Towards Monetary Stability
International Gold Movements. Os.)
By Paul Einzig. (Macmillan. more important than unemployment, industrial peace, or capitalism because fundamental to them all " ?
To-DAY, we are told, the centre of gravity of our public affairs Now this habit of leaving things to the City (or its equivalent has moved from polities—in the narrow sense—to economics. in each State) and then " grousing " periodically at the Certainly there are not wanting signs in this country that the machinations of international finance is not only unworthy traditional political concepts are increasingly out of date. of an educated democracy, it is also positively dangerous. We This shift is reflected in the wider and more intelligent interest have learnt that lesson in the political field, where now the of the public in economic problems. And yet how many people great strategists of peace like our present Prime Minister insist outside the City have sufficient knowledge to appreciate the on constant contact with public opinion and so put to shame workings of international finance, and the significance of the the tacticians of the old diplomacy who had to rely for their world's monetary problem, which Sir Josiah Stamp in a strategy on military and naval experts. It is high time, too, Foreword to the English edition of Prof. Irving Fisher's book, to abandon the old-fashioned methods of diplomacy to which The Money Illusion (Allen and Unwin, 7s. 6d.), rightly des- many of those engaged in " high finance " cling. As Mr. tribes as the most important single problem of our age-- Einzig says, in his appeal for a better !stormed public
opinion : " If the League of Nations were to use the same secretive methods as central banks, it would be of little use to the cause of peace."
Mr. Einzig, who has been Foreign Editor of the Financial News for many years, has written a book which should be in the hands of all who profess to take an intelligent interest in public affairs. He argues that, since the Currency and Bank Notes Act of 1928 has put an end to the internal monetary use of gold, we need only consider its international role ; which means, in effect, a study of the real meaning of the gold standard to-day—to what extent it applies or is likely to be superseded by its first cousin, the gold exchange standard —and under what conditions the system can be made to work in a world whose visible supply of gold is practically sta- tionary. The point is made that in view of the surplus gold holdings in Spain, Japan, and Germany, where the national currency is still " inconvertible," the present gold stringency has to be borne by the few countries possessing a free gold market. This is one handicap from which the gold standard suffers, the other considerable handicap being the constant drain of gold from Europe to America in consequence of War Debts and Reparations.
The author explains with an admirable lucidity the various motives of international gold shipments and the reason why " special " or non-commercial transactions ought to be reduced to a minimum. They are necessarily damaging to monetary stability, which is fundamental to price stability and so to the problem of unemployment ; and they do not, of course, set up that automatic reaction which is of the essence of the gold system, as originally conceived.
Mr. Einzig's account of the several attempts on the part of the leading financiers and economists to regulate the demands of central banks for gold is very timely in view of the battle royal which, we may surmise, has been going on behind the scenes of The Hague Conference. Now that the world has in the proposed International Bank of Settlements a great opportunity for making co-operation among the Central Banks as real and permanent as the co-operation of the nations in the League, it is well that the public should realize that here, as in the political field, France is acting as a drag. Since the spring of 1927 M. Poineare and the Bank of France have worked in concert in accordance with the old obsolete conception of " security "—(a) to guard France against possible " aggression " by foreign financiers, and (b) to make Paris an independent financial centre ; thereby fatally accentuating the " . . . . simultaneous and competitive efforts (of the nations) to secure metallic reserves "—i.e., acting on the very principle which was repudiated at the Genoa Con- ference and which in the world's monetary situation to-day is madness.
We endorse whole-heartedly Mr. Einzig's opinion that moral pressure must be enlisted against those central banks which still fail to observe either the letter or the spirit of co-operation." Herein lies the tremendous importance of his book and of his frank admission that no longer can finance safely set up as something esoteric, not to be comprehended by the many. He suggests that a public international con- ference should be held as soon as possible with two main tasks to perform : (1) to elaborate a proper scheme of co-opera- tion in gold resources (the International Bank now, of course, is the instrument ready to hand) and (2) to codify the rules under which the post-War gold standard works. The decisions of such a conference would not be enforceable, but, as with the League and the Briand-Kellogg Pact, once more we should see to what extent the pressure of international public opinion has replaced the whole idea of " power " in inter- national affairs.
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