F.—ECONOMIC SCIENCE AND STATISTICS 119 
In order that this may be made clear it may be desirable to indicate very 
briefly the features of the pre-war gold standard and the essential 
differences between the working of the pre-war standard and the working 
of the standard since the war came to an end.” 
The pre-war standard was of slow growth and became the foundation 
of a financial system of a highly complex character regarded from the 
point of view both of structure and of function. The standard was 
adopted by one country after another under conditions favourable to its 
operation ; it represented a choice between three or more alternatives, 
and its adoption was regarded as a real advance. The first important 
point that I would emphasise is that the industrial structure had been 
adapted to the requirements of the standard. The normal level of wages, 
costs and prices was adapted to the rate of exchange and consequently 
to the international level of prices. The currency was neither over- 
valued nor undervalued, but neutral. The theory of comparative costs 
afforded a real explanation of the distribution of industry and trade 
between nations. Changes in the distribution of trade were slow and 
continuous and were due either to changes in the relationships of real 
costs of production or to changes in tariff policies. It is, of course, true 
that changes occurred in the relation of the gold supply to the world 
demand for gold and therefore in the international price level, but these 
were so slow as to present no serious obstacle to the adjustment of wages 
and costs in individual countries. In this connection it should be observed 
that gold was allowed to move freely from one country to another in 
response to economic influences and that movement was only due to such 
influences. 
In the second place, the savings of the people were invested in long- 
term securities. A comparatively small amount was added every year 
to the fund of liquid capital employed in financing trade ; but this fund 
was determined by trade requirements and by the opportunities for long- 
term investment rather than by the willingness or unwillingness of their 
Owners to invest. 
In the third place, the long-term investments of lending countries, 
such as Great Britain, Germany and France, were appropriate to the 
industrial structures of beth lending and borrowing countries. Thus, 
for example, the industrial structure of Great Britain and the annual 
overseas investments of Great Britain formed pieces which fitted together 
to form part of the economic mosaic. 
In the fourth place, although most of the countries of the world were 
living under protective systems, and of systems of greater or less pro- 
tection, tariffs were not employed to correct temporary failures to balance 
international payments during periods of depression. Protection repre- 
sented a choice of alternatives and in each case the system was carefully 
thought out and determined by long-term considerations. For a rela- 
tively long period of years a protective system could be regarded as a 
7 I discussed these in greater detail in a course of four lectures delivered shortly 
before Christmas to the London Institute of Bankers and published in the Journal 
of that Institute. F 
