THE THEORY OF INTEREST

ning beyond that date would surely be modified accord-ingly. Or suppose that a yard were defined (as legendtells us it once was) as the length of the king’s girdle.If the king were a child, everybody would then know thatthe “yard” would probably increase with the king’s age,and a merchant who should agree to deliver one thousand“yards” ten years hence would make his terms correspondto his expectations.

It would be strange, if, in some similar way, an escapecould not be found from the effects of changes in themonetary yardstick, provided these changes were knownin advance. To offset a foreseen appreciation, therefore,it would be necessary only that the rate of interest becorrespondingly lower, and to offset a foreseen deprecia-tion, that it be correspondingly higher. 1 2

Near the close of the last century, during the uncer-tainty as to the adoption or rejection of “free silver,” asyndicate offered to buy from the United States govern-ment some $65,000,000 of bonds either on a 3 per centbasis in gold, or a 3% per cent basis in coin. Everyoneknew that the additional % per cent in the latter alter-native was due to the mere possibility that coin mightnot be maintained at full gold value, but might sink tothe level of the value of silver. If the alternative had beenbetween repayment in gold and—not merely a possiblebut a certain —repayment in silver, the additional in-

1 Since, because of ignorance and indifference, appreciations and de-preciations are, as a matter of fact, never fully foreknown and theirrelation to interest and other business phenomena only dimly per-ceived, they are only partially provided against in the rate of interestitself. As I have tried to show in Stabilizing the Dollar, in TheMoney Illusion, and in other writings, the best remedy is to standardize,or stabilize, the dollar as we have standardized every other importantunit of measure employed in business.

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