148 



DISCOVERY 



and, when prices are falling, to obtain them on worse 

 terms. This adds still more to their cheerfulness in 

 booms and to their despondency in depressions. The 

 net result is that industry progresses in waves of an 

 amplitude substantially greater than would appear if 

 general prices were so chained that they could not rise 

 in booms and could not fall in depressions. 



The Gold Standard 



From what has been said it follows that, other 

 things being equal, industrial stability will be pro- 

 moted the more effectively, the more fitted is our 

 monetary system to ensure price stability both in 

 periods of boom and in periods of depression. Before 

 the outbreak of the Great War the money of the United 

 Kingdom was based on the gold standard, and this 

 fact prevented booms and depressions here from 

 carrying general prices substantially above or below 

 the contemporary level in the world generally. If 

 they began to soar above this level, goods tended to 

 flow into this country and gold to flow out, with the 

 result that the upward movement was checked ; and, 

 if they began to fall below this level, the downward 

 movement was checked by a corresponding mechanism. 

 In the face, therefore, of booms and depressions private 

 to the United Kingdom, general prices were chained 

 fairly tightly and could not move much. But, of 

 course, in fact booms and depressions often extended 

 much beyond the United Ivingdom, and, when this 

 happened, though domestic prices could not move far 

 away from world prices, domestic prices and world 

 prices might both move a long way from their original 

 position. 



In the difficult period of the Great War the gold 

 standard was abandoned in effect in all the belligerent 

 countries, and, though the money of the United 

 States is now a full gold money, the moneys of the 

 principal European countries are no longer convertible 

 at their face value into gold, and the money of the 

 United Kingdom, though nominally so convertible, is 

 reaUy placed on the same footing as the continental 

 moneys by legal prohibitions against the export of 

 gold and the melting of sovereigns. The abandonment 

 of the gold standard implied a rupture of the chain by 

 which upward and downward movements of general 

 prices had hitherto been held in check. This made 

 possible the enormous price swings that were associated 

 with the post-war boom and the depression following 

 it. If, indeed, the Bank of England had raised the 

 discount rate earlier and higher than it did, the ampli- 

 tude of these swings would have been lessened. There 

 were special obstacles in the way of such action by the 

 Bank at that time, and it may be argued that, in 

 future booms, we might rely on general prices being 

 chained down by discount policy not less effectively 



than they would be chained by the gold standard. 

 Since, however, it is generally agreed that, in this 

 country at all events, the gold standard must, on 

 other grounds, be restored at the earliest possible 

 moment, it is not necessary to argue that point. As 

 a matter of history, the abandonment of the gold 

 standard not only made possible, but was also in 

 actual fact associated with, altogether abnormal 

 swings in the general price level. 



WTien we have got back to the gold standard, as, 

 no doubt, we presently shall, there is some danger that 

 the problem of price stabilisation, which has recently 

 been much discussed, will be allowed to sleep. Happy 

 in having escaped from our present ills and returned 

 to pre-war currency conditions, we may be inclined to 

 treat as academic and unpractical proposals designed 

 to improve on these conditions. But, as I have 

 shown above, the gold standard, though an effective 

 chain upon price movements in booms and depressions 

 private to a single country, is not effective in booms 

 and depressions of world-wide scope. Plainly, there- 

 fore, pre-war currency arrangements were not perfect, 

 and, if it should prove possible to improve on them, 

 it is very desirable to do so. A number of plans to 

 this end have been discussed among economists. 

 Some of them involve international action, but others, 

 at the cost of a number of rather serious disadvantages, 

 could be adopted by a single nation. It would not 

 be appropriate to examine the technique of these 

 plans here. It is in place, however, to call attention 

 to the fact that such plans exist. When England is 

 once more back on the gold standard, our Government, 

 in conjunction with that of the United States and of 

 other interested countries, might very usefuUy set up 

 an international Commission to investigate the whole 

 subject. 



Simple Remedies 



It is not, however, onlj- through price stabilisation 

 that industrial stabilisation can be promoted. Govern- 

 ments — and under the term " governments " we must 

 include municipal and other local authorities — have it 

 in their power to contribute something towards that 

 end in a simpler and more direct way. There is a 

 large amount of work for the initiation of which, 

 whether by themselves undertaking it or by ordering 

 it from private contractors, they are themselves 

 normally responsible. A good deal of this work is 

 such that it does not very greatly matter whether it 

 is done in one year or in another neighbouring year. 

 By pressing on work of this kind in periods of depres- 

 sion and holding it back in periods of boom, govern- 

 ment authorities can, if they choose, make industry 

 and employment as a whole somewhat steadier than 

 it would otherwise be. It is sometimes objected that 



