CURRENCY REFORM
J.ET us, for example, suppose that in Great Britain 4 on February 1st, 1925, the Government decided to adopt the plan that I suggest ; Parliament would be asked to enact (a) that all restrictions on trading in gold should be abolished ; (b) that all debts contracted after February 1st, 1925, should, if they were contracted in pounds, be defrayed in gold or its equivalent, which henceforth would be the standard of legal tender ; (c) that, on the other hand, all debts contracted before February 1st should be defrayed in currency notes or their equivalent in gold, and their equivalent should be deemed to be whatever should be on February 1st their value as estimated by the dollar exchange—let us say 19s. in gold for a paper pound. By this means two measures of value would be set up, one for past trans- actions and one for future, and the two measures would have a fixed relation to one another—the relation of 19/20 or 19s. in the E. The word " pound " would have two senses ; for past transactions it would mean a paper pound, for future transactions it would mean a gold pound ; and the paper pound would be 19/20ths of the Old. One other change would be necessary. Since currency notes are now by law exchangeable for gold, it would be obviously necessary to abolish that exchangeability in order that the new relation should be effective. As they are, gold is by restriction on its use kept at an artificially low value, and is only worth 19/20ths of what it would be if it were allowed to be freely traded in ; it is, as it were, dragged down to the level of the currency note. When gold should be released from its bonds and restored to its world value, the right to get cash for a currency note must be changed, and henceforth it must be possible only to get 19s. in the gold pound at the unfettered value of gold. If it were still convenient to use currency notes, they would have to be of two types, conforming to the two measures of value, that is, old currency notes before February 1st would be legal tender only for 19s. in the new gold pound, and the new currency notes, which would, of course, have a different appearance, distinguishable at sight, would be exchangeable for a gold pound.
By this method it seems to me no injustice would be done to anyone. Everybody's debts would be precisely what they were before. No creditor would cheat any debtor ; no debtor any creditor ; but all future trans- actions would be in terms of gold and would therefore be at a value, of parity with the American dollar. We should be back to a gold standard without any of the injustice of deflation or its discouragement of industry and production. What in substance would have been done would be breaking loose from the names and conventions and acting in conformity with real values. All the difficulties of inflation and deflation arise from the resolve to call different values-by the same name.
The difficulty that will be suggested is : What' would happen to the interest on investments, and especially on the National Debt ? Clearly there is in all long- period debts an element of complexity. A short trans- action is made in the value of the currency as it stands, and if a new currency of a different value be intro- duced, allowance ought to be made because the change was not foreseen by those who contracted the debt. But -where you are dealing with • investments and with the National Debt, it may fairly be said that though what -was borrowed was a depreciated paper pound, it was anticipated that sooner or later, after an indefinite number of years, the pound would become again a gold pound. .A just and equitable consideration ought to be given to this expectation. But there would-be nothing unjust in substituting a definite date instead of the vague expectation hitherto acted on. It should be .enacted that the interest on the National Debt and on all shares and bonds should, like other debts, be defrayed for a period according to the measure of the old paper pound. People would still receive the interest on their investments, as they have done hitherto, in paper pounds at the rate of 19s. to the gold £. This is all that they get now, and all they expect to get for several years to come. But after a period, which might be three or five years, the State and all companies owing dividends on stock issued before the change of currency should resume paying the interest in gold pounds. This arrange- ment would fairly correspond to what is now vaguely expected ; but it would be definite instead of uncertain.
Currency reform on these lines would be valuable even if applied only to Great Britain. But if it could be applied all over the civilized world, and especially to such countries as France and Italy, not to speak of Greece and Roumania, the improvement in the prosperity of the world would be enormous. There does not seem to me to be any reason why any nation should not resume a gold basis for its currency simply by recognizing two Measures of value—one for past transactions and the other for future transactions. No doubt continental nations, even the richest of them, would have to extend the period, during which the interest on Government debt would be paid in the depreciated currency now current, for a long term like twenty years. Perhaps, indeed, they would have permanently to treat the debt as borrowed in depreciated currency and to be paid according to the same measure of value. But that Would be far better than the present instability. Future transactions would be on the basis of parity with gold, and past transactions, including the debt, would all be definitely fixed in amount at whatever figure was taken as a fair measure of value for past transactions. There -would be stability everywhere. Every debtor would know what he owed his creditor, and every creditor 'would know what his debtor was bound to pay him. The whole of commerce and industry would feel the Stimulus of that healthy condition of certainty. This, then, seems to me to be the solution of the currency problem—to have two measures of value, one for past and one for future transactions, with whatever special treatment for debts contracted before the change in the currency began (and especially for Government debts), considerations of credit and fairness may seem to require and the wealth of each country be able to afford. The benefit of a stable and trustworthy medium of exchange would thus rapidly be restored all over the -world, 'and prosperity would 'follaw stability.
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