Taming the “Dance of the Dollar”: From the Compensated Dollar to 100% Money

Abstract

Taming the “Dance of the Dollar”: From the Compensated Dollar to 100% Money: While Fisher argued that money was neutral in the long run, from Fisher (The Purchasing Power of Money. Macmillan, New York, 1911, Chapter IV) onwards he held that in the short run the “so-called business cycle” was really a “dance of the dollar” in transition periods driven by monetary shocks and slow adjustment of inflationary expectations. His 1926 article “A Statistical Relation between Unemployment and Price Changes” was reprinted in the Journal of Political Economy in 1973 (a quarter century after Fisher’s death) as “Lost and Found: I Discovered the Phillips Curve—Irving Fisher.” To stabilize the economy, Fisher campaigned for a “compensated dollar” that would vary the dollar price of gold to hold a price index constant, and, with his political ally Senator Robert L. Owen, managed to insert in the Senate version of the Owen-Glass Bill a mandate for the Federal Reserve to stabilize the price level (but Rep. Carter Glass kept it out of the final version of the Federal Reserve Act).