A FINANCIAL THERMOSTAT
BASED on the statistical studies undertaken in preparation for three Alfred Marshall Lectures delivered at Cambridge last year, Mr. Hawtrey's latest book suffers from the handicap of an unattractive title and bears some traces of its eclectic origin. Immense masses of data occupy its central chapters, immense statistical tables, from which these have been selected for rearrangement, fill its last closely-printed twenty pages. The weary reader, flicking the pages to and fro for reference, longs for a time chart, for graphical presentation, even for a divorce into two volumes of evidence and conclusions. But sandwiched between these slabs of nutritious but unpalatable matter lies some admirable fare, and Mr. Hawtrey's generalisa- tions and theoretical analyses are wonderfully strengthened by their preliminary barrage of facts.
Mr. Hawtrey has three closely related aims : to analyse and trace through later pronouncements the original " Bank rate tradition " dating back to the repeal of the Usury Laws ; to examine the mechanism by which, and the circumstances in which, Bank rate movements control economic activity ; and to judge of its efficacy as a future instrument of stability. The historical survey of the relationship of the Bank rate to gold movements, to the quantity of money, and to the long term rate of interest as indicated by the price of Consols, are all ancillary to these aims. They serve their purpose well. The genesis and growth of the " tradition "—of the use of Bank rate as a substitute for rationed lending, of the recog- nition of the Bank's obligations as " lender of last resort," of the defence of convertibility through the dual action on foreign funds and on home incomes, are illustrated by a dose and meticulous correlation of circumstances, Bank rate changes, and the evidence of Banking Committees. Modifica- tions are ascribed to their probable causes, irrationalities examined in the light of the half-forgotten original tradition. A study of the time relationship between the movements of different indices, coupled with a careful survey of actual practice, both in long term investment and in the financing of short term requirements, arms Mr. Hawtrey for his lively controversial chapter on long and short term rates of interest. This he devoted to the discomfiture of Mr. Keynes—an important buttress of whose argument cracks visibly under the assault.
Finally the whole body of evidence is brought to bear on the question of the future of banking policy. Bank rate has been virtually ineffective for the last five years ; open market operations have superseded it in practice, while economists look for a more effective future weapon in the shape of public works, complementary budgets, or consumers' credits. Mr. Hawtrey is not dismayed. Under normal conditions, movements in Bank rate can regulate credit, in the future as in the past, as effectively as the dampers of a stove regulate the fire within. It cannot either relight the fire if it has actually gone out, nor put out a conflagration ; but if it is properly handled at the right time neither of these two catastrophes need come about. Timing, indeed, is everything—and to this conclusion the statistical evidence is indispensable.• Mr. Hawtrey draws a brilliant parallel with the Doctor's Dilemma : "Everything depends on your inocu- lating at the right moment." Merely " stimulating the phagocytes " regardless of circumstance is as likely to be useless in finance as in medicine. Thus the reduction of Bank rate in 1932, after the ill-considered rise of two years before, came too late—an empty demonstration signifying no more (says Mr. Hawtrey in an unwonted burst of imagery) than " the great rhinocereeros what leaps from crag to crag and 'owls 'orrid."
Mr. Hawtrey concedes that once a deadlock has, in fact, arisen other means than mere cheap money may be necessary to break it, such as public works and the like ; but he sees no benefit in their regular use. They lack the delicacy of the Bank rate and, most important of all, they are impossible to time accurately. On consumers' credits, as advocated by Mr. Meade, he is cautious and on the whole unconvinced. Dis- entangled from the rigid bonds of the Gold Standard, the Bank is better placed than ever; in spite of all appearances to the contrary, to regulate credit by the traditional means.
The major question of the aim to which control should be directed is not treated here. Should it be, as under the Gold Standard, to keep British prices in step with those of the rest of the world ? Or should it be to avoid unemployment, regardless of consequences to the international balance of payments ? Mr. Hawtrey's summing up of the 1929 crisis and the checking of the Wall Street boom by the deepening of the depression in England has a suspicious flavour of insularity.
" John and Sam kept house together. John was in bed with pneumonia. Sam had a slight headache after a debauch. John volunteered to go out in a snowstorm to the druggist's
to get some aspirins for Sam." HONOR CROOME.
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