ABSTRACT
The interesting critique Professor Davidson devotes in the last issue [of Ekonomisk Tidskrift] to Irving Fisher’s well-known proposal for regulating the purchasing power of money has led me to think of a circumstance that, if I understand it rightly, must entail that the actual principal purpose of this proposal, too, can scarcely be achieved in the way or to the extent that its author appears to have imagined. For Fisher overlooks the fact that the seigniorage he advocates would merely bring about a sharp reduction in the newly produced quantity of gold-in other words, in the quantity of coins or gold certificates that would be given in exchange for this gold-and consequently would only have an indirect and far lesser effect on the total accumulated quantity of coin or money, which of course is what determines the level of prices, according to the quantity theory. His comparison between his own method and a recoinage at a higher weight of the entire mass of coins in circulation therefore halts in the extreme: in the latter case, after all, the nominal value of the entire accumulated quantity of money would actually be reduced by a certain percentage or fraction, and the level of commodity prices would then retreat by the same amount; in Fisher’s method, however, the reduction made is only a fraction of the fraction and its effect on prices must therefore be correspondingly minimal.
