S24 REPORTS ON THE STATE OF SCIENCE, ETC. 



control hij the Government of the den/ : and to what extent to definite statutory 

 powers of the Government? 



The policy of restraining the rise in home prices during the next boom 

 requires, in our opinion, concerted action by the joint-stocli banks. It must 

 be admitted, however, that these banks failed to use their influence after the 

 Armistice, when restriction was desirable ; bank credit expansion proceeded 

 almost unchecked until the early months of 1921. Our former gold standard 

 acted as a powerful brake on GJovernments and banks when they were tempted 

 to cross the bounds of sound finance. 



It is desirable that there should be a further limitation in the fiduciary 

 issue of currency notes, and it might be well if the issue were steadily reduced ; 

 such a reduction would tend to check incipient inflation bj'' compelling an 

 increase in the Bank rate. 



We do not think that the Government of the day should have any increase 

 in its present powers. The Treasury has at present ample powers over the 

 Currency Note Issue, and we see no need of tlie grant of further statutory 

 powers. 



Question 5- — When do you expect the dollar exchange to reach par? When 

 it does : [a) Shall all restrictions on the movement of gold coin and bullion 

 and on the melting of coin he removed at once? (b) What restrictions, if any, 

 other than that imposed by convertibility into gold coin, should be imposed on 

 the issue of currency notes? 



If the Federal Reserve Board permit a rapid and large rise of gold prices 

 in the U.S.A., the exchange might come to par midw^ay in the course of the 

 next trade boom. But the prospect is highly uncertain, and depends upon many 

 arbitrary factors which are at present quite indeterminate. 



In addition to the uncertainties which affect the position in this country there 

 is the fact that the London money market is used as the medium for exchange 

 transactions between Europe and the United States. Disturbances in the 

 European exchanges tend to be reflected in the quotation of the £ in New 

 York. Also there is the effect of American monetary policy in the interim. 

 Therefore the date of the dollar exchange reaching par is something to gamble 

 on, not on which to express a reasoned opinion. As regards European currencies, 

 ultimate devaluation will, in most cases, be inevitable. It is too soon yet to 

 take steps, since the problems of balancing Budgets, of the respective national 

 credits, of war debts, and of reparations must first be dealt with. The 

 question is. At what stage can these countries get back to a gold basis? The 

 latter is urgent, but it seems that it cannot be effected without devaluation. 



The U.S.A. might help by the redistribution of some of her gold by means] 

 of gold loans to countries which are prepared to balance their Budgets and] 

 seriously tackle their currency problems. 



Note.- — Mr. Hirst thinks that ' the sterling exchange could be restored toj 

 par by contracting the issues of our paper currency.' 



5 {a) and 5 (6). — Questions 5 [a) and 5 {b) aroused differences of opinion. 

 The most prudent answer to 5 (a) seems to be — ' Only if conditions seem to b&l 

 so favourable that we can re-establish a gold standard without grave risk off 

 having our gold reserves too heavily depleted. Such a policy might be very! 

 risky if gold prices were likely to fall heavily or if our balance of trade seemed! 

 likely to become unfavourable. 



In answer to Question 5 {b) we are inclined to repeat our suggestion thatl 

 the issue should be transferred to the Bank of England, and regulated byj 

 fixing a maximum legal fiduciary issue in a manner similar to that of Bank ofl 

 England notes. Whether the notes should be convertible into sovereigns or notj 

 is a doubtful point. Probably they should be convertible only into bullion inf 

 order to avoid the heavy cost of again using gold as a currency. 



Question 6. — Is disarmament, i.e. a drastic proportionate reduction of Euro- 

 pean armies and navies, necessary in order (1) to remove deficits, and so (2) t6 

 stabilise currencies ? 



On the whole excessive and competitive armaments cause more politicalj 

 insecurity than they cure, while they also make it impossible to balance Budgets! 

 and stabilise the currencies of countries without public credit. A general! 

 arrangement for reducing military Budgets to a police level is perhaps the] 



