The Principles of Political Economy

Henry Sidgwick

Book III

Chapter IV

Section 7

§7. But, as I have before said, it is possible to obviate the bad effects of great changes in the purchasing power of the medium of exchange, by a method altogether different from Bi-metallism. and from all other schemes that aim at actually modifying the exchange-value of standard coin. We may allow the actual standard to fluctuate, and yet maintain a stable ideal standard by measuring and allowing for these fluctuations. The adoption of such a ``tabular standard'' was suggested twelve years ago by Jevons in his little book on ``Money'' (ch. xxv). He suggests that a permanent government commission might be ``created, and endowed with a kind of judicial power. The officers of the department would collect the current prices of commodities in all the principal markets of the kingdom, and, by a well-defined system of calculations, would compute from these data the average variations in the purchasing power of gold. The decisions of this commission would be published monthly, and payments would be adjusted in accordance with them. Thus, suppose that a debt of one hundred pounds was incurred upon the 1st of July, 1875, and was to be paid back on 1st July, 1878; if the commission had decided in June, 1878, that the value of gold bad fallen in the ratio of 106 to 100 in the intervening years, then the creditor would claim an increase of 6 per cent. in the nominal amount of the debt.

At first the use of this national tabular standard might be permissive, so that it could be enforced only where the parties to the contract had inserted a clause to that effect in their contract. After the practicability and utility of the plan had become sufficiently demonstrated, it might be made compulsory, in the sense that every money debt of, say, more than three months' standing, would be varied according to the tabular standard, in the absence of an express provision to the, contrary.'' It is not intended that such a commission should take the prices of all commodities into account in their computation: but merely that they should take a considerable number of different commodities, chosen so as to be fairly representative of the whole mass.

I concur with Jevons in regarding the scheme as theoretically sound, though I think that a considerable time must elapse before so unfamiliar a basis for pecuniary contracts is likely to be voluntarily adopted to a sufficient extent to justify its formal establishment by Government as the normal basis, any deviation from which must be expressly announced. I think also that the inevitable theoretical imperfections of the process by which variations in the material standard would be measured would render it especially necessary to proceed with great caution in its practical application. As I have elsewhere argued, it is impossible to determine with perfect precision the extent to which the general purchasing power of gold---or any other commodity---has changed within a given period; in consequence of (1) the changes that take place in the relative quantities in which different articles enter into ordinary consumption, and (2) of the changes in quality of articles nominally the same, caused by the development of industry. I agree with Jevons that the inevitable element of inexactness thus introduced into the scientific computation of a tabular standard of value would not practically prevent us from securing by such a standard a higher degree of stability in the value of money-debts than could otherwise be obtained. But it would have the effect of making any plan adopted by such a commission as he proposes appear somewhat arbitrary: and in carrying it out very delicate points would arise on which the decisions of the commission---when they came to involve large pecuniary interest---would be severely criticised. E.g. if any important change in consumption rendered it necessary to reduce the importance of any commodity in the selected list, or even to substitute a new commodity, or if a question arose as to the right quality to be chosen in the case of an article of which there were different and varying qualities, the immense power of determining gain or loss that the scheme would place in the hands of a few persons would, I fear, arouse much jealousy and distrust. I do not urge these objections as reasons for not carrying Jevons' suggestion into effect: I should be glad to see this done: but I do not think that we can reasonably regard it as a resource for dealing with present evils or risks, arising from changes in the purchasing power of gold.

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