INDUSTRY AND FINANCE [To the Editor of the SPECTATOR.]
Sin,—Mr. Kiddy, in his two articles under this heading, says, " During the war period the gold standard was abandoned, with the result that banking deposits were hugely expanded." The abolition of the gold standard cannot be blamed for this expansion, which is inherent in the credit system. What Mr. Kiddy really meant, I think, he says immediately after : " The quantity of credit increased greatly ahead of purchasing power."
The gold basis is here admittedly gone and nothing can show more clearly the fact that gold has nothing to do with purchasing power beyond the actual amount of gold in hand. Hence the words of Lord Inchcape, January, 1921: " No nation can buy unless it is also able to sell."
No one has ever questioned that the gold standard, along with free trade, is a convenient arrangement from a banker's point of view as it reduces his work practically to a matter of accounting, but the question remains, Is it good from a national point of view ?. Two aspects of the question are ignored by upholders of the gold standard. First, the difference between internal and external exchange. The question is therefore complicated by. the influences arising therefrom : the competition for internal business having a tendency to raise prices above the gold-standard prices met with at the frontier ; so that goods cannot be sold, and export trade declines. Second, the arbitrary fixture of the amount of currency (as presently proposed), without any reference whatever to actual backing, means that there is no distribution of wealth as it is created. In other. words, there is no natural expansion of currency as there ought to be. " If the machinery of credit was to be adequate, they must have a slowly expanding. total of credit and a slowly expanding amount of currency in order to carry the increasing volume of commodities." Thus said Mr.. McKenna in an address to the Commercial Committee of the House of. Commons. It is generally overlooked that the first step in this circle is to give an order: . . ,
Is it not reasonable therefore that we should encourage our internal, trade by a scientific expansion of currency and allow foreign exchange -to regulate the value of our pound each at their own value ? And the reader should understand that it is values we refer to here, not prices. This view was clearly expressed in a lecture by the late Professor Nicholson, October, 1921, as follows :—
`:.Our foreign trade must,depend on a comparison of British with foreign prices. The instability. in the value of .foreign money in relation to our own was no doubt very troublesome, but the influence ought not to be ekaggerafect Two general reasons Might be assigned why people should not be so mightily alarmed about these oscillations in the foreign exchanges. The first was that on occasions long before the War there were wild fluctuations in the foreign exchanges, but they did not destroy the trade.
` In the last resort all trade must be barter, it must be the exchange of commodities against commodities and the money means must not be confused with the actual exchange itself. " A second reason for mistrusting those who trembled at the foreign exchanges was our recent experiences—in the boom that ended in the middle of 1920, the boom in which profits and wages were soaring as they never did before and orders were given which could not be executed. All this time the foreign exchanges were M a state of chaos. Why should the same cause have practically no effect two years ago, and be all-important now ? "
6 Ann Street, Edinburgh.
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