging of data collected daily.

Section 5: Eastern markets close three hours before those in the Pacific time zone, so the reports from the eastern and middle sections can be worked over before those from the far West begin to arrive.

Section 6: Metric weights in our mint rate simplify translation of our money units into the moneys of other countries, most of which are in grams. Our small silver coins are already in grams. The half dollar weighs 121⁄2, the quarter 6% and the dime 21⁄2 grams.

Par stage of the market gage is unity, 1, so the daily adjustments of the mint rate involve only multiplication of the current mint rate by the new market gage, The gold bullion dollar, adjusted daily, will be the price unit or "provisional standard," and the composite goods-dollar the ultimate valure standard to which the bullion dollar is, by weight adjustments, made to conform. The components of the goods-dollar-the small parcels of goods that go to make up the standard of valure are shown in column 3 of the market gage schedule. The price of the composite goods-dollar, as measured in gold at the current mint rate, serves as the daily price index or market gage.

Section 7: The mint rate is computed and announced at night after the marketa and the mint close and before they reopen. This bars all risk of speculation o advance information of weight change and makes unnecessary any disturbing seigniorage charge.

Section 8: Gold coins and silver dollars are retired. The greater part of the gold in the Treasury is already in bars, and in settlements of foreign trade balances gold passes by weight. Gold sold for use in manufacture and the arts is also a

bars.

Section 9: Federal reserve and national bank notes are not interfered with, but other forms of currency are replaced by Treasury notes.

Section 10: All gold and silver reserves now back of money of Government iss all silver now in silver dollars, and all gold and silver in the general fund a consolidated into one fund for redemption of the new Treasury notes. Th gives at the start nearly 100 per cent metallic backing for the Government money actually in circulation, though the par stage of the consolidated fund is bet 40 per cent, four-fifths of it gold and one-fifth silver, the silver being reckoned not at any fixed ratio to gold but at its current price, which makes it exactly equivalent to gold. This surplus can be reduced and the fund brought down t par only by a cheapening of gold, which would call for an increase in the weight of the gold bullion dollar; or by a rise in the value of gold, which would call for an increase in the supply of Treasury ontes outstanding

Section 11 provides that the total stock of Government money shall not decrease nor grow less in relation to the bank currency in circulation. Any decrease is made up promptly by issue of more Treasury notes, put out in such a way 38 10 cause no inflation of the currency.

It provides also that whenever the redemption fund is above the par stage and the lowering of the mint rate shows a downward tendency of the price leve additional notes shall be issued to the amount of double the excess of the fund above par. The excess would supply 40 per cent backing for two and a hal times its amount, but only double the amount of the excess is issued.

To prevent a too great issue of additional notes at the start, while the redemption fund is still far above par, the note increase in any one week is limited to 10 per cent. Should the downward tendency of the price level continue, the issues are repeated weekly until the fund is reduced to par stage as compared with the notes outstanding against it. Thereafter, should the lowering of the

mint rate continue, the Treasury notes outstanding are increased only at the rate of 2 per cent a week and put out in such a way as to not disturb the price level; for the issues of notes no more than balance the purchase of gold for the fund.

Should the fund sink below par with the mint rate decreasing, the Treasury buys the bullion needed for backing, issuing Treasury notes against it. All these issues aid the main stabilization process by enlarging the supply of Treasury notes when the mint rate is declining-gold appreciating. They can not cause currency inflation for they are put out only when price level tendencies are downward-when there is a shortage of currency-to help prevent depression. And it must be borne in mind that they increase the supply of Treasury notes only, the issues of Federal reserve notes being controlled by the Federal reserve system. Also that their supply relative to the supply of bank notes will not increase unless the supply of the latter is unduly contracted and fails to meet the needs of business.

Section 12: Purchase of gold is equivalent to free coinage. The gold bought and added to the redemption fund can not cause currency inflation; for the new gold can be used to enlarge the money supply only when the mint rate is decreasing gold appreciating-in which case it properly aids stabilization. avoid loss to the Treasury from an overstock of gold when gold is rapidly cheapening, purchases are suspended until the gold fund is reduced to par.

To

Section 13: Treasury notes are redeemable either in gold or in silver at the option of the applicant. But should the gold in the fund fall much below par, gold withdrawals are limited to give the Treasury time, by purchase, to restore it to par. Meanwhile, redemption in silver at its gold price is unrestricted, and sufficient gold withdrawals allowed to more than supply the needs of manufacture and the arts. These, with the knowledge of the public that the restrictions on gold are but temporary, should fully protect the value of the dollar.

Section 14: The "trial market gage" device prevents any slip at the time of revision of the schedule. Under this plan the commodity price level should remain permanently stable. The commodities listed will change from year to year. New entries will be added and others withdrawn; individual prices will go up and down; but no noticeable change will take place in the average of commodity prices. Why should reconstruction of the schedule, any more than its first construction, disturb the price level?

