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Origins and developments of Irving Fisher’s compensated dollar plan


  • Jérôme de Boyer Des Roches
  • Rebeca Gomez Betancourt

    () (TRIANGLE - Triangle : action, discours, pensée politique et économique - UL2 - Université Lumière - Lyon 2 - IEP Lyon - Sciences Po Lyon - Institut d'études politiques de Lyon - Université de Lyon - ENS LSH - Ecole Normale Supérieure Lettres et Sciences Humaines - CNRS - Centre National de la Recherche Scientifique, PHARE - Pôle d'Histoire de l'Analyse et des Représentations Économiques - UP1 - Université Panthéon-Sorbonne)


In 1911, Fisher published The Purchasing Power of Money. In chapter 13 of the first edition and in an appendix in the second section of 1913, he introduced a rule to maintain the stability of the level of prices, known as the "compensated dollar." According to this rule, the legal definition of money is changed. In other words, the weight in gold of the dollar is modified once a month in order to impede the frequency of price changes on a basket of goods. According to Fisher, this plan would offer stability for the purchasing power of money. He sought to find an alternative system to the fixed price of gold under the Gold Standard. He wanted to introduce a dollar fixed in terms of its purchasing power, but variable in terms of its metallic weight. In this paper, we will focus on Fisher's analysis of the stability of money value and his position in the debate on the compensated dollar from 1909 to 1922. We will study the anticipations of Fisher's compensated dollar, the critical reception of Fisher's project and the evolutions it gave rise to, the gold exchange standard and the algebraic evidence. We also examine the debate's connections to the question of whether or not the compensated dollar plan is compatible with the quantity theory of money. We end with the analysis of the gold price elasticity of the net supply of gold, with an explanation of the relationship between the Yellowbacks and the varying price of the gold reserve.

Suggested Citation

  • Jérôme de Boyer Des Roches & Rebeca Gomez Betancourt, 2013. "Origins and developments of Irving Fisher’s compensated dollar plan," Post-Print hal-01347262, HAL.
  • Handle: RePEc:hal:journl:hal-01347262
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    References listed on IDEAS

    1. Jérôme de Boyer Des Roches & Rebeca Gomez Betancourt, 2013. "American quantity theorists prior to Irving Fisher's purchasing power of money," Post-Print halshs-00823362, HAL.
    2. David E.W. Laidler, 2016. "The Golden Age of the Quantity Theory," Economics Books, Princeton University Press, edition 1, number 4959.
    3. Hall, Robert E, 1997. "Irving Fisher's Self-Stabilizing Money," American Economic Review, American Economic Association, vol. 87(2), pages 436-438, May.
    4. Robert W. DIMAND, 2003. "Competing Visions For The U.S. Monetary System, 1907-1913: The Quest For An Elastic Currency And The Rejection Of Fisher'S Compensated Dollar Rule For Price Stability," Cahiers d’économie politique / Papers in Political Economy, L'Harmattan, issue 45, pages 101-121.
    5. Robert J. Shiller, 2002. "Indexed Units of Account: Theory and Assessment of Historical Experience," Central Banking, Analysis, and Economic Policies Book Series, in: Fernando Lefort & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Serie (ed.),Indexation, Inflation and Monetary Policy, edition 1, volume 2, chapter 4, pages 105-134, Central Bank of Chile.
    6. F. W. Taussig, 1913. "The Plan for a Compensated Dollar," The Quarterly Journal of Economics, Oxford University Press, vol. 27(3), pages 401-416.
    7. Robert E. Hall, 2005. "Controlling the Price Level," American Journal of Economics and Sociology, Wiley Blackwell, vol. 64(1), pages 93-112, January.
    8. Rebeca Gomez Betancourt, 2010. "E. W. Kemmerer's contribution to the quantity theory of money," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 17(1), pages 115-140.
    9. Dimand, Robert W., 2000. "Irving Fisher and the Quantity Theory of Money: The Last Phase," Journal of the History of Economic Thought, Cambridge University Press, vol. 22(3), pages 329-348, September.
    10. Gomez Betancourt, Rebeca, 2010. "Edwin Walter Kemmerer And The Origins Of The Fed," Journal of the History of Economic Thought, Cambridge University Press, vol. 32(4), pages 445-470, December.
    11. E. W. Kemmerer, 1905. "The Establishment of the Gold Exchange Standard in the Philippines," The Quarterly Journal of Economics, Oxford University Press, vol. 19(4), pages 585-609.
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    More about this item


    Fisher; compensated dollar; Money; Prices;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • B13 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Neoclassical through 1925 (Austrian, Marshallian, Walrasian, Wicksellian)
    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals


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