Gold and the Gold Standard.pdf

THE MONETARY STANDARD OF THE FUTURE
GOLD CONVERTIBILITY
There should be interconvertibility on demand of
all kinds of nongold money with gold coin, gold bars,
or gold drafts, as the case may be.
Such interconvertibility serves the gold standard in
three different but closely related ways.
1. It keeps all the different kinds of moneyviz.,
gold coins, notes, fiduciary silver coins, and
minor coins-at a parity with each other. It does so
through providing the machinery by which excessive
issues of any particular kind of money are promptly
withdrawn from circulation and deficiencies in the
circulation of any particular kind of money are made
up.
2. ·The convertibility into gold on demand, by
creating confidence in the currency, increases its
acceptability by the public in_ times of low public
confidence and thereby checks "flights from the
dollar" and the resulting enlargement of the currency
supply, which would otherwise be caused by the
increasing velocities of circulation.!
1 A good example of the way changes in the public's confidence may, by
influencing the velocities of circulation, affect the monetary supply and
thereby the value of the money, is found in the experiences of Germany following
the First World War.
In 1922 and 1923 the German people's confidence in the mark declined
very rapidly, there was a "flight from the mark into goods," and the velocities
at which mark currency circulated increased enormously, with corresponding
increases in 'commodity prices. In 1922, according to Schacht, "The
rush to get rid of cash as soon as possible • • . led to an extraordinary increase
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