AN ELASTIC CURRENCY.
THERE is no way of rehabilitating industry except by further issues of credit. If this, as in the past, is confined to productive credit for export purposes and speculative credit in our home markets, then any trade boom must, as in the past, bear within it the seeds of its own destruction.
If, however, distributive credit (i.e., currency note issue) was applied by the Government in our home markets, whilst the banks, through the elimination of price fluctuation were confined to the issue of productive credit for the purpose of fostering our national pro- duction, our industry would become internally self- supporting and international exchange would be simplified by the fact that sterling would automatically remain at " purchasing power parity."
The ups and downs incidental to any system of private enterprise would still continue, i.e., the manufacturer whose costs (and prices) were too high would naturally lose his trade, but whilst mistaken enterprise might cause a temporary glut in one particular trade, no general' over-production (or under-consumption) as experienced at the present time could ever again cast a blight upon our national industry.
To sum up the position : Credit is essential to the prosperity of industry, but credit may be divided' into three classes.
1. Production credits issued by the banks to facilitate manufacture.
2. Speculative credits issued by the banks to finance merchants and brokers.
8. Distributive credit, or paper currency issued by the Government.
Each and all of these classes of credit have a like effect ir the inflation of our currency when their issue is not counter-balanced by a simultaneous increase in production.
An increase in the third class, or legal tender, is always accompanied by an increase in the first and second, but the effect of speculative credit upon the market is immediate, so that the increase of prices always tends to absorb the new currency before the new goods (produced with the aid of the first class) are on the market. This effect automatically produces a deadlock in our domestic trade which, under present conditions, can only be avoided by the export of goods upon capital account, i.e., the proceeds of which are invested abroad, a transaction which, whilst it may figure well upon paper, brings no real advantage to our national welfare.
Under the proposed system of control of credit issue in relation to the index-figure of wholesale prices this deadlock would be entirely avoided, as distributive credit would always be in strict proportion to production and stabilized prices would perpetually discourage the further issue of credit for speculative purposes. The general level of prices would remain constant whilst individual prices would continue to vary as at present, under the free competition of unfettered private enterprise.
An increase in our productive capacity, whether from the receipt of German reparations or from the initiation of a vast scheme of national electrification, would be met by an immediate increase in our national purchasing power (by an increased currency). Productive enter- prise would become a science instead of a gamble ; social problems, such as health, housing, and unemployment, would find ample national funds limited only by the capacity of our nation al production, whilst war, if war should come, would simply mean harder work and harder living for all, instead of prosperity for the few and misery
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