THE STANDARD OF VALUE AND THE EXCHANGES. ' (To THE EDITOR
Or THE " SPECTATOR."'
Sin,—In your editorial comments on Mr. McKenna's recent speech, you suggest that the economists have not explored the influence of a depreciation of the standard of value on the
foreign.- exchanges, and the quotation from Coningsby would seem to imply that no such influence exists. May I be per-
mitted to point out that neither of these conclusions is correct? Many years ago, Goschen, in his Foreign Exchanges (Chap. IV.), asserted that while all other causes combined could hardly affect the exchanges by so much as 10 per cent., a depreciation of the. standard might give rise to movements of 50 per cent. or more. More recently, Professor Cassel, in his memorandum prepared for the Brussels Conference, has indicated how the new parity is to be measured—viz., by a comparison of relative depreciation as reflected in index- numbers of general prices. If, for instance, the dollar in New York has depreciated by 100 per cent., and the pound sterling by 200 per cent., then the new rate of exchange will be estab- lished at a parity just half the old. This doctrine of "pur-
chasing. power parity " is well supported by statistics, and really- follows from the conception of international trade as barter. If twenty silk-hats in London, taken as typical of trade in general, ordinarily exchange for one American typewriter, then:the effect of depreciation is simply to alter the rates of ex- change -between dollars and pounds, so that the same number of these articles are bartered for each other as before.
I should much like to comment on other points in which you appear to agree with Mr. McKenna, but do not wish to trespass further on your space except to point out that the doctrine that trade cannot flourish with falling prices is decisively dis- proved by the statistics of the so-called "depression of trade " of 1874-1896. (See, for example, Cd. 4954 of 1909, pp. 4-9, 134, 136-137.) During that period the production and consumption of all our staple industries (except agriculture) increased very greatly, both absolutely and per head of the population, and in value as well as in quantity. The quinquennial averages of the Clearing House returns rose from £5,114 to £6,789 millions, in spite of a 40 per cent. fall in prices, and Income Tax from £515 to £707 millions (Schedule D, £227 to £357
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