288 REPORTS ON THE STATE OF SCIENCE, ETC. 
made clear that we have most, to fear from the burden of the debt becoming 
correspondingly much higher than if we maintain currencies at present level.’ 
He gives as his own view: ‘If we can spread the effects over about eight or 
ten years, we can absorb the loss on existing stocks in business by a modest 
reduction of the ordinary margin of profits, say one-fifth thereof.’ 
Mr. Gibson replies that deflation may take two forms, automatic and 
compulsory. A fall in prices will cause a reduction in bank loans; therefore, 
per contra, in deposits. Currency notes will return to the banks from circula- 
tion. Compulsory deflation will be caused by banks restricting new grants 
of credit and calling in part of existing loans. Increased taxation will also 
reduce the volume of deposits, and thereby the available purchasing power of 
the public. Banks will also sell part of their investments to the public, and 
will thereby reduce deposits. The funding of the Floating Debt will reduce 
bank holdings of Treasury Bills and money at call and short notice, and, 
per contra, deposits. Mr. Gibson continues : 
‘The world is at present passing through a severe transition period. It is 
in reality engaged in reaping the bountiful inflation harvest predicted by 
economists. ‘his country will, in my opinion, come through with flying colours 
and make rapid economic recovery in the course of a few years. Its main 
danger lies at Westminster. If tariffs are imposed on any scale, their indirect 
effect on the costs of production will be such as to materially restrict the pre- 
War volume of our export trade. Germany will, in my opinion, set Russia 
on her feet again (though eventually the future economic alliance of these 
two countries will prove a standing menace to European peace), German 
indemnity payments to England in the course of two years or so will largely 
take the form of foodstuffs and raw materials from Russia, and therefore tend 
to reduce costs of production in the United Kingdom. The operation of the 
foreign exchanges will force this indirect form of payment from Germany. 
Russia in exchange will receive from Germany manufactured goods, transport 
material, and agricultural implements. 
‘It is to be hoped that more cordial relations’ will in future exist between 
capital and labour, brought about by an equitable co-partnership scheme in 
the products of industry. In addition, industrial peace demands ample 
reserves for distribution in times of trade depression, accumulated in times of 
prosperity. The future prosperity of the country, and a raising of the standard 
of living, is largely dependent on increased willingness to work and increased 
output by all classes.’ 
Sir Drummond Fraser, who is at present engaged in organising the Inter- 
national Credits Scheme (known as the ter Meulen bond scheme) for the 
restoration of international trading with the impoverished European countries, 
believes that the scheme, ‘without monetary inflation, will provide a reservoir 
of credit which exporters can tap for productive enterprise. It has been 
accepted by the British Government as a ‘‘ satisfactory security’’ for their 
guarantee for 85 per cent. of the exporter’s risk. It has had the approval of 
the Second World Cotton Conference held in Liverpool and Manchester, and 
the International Chambers of Commerce held in London.’ Sir Drummond 
reminds us that the British Association warmly supported his National War 
Bonds at the Manchester meeting in 1915. 
Dr. Dalton is the only correspondent who goes fully into Question 13, and 
we print his reply in full. 
‘ Attention may be concentrated on restoring the dollar exchange to pre-War 
parity. When this has been achieved, which implies that the British paper 
pound is again worth a gold pound, and when freedom to export and melt 
gold has been re-established, there will be no purpose in attempting further 
deflation. For this would only result in bringing in gold from America and 
Japan to replace paper currency destroyed. (Steps should be taken to prevent 
gold coins getting back into internal circulation. The ancient proposal to 
make paper convertible, not into gold sovereigns, but into gold bar for export, 
still seems the simplest and hest way of doing this.) 
_‘In order to restore the dollar exchange, it is necessary to lower the British 
price level relatively to the American price level. The amount of deflation 
required will therefore depend on American currency policy. It is possible 
to operate either through regulation of the currency note issue or through 
