F.—ECONOMIC SCIENCE AND STATISTICS 125 
Delegation appointed by the Economic Section of the League of Nations 
that in future the various countries should maintain free reserves of gold. 
The gold supply of a country should be divided into two parts, the first 
being the legal reserve against currency, the second being the surplus 
available for export. The purpose of the scheme is to secure that an 
export of gold from or an import of gold into the reserve should not react 
upon the currency policy of the country concerned. 
It seems to me that this proposal would destroy the vital element in 
the gold standard. In recent years we have seen how free reserves are 
actually employed in practice. In America they were placed on the 
most inaccessible shelves of the vaults of the Central Banks, In many 
of the smaller countries they were virtually added to the legal reserves. 
They were exported with extreme reluctance and the loss of gold even 
from those reserves reacted upon the discount and currency policies of 
the losers. Further, it is clear that if all countries maintained free 
reserves, a considerable proportion of the total reserve of gold in the world 
would be rendered ineffective as a foundation for currency, with the result 
that the gold price level would be lower than under the alternative system. 
But the real argument against the proposed system is that a movement of 
gold would not be producing the effect upon internal policy that such a 
movement ought to produce under normal conditions. At best we should 
be using the cumbrous method of moving actual gold instead of the pre- 
war method of moving liquid capital or providing credit ; at the worst it 
would delay a domestic adjustment so long as to make such adjustment 
greater and more difficult and thus endanger the standard itself. For 
these reasons it seems to me that the proposal does not constitute an 
improvement upon the pre-war gold standard. ‘The same reasons lead 
me to believe that the suggested compromise of establishing and main- 
taining a wide margin between the buying and selling prices of gold 
would destroy what is most valuable in the gold standard. 
If we ignore other metallic systems it seems to me that the real issue 
lies between the gold standard, rigorously interpreted, and the main- 
tenance of national: currencies which are not linked together by being 
linked to gold or to any other common measure. When we abandoned 
the gold standard the alternative achieved considerable popularity in 
this country, but all recent experience has shown that, during a period 
of currency disturbance, it tends to increase rather than reduce our 
difficulties. My objection to the system, however, is due not to the 
fact that it has created or intensified difficulties under present conditions, 
but to the fact that it would create difficulties of the present type even 
though it were introduced under the best possible conditions. ‘The 
system has been advocated on the ground that it would enable us or any 
other nation to pursue a currency policy that would maintain a stable 
price level. For reasons which I cannot give in this paper I believe 
that precisely that sort of stability which they seek is more likely to be 
achieved under the gold standard than under a system in which such 
stability is the immediate object of national policy. But it seems to me 
that a wider and deeper issue than even price stability is involved in the 
discussion of the two alternative monetary systems. The national 
