now being done involves, by its effect on prices, a monstrous injustice to the consumers of the country, and is sowing a crop of fallacies and mistakes from which we shall suffer for many years to come.'

Unfortunately the paper money expedient offers temptations which few politicians have sufficient virtue to resist. Momentarily it appears to provide, as if by magic, the means of paying for what the Government wants without any inconvenience to anybody. The currency notes are printed, or the bankers' credits are created, and the Government is able to pay for millions of pounds' worth of war material without apparently anyone being a penny the poorer. But the realities remain, however delusive the appearance may be. Except so far as increased currency is required to meet the needs of increased commercial or industrial activity, any effective addition to the volume of currency raises prices. In other words currency inflation means a general increase in the cost of living. Instead of the citizen escaping taxation, he is taxed upon everything he buys.

And this method of taxation is peculiarly vicious, for quite obviously it cannot be adjusted with a view to securing equity between different classes of taxpayers. There is no tempering of the wind to the shorn lamb. On the contrary, the poor suffer more than the rich, and particularly those classes of the poor who are unable to secure an increase in wages, or in other sources of income. Inflation of currency in fact necessarily produces an arbitrary reduction in the standard of living of many persons, while it may simultaneously produce, and generally does, an equally arbitrary increase in the incomes of other persons. To raise revenue for the State by this device means the deliberate abandonment of the ideal of equity in taxation.

That politicians in all countries should have recourse to this device when their country is faced with financial difficulties, does not in the least prove that it is justifiable; it merely proves that the majority of mankind seldom look beyond the visible facts of the moment, and that the majority of politicians seldom trouble to extend their vision beyond that of the people whom they profess to lead.

As a result of the inadequate efforts made by our successive war ministries to meet the cost of the war, either by straightforward taxation or by straightforward borrowing, the nation found itself burdened at the end of the war period, not only with a needlessly

swollen war debt but also with a legacy of artificially inflated prices and wages. The latter legacy has involved psychological as well as material mischief. The inflation of the currency undoubtedly helped to foster the popular belief that the resources of the State were unlimited, and that if only those resources were adequately utilised a bed of roses could be created for every citizen. Instead of combating this absurdity our politiciansverbally at any rate-accepted it, and instead of insisting that the restoration of the country depended upon hard work and careful spending, they poured out unlimited rhetoric about a land fit for heroes. The inflated currency and the inflated oratory worked together to produce an inflated mentality, which took concrete shape in the serious labour troubles that followed the cessation of fighting.

That is the situation with which we are faced to-day. While prices remain high the workpeople not unnaturally resist wage reductions, and one of the causes of the high prices is the still continuing though happily much reduced-inflation of our currency. To get rid of that inflation entirely would lower the cost of living appreciably, and thus contribute to an ultimate restoration of trade activity. No doubt the process of further deflation, necessary in order to get back to gold parity, may temporarily injure some traders and manufacturers who have made their plans on the basis of high prices. But that is only a temporary evil. As Mr. Hawtrey well says: By facing a period ' of tribulation we can get back to a sound currency and shall reap our reward in having a clear future before us.'

Admittedly the gold standard is not a perfect measure of value. Nothing is. Nothing that exists and nothing that we can create is capable of providing a measure of value corresponding in precision to the measure of length provided for the nation by the standard yard which is embedded in one of the walls of the palace of Westminster. The problem to be solved is far too complex for any such mechanical precision. As Professor Marshall rightly declares in his 'Money Credit and Commerce': 'An ' ideally perfect unit of purchasing power is not merely unattainable '-it is unthinkable.'

What we have to aim at is some measure of value which the world as a whole accepts and which is free from the dangers of political chicanery. Such a measure is provided by gold. In the

first place the intrinsic merits of this wonderful metal are appreciated by practically the whole world; in the second place the amount of it available for use cannot be so rapidly varied as to alter to any serious extent the world's estimate of its value. It is true that the development of the gold-mining industry in South Africa in the earlier years of the present century did lead to an increased supply of gold which possibly for a time outran the growth in the world's demand for gold. But the influence was so slight that it was impossible to be confident that price alterations could be definitely attributed to any excess in gold supplies.

To-day we need not for the moment trouble to ask whether gold has become too plentiful. However plentiful gold may be, our present prices are based on something more plentiful still, namely paper money unbacked by gold.

The arguments in favour of the re-establishment of the gold standard do not, in fact, depend upon the question whether prices measured in gold would to-day be higher or lower than they were, say, twenty years ago. Probably they would be higher, for not only has the world's output of gold very greatly increased in that interval, but also in many countries the practice of using paper instead of gold has become more or less established, and may possibly continue even when the inter-changeability of paper and gold is completely assured. In that event the demand for gold would be lessened, compared with twenty years ago, and that factor taken in conjunction with the increased supply would reduce the value of gold, or in other words raise gold prices. But these considerations are not conclusive: there are important factors working in the opposite direction. In the first place, there appears to be an increasing demand for gold in the east, especially in India. As far back as December, 1912, the Indian Government published a report showing that gold sovereigns were becoming popular in many large districts of India, because of their convenience as compared with silver. Beyond this comparatively new feature in Indian life there is the demand throughout India for gold for use in the form of jewellery. It is probable that with the industrial expansion of India the demand for gold both for coinage and for ornament will increase.

A second factor of possibly greater importance is the probability of a powerful demand for gold throughout the continent of Europe as a reaction against the present almost

worthless paper currencies. A reaction of this character occurred in France more than a century ago after the French people had suffered for several years from the paper tokens known as assignats. People who have been compelled to use for all their monetary transactions pieces of paper of ever-varying and everdoubtful value turn with eagerness to the chance of handling and hoarding gold coins, which by contrast appear to possess immutable value. Therefore it is quite possible that twenty years hence the relation between the world's demand for and the world's supply of gold may be much what it was twenty years ago.

No precise forecast is possible; nor is it needed. The important consideration is that the value of gold can only change very slowly, because of the great volume available for use, and because of the multitude of varying uses to which gold can be put. Consequently prices measured in gold can only vary slightly over a considerable period of years. This means that for most purposes of business gold prices are effectively stable.

The further great merit of gold is its international character; it provides a measure of value which all nations recognise. For that reason alone it ought to form the basis of the currency of the country, whose capital was, and still happily is, the money market of the world. It was because traders all over the world knew that they could be certain of obtaining in London sound currency that they accepted bills on London as the equivalent of gold. The reputation thus acquired by London in the days of our gold standard has been preserved by the prudence and skill of our bankers through the period of difficulty that the war created. As we get nearer to gold parity, the financial position of London grows stronger, to the general advantage of the trade and industry of our country. But we can have no complete assurance of the soundness of our currency system until once more every holder of our paper tokens is able on demand to obtain gold.

EDITOR.

No. 485 will be published in July, 1923.