I have emphasized the fact that the additional Treasury notes put out under the conditions named will not tend to inflate the currency. Inflation would cause undue enlargement of the bullion dollar and tend to cause export of gold. The additional note issues will, however, increase the volume of Treasury notes as compared with bank notes whenever the supply of the latter is insufficient to prevent depression tendencies. The banks of issue can avert this proportional increase of Treasury notes by keeping their own issues adjusted to the needs of business. The amount of Government currency should not be reduced and it would be better if it were increased up to the minimum needs of trade, leaving the banks to supply the flexible part of the currency. Every additional million dollars of these noninterest-bearing notes could be made to replace a million dollars in interest-bearing bonds.

THE MARKET GAGE

Since a gage of the dollar's buying power must be a measure of the prices of goods in actual trade transactions in the quantities actually sold and bought, an ideal index would take its weighting from the day the price-level tendencies of which are to be measured. In the case of a daily index this is impossible. The nearest we can get to it is to use as weighting the relative sales of the various commodities in the 12 months last past, for the sales for a year are but a multiple of the sales for an average day. In order to keep the weightings as nearly up to date as possible, they are revised quarterly. But the average for the past 12 months is taken rather than the average for the preceding quarter, for sales are largely seasonal and relative sales differ more from quarter to quarter than from year to year.

The daily price index, called the market gage, is based on all the commodities on the market, compressed into some 900 entries. For many years the objection was heard that the market gage schedule lists altogether too many price series. One British economist, blind to the fact that the greater the number of price series listed the more nearly correct will be the measurement of price level movements, had told his readers that "a large number of prices is needless and may

even be detrimental." In the same breath they were told that wholly unweighted price index numbers gave practically the same results as the fully weighted

THE BUREAU OF LABOR STATISTICS INDEX

The present head of the Bureau of Labor Statistics evidently does not subscribe to these views. Referring to the price index published by the bureau up to 1914 based on less than 300 price series and unweighted, he remarks, "The less sait about it the better." The number of entries included was raised later to 404 D: in 1927 to 550. A recent release by the bureau informs us that the numbers now increased to 784 and that the weights are obtained largely from drvet reports by manufacturers. By the adoption of improved weights and by increase of the number of series listed, the bureau has brought its index number nearer the market gage in the matter of accuracy, but it is still believed that the latter has the more logical and scientific formula and that its results are more easily checked for errors by the interested public.

Following is a brief sketch of the method employed by the bureau: The "base price" of each commodity is the 1926 "average price," which is the weighted average of 52 unweighted weekly averages of daily prices. Its "weight are the estimated quantities produced in the years 1923 and 1925 of each of the commodities listed, expressed not in dollars worths but in their diverse physical units. These weights are multiplied by the unweighted average of unweighted averages of daily prices to find the "estimated value." By estimated vase a meant the estimated total sales of each commodity listed. Obviously, the tota sales of a commodity during a year can not be found by thus multiplying its production, either estimated or actual, by the unweighted average price for the year. The unweighted average price of wheat, for example, during a year may be $1. although three-fourths of the crop produced sells during the brief marketing seas at less than 70 cents. Surely the best way of arriving at total sales is to get them. directly from those who do the selling.

In constructing an index for the following year this whole process is repeated. and the newly computed estimated value" for that year is divided by the "estimated value" for the base year. The quotient is then (why?) multiplied by 100. (Why is not unity, 1, a more rational par than 100?) The monthly index is similarly constructed. How can the average citizen satisfy himself of the secu racy of these operations? The writer by no means questions the ability and com petence of the distinguished head of the bureau but feels that he is hampered by a blind and loose formula. The method now in use and credited to Professor Knibbs, of Australia, is superior to that of the London wool merchant followed up to 1914. But we are convinced that, even with more complete and reliable data, it can not give satisfactory results. And why should the Labor Bureau, even were its method scientific, construct the index for the regulation of our monetary system? Why not the Treasury?

All goods on the wholesale market are to be listed, major items divided by markets and grades and small items in homogeneous groups. With each entry is shown its market representative and the market from which its prices are quoted.

Column 1 (Q) shows, in decimals of a physical unit, the amount of each market representative that sold for $1 on the day the schedule was last revised.

Column 2 (W), weighting, the relative trade importance of each entry in decimals of the total wholesale trade.

Column 3 (W times Q), the decimal quantities of the various entries which together make up the goods dollar, which is the ultimate standard of value back of the gold-bullion dollar.

Column 4 (P), the current market price of each market representative.

Column 5 (P times QW), the components of the goods dollar, priced. Their sum is the market gage for the day. Deviations of the market gage from its par stage, 1, show inversely the tendencies toward change in the average buying power of the gold-bullion dollar of current weight. These tendencies are at once counteracted by adjustment of the mint rate. The initial mint rate, 1.6718 grams (25.8 grains), is the present weight of the gold dollar.

Columns 4 and 5 are revised daily; columns 1, 2, and 3, quarterly; and the entire schedule yearly. Daily adjustments are at 2 a. m., when the then current mint rate is multiplied by the newly calculated market gage to get the new mint rate, to be announced at once.

