STABILISING THE VALUE OF MONEY. 



199 



issue of notes and the granting of bank credits are restricted by 

 the obligation to give gold certificates on demand. But the pro- 

 posed stabilisation would mitigate the effects even of unwise 

 banking. 



(b) It is proposed in order to prevent speculation in gold to 

 charge a brassage fee, say of one per cent., on the deposit of gold, 

 and to provide that no single alteration in the value of the .gold 

 to be redeemed by the gold certificate shall exceed this fee. This 

 would prevent short period speculation; and speculation over a 

 longer period would be prevented by the loss of interest involved 

 in holding the gold. 



Possible Objections. 



(a) Why has it not been tried before 1 Because it depends 

 essentially on public confidence in the accurate calculation of 

 index numbers, and that has only recently been achieved. 



(b) What about foreign exchanges ? (i) The importance of 

 this point is exaggerated. Internal trade is much greater in 

 volume than external, and a country with stabilised money would 

 reap so many internal advantages that it could afford to disregard 

 the less important external inconveniences. (ii) But the incon- 

 veniences too are exaggerated. A change in the exchange between 

 two countries corresponds in the long run to the divergence in 

 their price levels. Suppose that the free import and export of gold 

 has been re-established and that there has been a new vast dis- 

 covery of gold on the Rand, with the result that prices rise 50 

 per cent. Suppose further that South Africa stabilises her cur- 

 rency, and that England allows her prices to rise. The South 

 African sovereign increases in weight from 113 grains of pure gold 

 to 169i grains, but prices as expressed in pounds, shillings and 

 pence remain at the old level, while English prices increase to half 

 as much again. The South African exporter would get 50 per 

 cent, higher prices for goods sent to England, but on his draft for 

 the amount received he would lose 33 l-3rd per cent, on the 

 exchange, and would on balance neither gain nor lose. Conversely, 

 an importer would pay higher prices, but need only put down 

 £66 13s. 4d. to purchase £100 in England. Doubtless the situa- 

 tion would not be so simple nor so extreme as this imaginary case, 

 but if the movement of gold were free, exchange would always 

 tend to fluctuate round the gold par, which would itself change 

 as the supply of gold varied, so as to keep prices stable in South 

 Africa. Further, this alteration in the par of exchange would 

 prevent any undue drainage of gold from any country. 



The country which first re establishes free movement in gold 

 stands to gain enormously, and, if, at the same time, it institutes 

 a stable price level, it will have a long start over other nations in 

 commercial development. 



Establishment of the New System. 



It is not probable that South Africa, a country relatively so 

 backward in industrial organisation and so entangled in the 



