Finance—Public and Private Stable Money—The New Bank Notes No small-

amount of interest' was taken both in political and financial circles in the Currency and Bank Notes Bill which passed its Second Reading in the House of Coin- Mons last Monday. I do not propose in this short article to enter into the controversial aspects of our Currency- arrange- ments, but I think it may be usefill to try to show that the Bill, however technical its provisions may appear, is really something which concerns the welfare of all sections of the community. I have headed this article, " Stable Money," for while a sound currency system, if . efficiently managed, should achieve many desirable results, including growth in general prosperity, it should, in particular, ensure stability in the purchasing power of money. The wage-earner needs to be assured that his wage, be it large or small, will ensure an adequate command over the supply of goods and services.

SOME UNPLEASANT EXPERIENCES.

During the War and the early post-War period the instability in this purchasing power was one of the greatest evils with which we had to contend, and two different classes of individuals were victimized. Those who suffered the most were those who lived on fixed incomes which had not been adjusted to the new level of prices for food and goods and who were unable to pass on the increased cost of living by themselves selling either their services or goods at a correspondingly higher price. Even those, however, who actually received higher wages were also deceived in the sense that the rise was nominal, because the apparently higher wage did not command a corresponding increase in the power of the wage to acquire goods and services. - -

BORROWER AND LENDER.

Moreover, such instability tends `tb- affect injuriously .all fiscal and social relations, and prejudices alternately the interests of borrower and lender. Thus, if John Jones immediately before the period of War inflation had lent to a friend £100 and had received repayment in. about 1920, he would have found that, as measured by pur- chasing power, the value of his capital had dwindled by more than 50 per cent. It is quite true that if, on the other hand, we -assume that • John Jones on receiving back his £100 in 1920 had. lent it to another friend and were to be repaid to-morrow, he would have regained (in purchasing power) part of his capital and the borrower in this instance would be the aggrieved person.

THE PRINCIPLE INVOLVED.

This example of trifling amounts serves to show how greatly this question' 'of instability in money affects the question of the national indebtedness itself. In the case of some of the earlier Government loans, - for example, the original lenders may feel that by reason of diminished purchasing power they have suffered through the inflation period. Per contra, the State may ..feel with regard to some of the 'larger loans issued during the maximum period of inflation thatit is the borrOwer—the taxpayer—who has reason to feel sore at having to meet interest each year in terms of money commanding a higher purchasing power than that which it possessed -at the time of the flotation of the loan.

PRE-WAR STABILITY.

But what, it will be asked, has all this to do with the Currency and Bank Notes Bill which has just been passed in the Commons ? The explanation is fairly simple. ' PreVionao the War the 'Currency Of the country consisted of gold and silver coins and Bank of England Notes- There was no Government issue. _ And for many years preceding the War there had been no such variation in the purchasing -power- of money. as that destined to take place during the, inflation period._ The- currency in so far as it consisted Of Bank Note's' was severely limited by the Fidiciary ,Note IssueT7that is, that part of the issue against which no gold was held—being. limited to £19,750,000, while the gold cirenlation, although supple- mented by the use of the cheque, was in its turn controlled by supplies of the metal in the Bank Reserve. - - • .„ CURRENCY AND PRICES.

Immediately, however, on the outbreak of-war Treasury Notes were issued without any kind of real limitation. They were,-undoubtedly, wanted at the"morrient to meet abnormal demands for currency, and subsequently they were wanted to replace gold which was required for export. Nevertheless, this practically unlimited ex- pansion in paper currency under State control played a great part in the general credit inflation and rise in prices. So universally, indeed, was this 'danger at-last recognized that some years ago, long before our return to the GOld Standard,- it was decided that some limitation must be placed upon 'the Treasury Note Issue, and, accordingly, it was provided that the actual maximum :circulation in one year was to be made the legal limit for the year following. Under that system a gradual but material contraction took place in the Treasury Note Issue, with the result, coinbined, as it was, with some other deflationary measures, that the purchasing power of money began, not merely to increase, but to tend towards greater steadiness.

DUAL CONTROL.

At the same time, the system was lacking both in soundness and effectiveness by the fact that although the Bank of England . was responsible, as the bankers' bank, for the custodianship of the • entire .reserves of the country, it had no responsibilities towards and-no control over the Treasury Note Issue, although that 'Issue `Con- stituted the currency of the. country. In short, .in this respect 'there Was:dual control making for ineffectiveness in working the Gold Standard system and also con- stituting a menace in the sense that the "poWer lay ready to the hand of any Government to increase the currency of the country at will._ • _

NEW FIDUCIARY LIMIT.

Those powers have now been -removed. In a few months' time entire responsibility for the Treasury Note -Issue will be taken over -by the Bank of England; and-2-to put the matter briefly and simply--7-rthe new. fiduciary limit of £260,000,000 will, to all intents and purposes, represent the present legal maximum of the Treasury Notes plus the old fiduciary limit of the Bank of England. One drawback will at once be apparent, namely, that the Bank of England Notes themselves will have. a less strong backing in gold than at the present -time, but. the entire paper currency of the country—and that is with *hat we • are concerned at the moment—will hive the same backing 'as at the present

'ELASTICITY.

There is one clause- in the Bill -which it is:particularly 'desirable 'should be -clearly comprehended: Some have maintained, • and with considerable juatice, that because we are passing through a transition period and because also the Bill has been framed amidst conditionsof trade depression, there maybe, some fear lest ,the ihe fiducary limit should prove to be too rigid to cope, for example, with any genuine trade deniand, greater employment and greater consequent- demands' for currency: This contingency has been- provided for by a clause whereby emergency excess fiduciary limit can -be obtained through the Bank of England approaching the Treasury and obtaining consent theretO, such expansion to last for a six months' period. The great, point, however, to be recognized here is that the initiative has to come from the Bank.- It is not yvithin the functions of the State through the Treasury to make the suggestion to the Bank: In other worth, 'while this clause of the Bill is designed to meet possible needs for teinporaiy elaaticity..inT the _currency arrange- ments, there is nothing in it to give back to the State the control of the Note Issue which now belongs to the Bank Of England, that- institution, however, in its turn' being