Note, Diagram H
It should be emphasized that the centre standard in the diagram opposite represents the value of the so-called “gold” dollar (in terms of certain goods) during a period (1890-1921) terminating in the Great War and its aftermath, so that the fluctuations of our “unit of value” were exaggerated by extraordinary circumstances. But extraordinary circumstances do not alter the value of any other scientific unit. To impugn the validity of the gold standard by showing what happened to it in terms of goods is simply a case of explaining in detail that the pot is blacker than the kettle, since goods are also incapable of measuring basic economic value, though a better approximation may be made in terms of goods, as they are more closely related than gold to our ultimate measurable factors—area, population and time.
What actually happened during the period of war was that the owners of land and goods, and the sellers of immediate services who were not bound by contract or convention, gained enormously at the expense of those who were so bound, and at the expense of the exerters of past effort—the old and thrifty—and the helpless beneficiaries of past effort—the widows and orphans—who all lost disastrously because the futile unit of value to which they held just title was tied to nothing representative.
It may be argued that something more took place than an interior redistribution of wealth, and that the United States undoubtedly grew richer because of the war. This is perhaps still an open question. We sold goods in exchange for a little gold and many dubious instruments of credit. By the time these instruments are redeemed, goods may well be at the same high price levels, in which case there will be no gain.
If our interior units of value had been limited by measurable factors, the effect of increased activity calling for labor, and increased government expenditure calling for taxation, would have been to increase the demand for money in terms of goods, which is exactly the result we require for purposes of equity, and would indicate that our unit of value was a valid one.
