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that in a safe-deposit box in physical money, gold or Federal reserve notes or greenbacks or silver certificates, or anything of the sort. It merely means that the bank agrees to recognize your checks up to that amount.

Mr.GOLDBOROUGH: If you will excuse me, it really means that the bank acknowledges an indebtedness of itself to you.

Professor FISHER. That is it. The bank owes you and the banks owe you what they call deposits, because you owe them what they call loans. It is just a swapping of loans. Your loan is not and could not be circulated. You could not pass it on to somebody else in place of money. You could not make out a debt or note on a piece of paper and say that it shall be legal tender, so people should accept it. But the bank can give you a deposit credit and it will circulate and can be turned over from one person to another by check.

Most people find that a very mysterious thought, but when these two debts, one against the other, telescope and both disappear, you have wiped out that much circulating medium.

So there is a contraction of currency and that has gone on at a rate in the last few weeks of more than 25 per cent per annum. When you have a contraction of currency through this process, you will necessarily have a deflation of the price level, because the price level depends so much upon the quantity of this circulating medium in existence.

In normal times, while you are paying your debt to the bank, somebody else is going into debt to the bank and normally, the two will about offset each other. In fact, in a progressive state, as we have in this country generally, more people will go into debt at a bank than will get out of debt, as the population grows. So that it is normal for deposits to banks to grow 4 or 5 or 6 per cent per annum. But when you have many people all trying to get out of debt at the same time or being forced by their creditors to get out of debt, then the wiping out of deposit currency goes on much faster than its recreation.

So that there is a net contraction of the currency. That results in falling prices.

I would like to call your attention to the fact that this is not only theory, but that the relation between the deposit currency and the price level has been demonstrated by a number of studies and most of all by those of Carl Snyder, the statistician and economist in the Federal Reserve Bank of New York.

I have here a chart which is not quite up to date. I have seen him in a public lecture in Chicago bring it a little bit further down. To my mind it is one of the most satisfying things that has been done in statistics. The reason the relationship has often not been seen is that you have got to take into account in inaking this comparison the growth of the country. You have to take that into account and then plotting the commodity prices on one curve and the currency in relation to its trend on another curve-not the absolute currency, but the currency in relation to trend-you get curves that agree in

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Mr. GOLDSBOROUGH. There was one man in Chicago, Professor

Professor FISHER. I think you will find almost all of those who stand out now against the quantity theory are people who go back to Laughlin, largely as students of his. I know that Laughlin te sented it very much when people claimed that that was behind it in his case. But I am satisfied it was true in a great many cases, the quantity theory is. They take it too literally. They think it

The second reason is that so many people do not understand what means that if you double the amount of money in circulation, you my book, The Purchasing Power of Money, there are six factors will necessarily and exactly double prices. As I work them out in

a rough way, and would agree even more if you had more accurate statistics.

Mr. GOLDSBOROUGH. Now, the primary purpose, as I understand it, is to demonstrate the soundness of the quantity theory of money upon which this proposed legislation that we are considering now and other like legislation is based?

Professor FISHER. Yes; in a measure, I think, Mr. Chairman, that we do not need to go quite as far as that.' In my book The Purchasing Power of the Dollar, I stressed the relation of quantity to price very much, but also admitted the existence of other factors, and I was rather surprised that I have been classified ever since so unreservedly as a quantity theorist. I think this classification is on the whole correct; but I admit that there are other things that have to be taken into consideration, and I think I have taken them into consideration; but as to those who do not like to admit that they are quantity theo rists, or who want to deny it, it is quite possible to get them to admit, and I think this would be true of all economists, that a contraction of the currency will at least tend to reduce prices.

Mr. GOLDSBOROUGH. Professor Fisher, do you mind saying why you think it is that people object to the quantity theory of money?

Professor FISHER. Yes; I think there are two reasons. One reason which used to be quite powerful was a rationalization of the opposition to Bryan in 1896. I myself was opposed to Bryan in that campaign, and I went out on the stump against him, because I did not think it was fair to go back as fas as 1873 to take his 16 to 1, but that never blinded me to the truth in the quantity theory, yet it did blind great many people. They said that Bryan had founded his theory on the quantity theory, and that Bryan was wrong and therefore the fact that Bryan may

have used the multiplication table does not make the multiplication table itself wrong. That prejudice lasted for some 20 years, until people had forgotten it, and recently, especially after the experience of the World War, we found very few responsible students of the subject, especially economists, who were not inclined to follow the quantity theory. Laughlin, who was the only one that I knew of.

