EFFECTS OF THE WAR ON CREDIT, CURRENCY, AND FINANCE. 289 
regulation of the bank rate. (Both methods lead to the same result.) I 
recommend the former. Let the fiduciary issue of currency notes be subjected 
to a sliding maximum, in such a way that the maximum permissible shall 
‘steadily decrease in successive periods. For example, let the maximum per- 
missible fiduciary issue be reduced at the rate of 2,000,000/. a week. Let this 
policy be announced beforehand, and let it be further announced that the 
policy will be continued until the dollar exchange first touches par, and that 
whenever, during the six months following this happy event, it again falls 
below par the policy will be resumed until it is up to par again. ‘he effect 
of the announcement of this policy in advance would enlist the forces of 
speculation on the side of the pound sterling. A sharp speculative rise in 
sterling, without subsequent relapse, might be expected to follow immediately. 
Unless the Americans were deflating simultaneously, the depreciation of sterling 
would almost certainly run off within six months, and possibly more quickly. 
Gold could then be ‘‘ decontrolled,” i.e. freedom to export or melt gold could 
be restored, and steps taken to fix a limit to the fiduciary issue, which could 
remain unchanged for several years. The period of deflation would probably 
be marked by falling prices and, with a view to reducing unemployment, it 
would be well to attempt to secure, during this period, the general adoption 
of sliding scales of wages based on cost of living. The lag of retail behind 
wholesale prices might be deliberately lessened by a temporary rise in the 
bank rate. But this would probably come about in any case as a result of 
the joint stock banks drawing heavily on their balances (or the Government 
seeking further overdrafts on Ways and Means) at the Bank of England, in 
the new situation, in which new currency notes beyond the shrinking limit 
fixed would no longer be obtainable. It is undeniable that the period of 
deflation would involve various temporary inconveniences, but these, in my 
opinion, would be a small price to pay for the permanent advantages which 
would result. An alternative principle for securing a reduction in the maximum 
permissible fiduciary issue would be to shorten the period of one year, which 
is the unit of time adopted by the Government, on the recommendation of 
the Cunliffe Committee, in their hitherto abortive scheme for restoring the 
gold standard. At present the maximum permissible fiduciary issue during 
any calendar year is the maximum actual fiduciary issue during the preceding 
calendar year. This plan is leading to preposterous procrastination. For the 
actual issue having been allowed to expand practically up to the legal maximum 
at the end of 1920, no appreciable reduction of the legal maximum can now 
take place before the beginning of 1923 at the earliest, and there is no guarantee 
that it will take place even then. Sic itur ad infinitum! But reduce the unit 
of time in this scheme from a calendar year to a quarter, or, better still, to a 
month or even a week, and there will be more chance, though no certainty, 
that the dollar exchange will be restored within the lifetime of our grand- 
children. Personally, I prefer the scheme indicated in the earlier part of this 
answer, but to those who may think it too drastic I commend this milder 
alternative. 
*P.S.—The trade depression has presented the Government with an excellent 
opportunity of reducing the legal maximum pari passu with the actual con- 
traction in the currency note issue. But this opportunity has been thrown 
away, and there is no legal barrier to an equivalent expansion in the currency 
note issue in the near future. There may be a barrier of policy, but, in view 
of recent reductions in the bank rate and of the great political influence of 
inflationist ‘‘ big business,’ I doubt it.’ 
“Mr. Gibson contends that the course of the London-New York exchange in 
future will largely be dependent on econdmic and financial conditions on. the 
Continent of Europe, for this important exchange is the great trunk line of 
settlement between Europe and North America. He disagrees with Dr. Dalton’s 
opinion that Great Britain by her own action can restore this exchange to 
parity.’ 