WILL NOT INVITE SPECULATION IN GOLD

As explained in Congressman Burtness's speech on March 2, 1931, this bill will lessen rather than invite speculation in gold; and if adopted by our country alone will not in the least injure our foreign trade. Speculation in gold is more or less possible under any system employing_gold as a money metal and will continue until measures are taken to stop it. Restrictions which might not be justifiable in the case of other commodities may be employed to prevent manipulation of the value of a money metal. For example, it would be possible to tax away all profit derived from hoarding gold during a rise in its value. Gold hoarding, at best, is an interference with the free gold market.

The Burtness bill, H. R. 20, proposes no such tax, but it contains provisions making speculation at the expense of the Treasury more difficult than it is at present. As an illustration, note that a man who deposited a million in gold in exchange for gold certificates in July, 1929, can now withdraw what is virtually one and one-half millions. That is, the million he can now withdraw will buy as much of commodities in general as one and one-half million dollars would have bought in July, 1929. And he has sacrificed no interest to gain this profit. For during those years he has full use of his million in the form of gold certificates. Under this bill he could not at any time withdraw more value in gold than he had deposited.

WILL NOT INJURE OUR FOREIGN TRADE

As to its effect on foreign trade, the slight shifts in exchange rates it will cause will be shifts in mint pars and not deviations from par. The adjustments of the mint rate, infinitesimal because daily, will be reflected in equally small changes in the pars of exchange. The adjustments will be the effect and not the cause of alterations in the world value of gold. Deviations from mint pars due to shifts in the trend of trade, credit conditions, etc., injuriously affect international trade. Readjustments of mint pars do not. Should Britain resume redemption in gold with the gold weight of the pound sterling cut in half, all that would happen to exchange rates would be that it would take but half as much in our money to buy a pound sterling. With us, sterling would be quoted at $2.43 instead of $4.86; but this would injure neither exporters nor importers. This fact is brought out more clearly in the speech referred to. Even were it possible that independent

stabilization of the dollar would affect foreign trade, it should not delay par of this bill. For our export and import transactions are small compared our enormous domestic trade. But fortunately we do not have to injure the ce to benefit the other. Dollar stability will immensely benefit this country wh out in the least harming our exporters or importers.

DEBT ADJUSTMENT POSSIBLE

Were the price level at or near normal in its relation to debts, nothing ed added to this bill to make it fully adequate either with or without an act directing the Federal reserve system to cooperate. For the bill is so drawn as to d such cooperation. Were it put into effect now, while the price level is still d ing, it would at once stop the decline, and property prices would adjust th selves to the new level. But without annulment of the "gold clause" in moe tary obligations previously incurred, the debtor would still be forced to pay a debt in dollars of greater buying power than the dollars borrowed. Put in er nally to insure justice to creditors, it has become a source of great injustice debtors and should be abolished. With the buying power of money made stat it will be unnecessary. Debts will be paid in money of the same buying powe as the money borrowed.

Were the price level to be stabilized on a lower level than that on which ex ing debts were incurred, the "gold clause" should be annulled in existing tracts as well as in contracts entered into thereafter, and a debt-adjust section should be inserted. The debt-adjustment feature would somewa resemble the "multiple standard" proposals much discussed during a former depression. It would also call to mind a feature of the Dawes plan for Germany and the many wage adjustments in our own and other countries by a cost-of-living index. The following would be its main points:

Let the monetary standard division calculate the movements of the price level for, say, 20 years back, employing unity, 1, as the par stage and the date the act passed as the base of reference. Then let a creditor or debtor feeling ti self wronged by price-level change during the life of a note, bond, or other mone tary obligation, find the amount of his loss by dividing the existing amount of the obligation by the market gage for the date on which it was drawn. Then either by private agreement or before a proper officer, the amount of the correcta can be added to or credited on the instrument. To avoid too numerous adjustments, a sentence could be added excluding small obligations and those on which the loss would be below a given percentage.

This would insure payment of debts in a just amount of buying power. The dollar of payment would have the same average buying power as the delar borrowed. Similar adjustments of Government bonds and of fixed incomes would be an equally simple matter It must be borne in mind that all these would be adjustments of wrongs begun before the act was passed and that the need of such adjustments would soon disappear.

SUMMARY

It must be remembered that stabilizing money means stabilizing its buying power at home and not mere pegging of foreign exchange rates.

That stabilizing the buying power of money stabilizes the domestic price level without fixing individual prices.

That the only "normal" price level is the level on which existing debts were

incurred.

That "maintenance of the gold standard" means maintenance of the outgrow and now dangerous system to which we owe the present disastrous depression That "abandonment of the gold standard" does not necessarily involve pension of redemption in gold, nor suspension of the settlement of foreign trade balances in gold at current exchange rates.

That, while shifts in exchange rates due to thier deviation from mint pars are injurious to trade, the readjustments of mint pars made by this bill are not That concerted attempts at valorization of the money metals are more mata!"against the public interest than are other "restraints of trade."

That a world currency, for the reasons herein given, can not be stabilized in its buying power and is therefore undesirable.

That money must continue to be national and not international, and must be based not on a single commodity but on all commodities, with one of them, preerably gold, as the price unit connecting other commodities with the market