Italred-five other than "price level”-that impinge upon the nice level. There is the quantity of money in circulation, there is se turnover or velocity, there is the quantity of deposits subject to neck and its turnover, and there is the volume of trade. Mr. GOLDSBOROUGH. All that is the quantity theory? Professor Fisher. I would rather say that the quantity theory is *2if you assume the velocities are constant and the volume of iode is constant, and that money and deposits keep in proportion to each other—then the quantity theory is true. It is purely a conktwonal proposition.

Mr. GOLDSBOROUGH. But if a dollar circulates three times today There it only circulated once yesterday, certainly that will cause a use in prices

, and that is a demonstration of the quantity theory Doner?

Professor Fisher. Yes, if you wish to enlarge the meaning, but 2 people misunderstand it, and they insist on pointing it out. saople write to me and say, virtually, "You fool, don't you see that pa bad quantity of many so-and-so to-day and so-and-so a year ago, od prices did not go up in that ratio?"

Of course, you have to take account of other factors, but, neverthew, I think that practically every economist will agree that there is a tendency to raise prices when you have an inflation of money,

and endency to decrease prices when you have a deflation of money. That is all the theory you need in order to get

behind the bill. You sa not need to commit yourselves to a "quantity theory.". I am not terse to being called å quantity theorist as long as people read my rok and know what I mean;

but I do not think your bill is linked up the quantity theory even as I define it. All you need is to say aut it is universally admitted that there is a tendency for prices to ** with an increased quantity of money, whether that tendency is proportional or not, and that there is a tendency for prices to fall

decreased quantity of money, whether proportional or not. Eau do not need to assume the proportionality at all; I myself hieve the proportionality is true under theoretical conditions; but Lyou need is that an increase tends to raise, and a decrease to lower,

Sow, besides this chart that I give you, and I suggest that it be postographed and put in the recordMr. GOLDSBOROUGH. That will be done. Professor Fisher. I think it is well worth while.

price level.

involved-five other than "price level”-that impinge upon the price level. There is the quantity of money in circulation, there is its turnover or velocity, there is the quantity of deposits subject to check and its turnover, and there is the volume of trade.

Mr. GOLDSBOROUGH. All that is the quantity theory?

Professor FISHER. I would rather say that the quantity theory is that if you assume the velocities are constant and the volume of trade is constant, and that money and deposits keep in proportion to each other—then the quantity theory is true. It is purely a conditional proposition.

Mr. GOLDSBOROUGH. But if a dollar circulates three times today where it only circulated once yesterday, certainly that will cause a rise in prices, and that is a demonstration of the quantity theory of money?

Professor FISHER. Yes; if you wish to enlarge the meaning, but the people misunderstand it, and they insist on pointing it out. People write to me and say, virtually, "You fool, don't you see that you had quantity of many so-and-so to-day and so-and-so a year ago, and prices did not go up in that ratio?

Of course, you have to take account of other factors, but, nevertheless, I think that practically every economist will agree that there is a tendency to raise prices when you have an inflation of money, and a tendency to decrease prices when you have a deflation of money. That is all the theory you need in order to get behind the bill. You do not need to commit yourselves to a "quantity theory.". I am not averse to being called å quantity theorist as long as people read my book and know what I mean; but I do not think your bill is linked up with the quantity theory even as I define it. All you need is to say that it is universally admitted that there is a tendency for prices to rise with an increased quantity of money, whether that tendency is proportional or not, and that there is a tendency for prices to fall with a decreased quantity of money, whether proportional or not. You do not need to assume the proportionality at all; I myself believe the proportionality is true under theoretical conditions; but all you need is that an increase tends to raise, and a decrease to lower, the price level.

Now, besides this chart that I give you, and I suggest that it be photographed and put in the record

Mr. GOLDSBOROUGH. That will be done.
Professor FISHER. I think it is well worth while.

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Below is shown, in the upper line, the amount of money stated as in circulation in the United States from 1830, adjusted from 1870 to money in circulation outside of all banks alone. Through this is drawn a trend line and below are shown the deviations from this trend line as compared with a new index of commodity prices back to 1830, prepared by Professors Pearson and Warren of Cornell University. The most marked divergence was in 1931.

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