Gold
Papers on Gold and the Price Level. By Sir Josiah Stamp. (King. 7s. 6d.)
IN this volume of reprinted articles and addresses three things are clear. First, Sir Josiah Stamp holds that in the world as it is to-day, Great Britain cannot have both a stable price level and stable foreign exchanges. The second is that, though it was generally thought necessary in 1925 to stabilize the pound on gold at 64.86, that step helped to bring this country to industrial stagnation. The third is that by 1925 Sir Josiah had come to recognize the dangers of that stabilization. He has repeatedly and with increasing conviction emphasized in public the importance for the economic system of general price ffuctuations and the dangers of our currency policy. Misunderstood by ignorant men, he has been scoffed at as an "agile theorist," as "unpractical." But he was right, and the "practical" men were wrong. The explanation that the "scarcity "of gold is a main cause of depression has now become widely accepted, but it is doubtful if the implications of this for our immediate monetary problems are generally under- stood. Sir Josiah is no monetary fanatic, for he mentions eighteen causes of the present depression ; nor does he think that monetary remedies atone would at present be efficacious, for " the way into depression is not necessarily the way out." But he is still of the opinion "that of all the causes, gold distribution and the credit methods of different countries are more fundamental than the others, and turn many of the other 'causes' into ' symptoms.' " The trouble began with the return of the pound to pre-War parity in 1925, thus depressing the price level, re-distributing wealth between debtors and creditors, and reducing the profitability of enterprise by increasing the real burden of fixed charges. Because inflation is a vice, men conclude that deflation is a virtue ; whereas the truth is that monetary wisdom lies in neither, but in stability. An additional cause of our troubles, in Sir Josiah Stamp's opinion, was that we went back to gold while our wage level was still 10 to 15 per cent. above that which would have been appropriate to pre-War parity. Wages, previously in a state of rapid readjustment, responded to the psychology of stabilization, and became frozen 10-15 per cent. too high. Right through the prosperity which some countries enjoyed until 1929 Great Britain had a hard core of permanent unemployment due to her fixed charges and frozen wages being too high in proportion to deflated selling prices. But it was the selling prices which had been tampered with ; it was too much to expect that the absolutely fixed overhead costs and the practically stabilized wage costs would follow.
In 1929 difficulties, also fundamentally monetary,, began seriously to trouble the whole world. As the best. remedy for the world depression, Sir Josiah Stamp advocates inter- national action for the regulation of the world price level. His most striking suggestion is that if certain nations persist in hoarding and sterilizing gold, the Bank for International Settlements should do their duty for them and use that sterilized gold as a backing for credits. Inflation ? No, says Sir Josiah ; merely anti-deflation. A distinction with a difference. But what is this country to do if international action cannot be agreed upon ? Shall we choose internal price stability at the cost of fluctuating exchanges and the consequent disorganization of our foreign trade, or shall we, by linking our currency to gold, impose upon ourselves the task of compensating at home the instability of world prices ? The last address here was delivered before we went off the gold standard. Before that Sir Josiah appears to have accepted, with reluctance, the latter alternative. Ile was driven to consider expedients of which he would not normally approve. He took part in the campaign for a reduction of wages, "a second-rate expedient." A " third-rate expedient," which lie suggested in evidence before the Macmillan Committee, was a general tariff to raise the internal price-level by that 10-15 per cent. by which it was out of gear with wages. He did not appear to realize that so long as we were linked to gold at the old parity, higher prices would still further hamper our export trade. It is of no use to raise internal prices if that also means raising prices reckoned in gold. The trouble was that our "gold prices" were too high.
Now we have gone off the gold standard, our "gold prices" have been reduced. But the need for international agreement on the stabilization of the world price level is even more urgent than before. Failing such agreement, ought we to go back to gold at the old parity, or at a new parity, or ought we to have a managed currency divorced from the senseless fluctuations of gold prices ? It is unfortunate that Sir Josiah Stamp has not seen lit to conclude this volume with his latest thoughts on this vital problem.
VILEDLILICK BROWN..
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