EFFECTS OF THE WAR ON CREDIT, CURRENCY, AND IINANCE. 323 



Our Questions 3, 4, 5 and 7 are connected witii each other. 



Question S. — Should the volume of the currency be deliberately restricted 

 with the object of returning to an effective gold standard? 



Taking a long view, the Governmental manipulation of currency has been, 

 and, as far as can be foreseen, is likely to be mischievous. But we have to 

 face the results of such manipulation, and therefore, recognising this, the aim 

 siiould be to work towards an ultimate liberation of the currency from Govern- 

 mental interference with the minimum of disturbance. Accordingly, further 

 contraction of currency should be gradual until an effective gold standard is 

 restored. This may come without much further deliiierate control of the 

 currency, but so many factors are involved that no precise conclusion can be 

 readied. The gold jjosition, and that of crops and of trade, are all-impcrtant 

 elements. The precise pomt at which a revival of trade will manifest itself in 

 relation to the volume of currency and to the amount of gold production at that 

 time will be important. If things are left to themselves trade is likelj to be 

 rather feverish, with alternations of short-lived booms followed by longer 

 depressions. It would seem to follow that a policy which would check the 

 boom period would be advantageous in the long run. The great need of 

 financial reconstruction is stable conditions, and so more is to be gained by the 

 avoidance of extreme oscillations than would be lost by checking a temporary 

 extreme business activity. To attain this end it is really more important to 

 act on credit than on currency, and accordingly the banks can do more than is 

 possible by the LJovernment. 



Note. — Mr. Hirst adds : ' As experience shows that no Government can be 

 trusted with the control and manipulation of a currency, the only sound 

 currency is an automatic gold, or silver, or gold-silver (symmetallic) currency, 

 with complete convertibility of notes and free trade in bullion.' 



In the meantime the manipulation of currency by the Government is likely 

 to be clumsy. It tends to be like moving the regulator of a watch with a pitch- 

 fork. Therefore the most efficient action is likely to be that of the banks. 

 The recent amalgamations have made concerted action easier in some respects, 

 perhaps not in others. If the banks, as a whole, could be brought to see the 

 advantage of joint action in the control of credit at the beginning of a period 

 of active trade considerable permanent advantages would be likely to result. 



Perhaps the Currency Note Issue should be taken over by the Bank of Eng- 

 land (as we suggested in our 191.5 Report), with a consequent fusion of the two 

 gold reserves. 



Note. — Sir Drummond Fraser suggests that emergency issue of currency 

 might be allowed if covered by self-liquidating securities against a ' fine,' plus 

 an increased Bank rate, the extent of the emergency issue to be regulated by the 

 proportional increase in the ' fine ' and the Bank rate. He reckons that the legal- 

 tender money circulating outside the British banking system — not required for 

 retail payments — is £200 million. Special efforts should be made to attract 

 this money as well as new money (savings) into Government securities, on the 

 same principle as that of deposit banking before the War. He urges that 

 cheques should be free from stamp duty (as in America) in order to economise 

 legal-tender money and to make the central gold reserve more effective. 



So far as currency is regarded as reacting on prices, it may be sufficient 

 if we are content to restrain the rise in prices in this country during the latter 

 phases of the next trade boom. It may be difficult to restrain the rise of prices 

 earlier without cutting off England from her share in the recovery of world 

 trade. Some of us are inclined to prefer the widening of the gap between 

 sterling and gold to an unnecessary prolongation of the industrial stagnation. 



It may happen that the level of gold prices in the world will permanently 

 rise before long, and that this rise in gold prices, being greater than the rise 

 in sterling prices, will suffice to bring the £1 to its old gold parity. We 

 must, perhaps, wait and see what happens, and adjust our policy accordingly. 

 A very great deal seems to depend on the policy of the U.S.A. Federal Reserve 

 Board : on whether they permit a large or only a small rise in gold prices. 



Question If. — To what extent should a deliberate policy of restriction be 

 left to the automatic action of the Banks: to what extent to undefined central 



