The Money Illusion

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Meinvielle, Concepción católica de la economía, p. 38 (PDF p. 42) cites Irving Fisher, L'illusion de la monnaie stable (1927) [= The Money Illusion § "Is Gold Stable?" ref:0.37-0.46] regarding how gold is "lo más variable de todas las cosas " ("the most variable of all"):

IS GOLD STABLE?

The Money Illusion is strong even in countries which have lost the gold standard and are on a paper money basis, despite two reminders which business men have before their eyes. These are the ever-changing quotations of their former gold money—mark, franc, crown or whatever—and the ever-changing quotations of foreign moneys. But stronger yet is the Money Illusion in gold standard countries, where these two reminders are absent. In fact their absence is often pointed to, with pride, as proof that the money is sound and stable.

One form of such "proof" of this stability is that the "price of gold" never varies in a gold standard country. In the United States pure gold sells at about twenty dollars an ounce (exactly $20.67) and has remained [until at least the date of writing, 1927] at that fixed price ever since 1837 when the pure gold content of the dollar was fixed at about one-twentieth of an ounce (exactly 23.22 grains) of pure gold. Of course the two figures mutually imply each other and afford absolutely no evidence that gold is constant in its buying power over other commodities. They merely mean that gold is constant in terms of gold.

I once jokingly asked my dentist—at a time when people were complaining about "the high cost of living"—whether the cost of gold for dentistry had risen. To my surprise he took me seriously and sent his clerk to look up the figures. She returned and said: "Doctor, you are paying the same price for your gold that you always have."

Turning to me the dentist said: "Isn't that surprising? Gold must be a very steady commodity."

"It's exactly as surprising," I said, "as that a quart of milk is always worth two pints of milk."

"I don't understand," he said.

"Well, what is a dollar?" I asked.

"I don't know," he replied.

"That's the trouble," I said. "The dollar is approximately one-twentieth of an ounce; there are, therefore, twenty dollars in an ounce of gold, and naturally an ounce of gold must be worth $20. The dollar is a unit of weight, just as truly as the ounce. It is a unit of weight masquerading as a stable unit of value, or buying power."

In economics, money illusion refers to the tendency of people to think of currency in nominal, rather than rea, terms. This is a fallacy as modern fiat currencies have no inherent value and their real value is derived from their ability to be exchanged for goods and used for payment of taxes. The term was coined by John Maynard Keynes in the early twentieth century, and Irving Fisher book, The Money Illusion , is one of the most important works on the subject.