Development and Underdevelopment in the History of Economic Thought

Irving Fisher, Simon Newcomb, and their Plans to Stabilize the Dollar

Valeonti Sofia, The American University of Paris and Paris 1 Panthéon-Sorbonne
Dimand Robert W., Department of Economics, Brock University, St. Catharines, Ontario, Canada

Irving Fisher dedicated Stabilizing the Dollar (1920) to John Rooke, Simon Newcomb, Alfred Russel Wallace “and all others who have anticipated me in proposing plans for stabilizing monetary units.” While describing Wallace’s plan as “radically different, but having the same purpose in view,” Fisher credited Newcomb with a “direct anticipation” of his own compensated dollar proposal to stabilize the price level by varying the gold weight of the dollar (with the difference that Newcomb proposed a currency redeemable not only in gold but in “such quantities of gold and silver bullion as shall suffice to make the required purchases”). The congruence of Newcomb’s and Fisher’s monetary theories and monetary reform proposals was not as straightforward and simple as Fisher suggested. Their plans had different theoretical roots: Fisher’s commitment to stabilizing the purchasing power of money and his compensated dollar plan to achieve that goal were the outcome of his quantity theory of money, although, as Don Patinkin (1993) stressed, Fisher complicated and even undermined his price-level stabilization rule by trying to present it as a version of the gold standard. Newcomb endorsed the quantity theory only for the case of inconvertible paper currency such as the “greenbacks” during and after the Civil War. For convertible currency (such as that envisioned in his proposal to stabilize the standard of value) Newcomb held a commodity theory of money in the tradition of classical political economy, stressing the conditions of production of the precious metals. As Arthur R. Burns (1929) suggested similar plans aiming to stabilize the dollar can be the result of different, even opposing, monetary theories. We offer an illustration of such a case by comparing Newcomb’s and Fisher’s plans to stabilize the dollar and by exploring the theoretical rationales behind those plans.

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Keywords: Irving Fisher, Simon Newcomb, compensated dollar, quantity theory of money, commodity theory of money

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