F.—ECONOMIC SCIENCE AND STATISTICS 121 
France. In 1925 we returned to the gold standard, and in doing so 
gave the pound the same gold value as it possessed before the war, that 
is to say, we restored the pre-war dollar rate of four dollars eighty-six 
cents to the pound. It was felt by many critics that such a value was too 
high in relation to the relative wholesale price levels of Great Britain 
and the United States of America. For several months before we returned 
to gold the dollar value of sterling had been rising, as the result of a 
transfer of funds to this country, without any change in the underlying 
economic conditions. Our price level, it was said, was appropriate to 
the dollar rate that prevailed before such transfer took place, so that in 
restoring gold at the pre-war parity the Government overvalued our 
currency, the extent of overvaluation being estimated roughly at 10 per 
cent. It was therefore necessary to reduce our price level by 10 per 
cent. in order to be able to supply international goods at the international 
price level. 
It seems to me that that criticism was inadequate. After the boom 
of 1920 we suffered a period of severe depression during which wage 
rates in the industries supplying international goods (that is to say, the 
unsheltered industries) were reduced to an extent far exceeding the 
reductions that were made in the rates of wages prevailing in sheltered 
industries. In spite of these reductions the return upon capital invested 
in the sheltered industries fell below the normal rate obtainable in the 
sheltered industries. ‘Thus we were already suffering from an internal 
industrial disequilibrium ; the normal distribution of particular wages to 
which I referred in the second section had been seriously disturbed. 
Although the wholesale price level for international goods was made, 
Say, 10 per cent. too high by the return to gold, it represented a price 
level based upon an unduly low wage average in the industries concerned 
and an unduly low average return upon the capital invested in such 
industries. For that reason I believe that the degree of overvaluation 
was seriously underestimated by the majority of those who objected to 
the conditions under which we returned to the gold standard. The 
new standard imposed two tasks upon this country, the first being to 
reduce by 10 per cent. the price average or price level of the products 
of the unsheltered industries, the second being to make this new level 
represent a normal distribution of wages, costs, prices and profits through- 
out the whole of British industry. Even if there had been no other 
factor in the situation it is clear that an almost impossible task had been 
imposed upon the nation. But a further difficulty arose, after 1925, in 
consequence of a fairly steady fall in the world price level itself. In 
spite of the reductions in wage rates in the years that followed the return 
to gold, I do not believe that we succeeded in doing more than keep 
pace with the world price level. We had failed in the double task that 
had been set by the restoration of the gold standard. 
_ The overvaluation of the pound inevitably produced a depressing 
effect upon British industry. It acted as a veiled tax upon exports and 
a veiled bounty upon imports, with the result that our export surplus 
was considerably less than would otherwise have been the case. At 
the same time the world was in need of capital and the tradition of London 
