A BOOK OF THE MOMENT
MR. KEYNES AND THE GOLD STANDARD
[COPYRIGHT IN THE UNITED STATES OF AMERICA BY THE New York Times.] The Economic Consequences of Mr. Churchill. By J. M. Keynes. (The Hogarth Press. Is. net.) wisn Mr. Keynes had resisted the temptation—a very strong one, no doubt, to so witty a man—to give a freak title to his pamphlet. If he had called it " The Economic 'Consequences of the Government's Gold Policy," it would have been a dull title no doubt, but one much more likely to make people understand that Mr. Keynes's disquisition is a very important and serious contribution to the financial problem of the hour. The issues are much wider and bigger than the Treasury adventures and escapades of Mr. Winston Churchill. The best review of so efficient and so closely reasoned a piece of work as Mr. Keynes's, if one cannot reprint it altogether, is to advise people to read it. Still, even at the risk of slightly damaging the argument by isolated quotation, I feel I must give my readers some samples.
The first chapter shows conclusively to anyone who will take the trouble to follow the argument how and why unemployment has been increased by the premature, managed and contrived return to the Gold Standard. If Parity had come automatically and by itself, as it looked very likely to come, we should have escaped from the chief of the evils from which we are now suffering. It was the means by which Parity was forced on us, by which, that is, the value of Sterling was stimulated to a point where a 10 per cent. reduction in all prices was involved, that constituted the crime. Yet, as in the case of so many crimes, the men who committed it were quite unconscious of their misdeed. We must absolve the Bank, the Treasury, and the Gold enthusiasts of the Cabinet from any Machiavellian policy of making money dear and wages cheap. They were blind, not wicked, worshippers of the golden image.
The long and the short of the whole business is that if you could lower the general price level of everything by increasing the value of Sterling, and get your change of prices, not only universal and automatic, but instantaneous, no one would be any the worse for the change. But, unfortunately, though you can instantaneously make money dearer, the process of making prices lower is far slower. So slow, indeed, is it that there is plenty of time for great suffering and political unrest, and even of revolution, during the period when the general fall in prices is lagging behind dear money. Again, custom in many instances has so much to do with prices that anything like universality in lower prices is likely to be a very slow process indeed. When the change does not come naturally, but is stimulated by the use of dangerous financial nostrums Such as the forbidding of the issue of loans, you may get the situation which we so nearly approached in the Coal Trade, and avoided only by the drastic device of a subsidy concealed under the alias of a subvention ! What we were in effect proposing to do was to deflate the wages of the hand labourers while not deflating the wages of Capital, or again the remunera- tion (or wages) of the professional classes. The cost of hand labour, we were told, must come down, and at once ; but nobody said that the fees of the professional men, or overhead charges, or preference shares, or the fixed rate of interest paid on War Loans, were to be deflated at the same time. These were left to the uncovenanted mercies of political economy, which, though they grind small in the end, grind very, very slowly. In other words, you may prove conclusively in theory and on paper that the return to the Gold Standard and dear money will make no difference to anyone ; but, as a matter of fact, for the existing generation it may mean not only untold physical and personal misery, but a vast dislocation of trade and industry.
One of the points made very emphatically by Mr. Keynes has to do with the increase in the burden of the National Debt caused by our frantic and feverish efforts to look the dollar in the face. The Spectator has again and again spoken of the inevitable future loss due to borrowing in paper, as we did in regard to the greater part of the War debt, and thenpay- ing back in gold. That, remember, is what we are now doing. People subscribed, i.e. bought War Loans, when our paper currency, owing to War inflation, was at a discount of 20 per cent. The £100 that they paid for their stock is now worth only £80, but they must be repaid at £100. If we were determined to raise the value of Sterling, surely the equitable plan would have been to arrange with the holders of the Debt to have their rates of interest scaled down by 1 per cent. Mr. Keynes in a very striking and illuminating passiige in effect endorses this view. He points out that the result of raising the value of Sterling by 10 per cent., is that " we transfer about £1,000,000,000 into the pockets of the rentiers out of the pockets of the rest of us, and we increase the real burden of the National Debt by some £750,000,000 (thus wiping out the benefit of all our laborious contributions to the Sinking Fund since the War)." Mr. Keynes ends this portion of his argument by an admirable piece of ironic argument in which, like a financial Socrates, he states what the Treasury Committee on the Currency ought to have told the Government.
" To begin with, there will be great depression in the export industries. This, in itself, will be helpful, since it will produce an atmosphere favourable to the reduction of wages. The cost of living will fall somewhat. This will be helpful too, because it will give you a good argument in favour of reducing wages. Never- theless, the cost of living will not fall sufficiently and, consequently, the export industries will not be able to reduce their prices sufficiently, until wages have fallen in the sheltered industries. Now, wages will not fall in the sheltered industries, merely because there is unemployment in the unsheltered industries. Therefore, you will have to see to it that there is unemployment in the sheltered industries also. The way to do this will be by credit restriction. By means of the restriction of credit by the Bank of England, you can deliberately intensify unemployment to any required degree, until wages do fall. When the process is complete the cost of living will have fallen too ; and we shall then be, with luck, just where we were before we started.
" We ought to warn you, though perhaps this is going a little outside our proper sphere, that it will not be safe politically to admit that you are intensifying unemployment deliberately in order to reduce wages. Thus you will have to ascribe what is happening to every conceivable cause except the true one. We estimate that about two years may elapse before it will be safe for you to utter in public one single word of truth. By that time you will either be out of office, or the adjustment, somehow or other, will have been carried through.' "
Instead, however, of saying this, the Treasury prophets, to quote Dr. South's summary of what happened to Ahab, " sent him [the Government] in a compliment to be knocked on the head at Ramoth-Gilead."
Once more, I would strongly advise my readers to get and read this pamphlet, and, having done so, to insist that, having taken a wrong step in our effort to reach Parity, we must reverse our course in order to obtain a return to Sanity. Further, let them help to induce our rulers to learn by means of a Royal Commission or other Enquiry what is the nature of money and of that " legal tender " in which we are all compelled to pay our debts. Evidently the majority of the members of the Cabinet are quite unable to answer the question, " What is a pound ? " or, if they do answer it, answer it even more unintelligibly than did Sir Robert Peel. Let them then educate themselves through a Com- mission, and incidentally educate the general public. If the devotees of Gold are so certain of their case, as they tell us they are, they can get, not harm, but good from the Enquiry. We opponents of Deflation are not afraid of the event. Why should they be ?
J. ST. LOE STRACHEY.
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