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 planned and built the line, even the coal could hardly have sent the train very far on its journey.

Professor Soddy's main quarrel with what he calls "orthodox economics" is that "it confuses the substance and the shadow, it mistakes debt for wealth, and is guilty of the same mistake as the old lady, who, when remonstrated with for over-drawing her account, promptly sent her banker a cheque for the amount." Many economists are certainly in the habit of explaining themselves carelessly enough to have given this impression to Professor Soddy; but he surely, in bringing this very serious charge against a body of earnest and industrious workers of misunderstanding the very root of their problem, might have cited an example or two, or at least given us a few references to look up, in proof of this sweeping assertion. As it is we are left in doubt as to whom the Professor means as exponents of orthodox economics.

Is this really the "scientific" method of dealing with a problem—just to make an assertion, unsupported by evidence of any kind except the Papal ipse dixit of an eminent Professor? It seems to be so, for he further observes "the fact is that the economist, ignorant of the scientific laws of life, has not

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 arrived at any conception of wealth, apart from the elaborate code and enactments of legal conventions which give to the individual in actual non-possession of wealth the right to acquire it, whereas I, from the application of the laws of energy to the problems of how men live, have arrived at such a conception."

We may leave the economists to deal with the Professor's charges if they think it worth while. To us ordinary folk it would be useful if he would be clearer as to what this conception really is. He has already confused and puzzled us by his example of the train and the coal, and on the subject of wealth he is even more bewildering. For he tells us that "the wealth of a community can only be increased by production and discovery, not by acquisition and exchange. In commerce and exchange for every plus there is a precisely equal minus." Has he really tumbled into that schoolboy's pitfall which makes folk believe that every merchant or dealer who makes a profit inflicts a loss on somebody else? It seems so, but surely Mark Twain was nearer the truth when he tells us how Tom Sawyer exchanged a tooth, lately pulled out of his own head, for a tick possessed by Huckleberry Finn, and the two boys then parted "each feeling wealthier than before." They were wealthier because each had got

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 something that he wanted more than the article disposed of. When Professor Soddy lectures and writes and otherwise distributes the learning for which he is so eminent in his real field, he surely exchanges that learning for goods which he buys with the fees that he receives and so confers a double advantage by handing over knowledge to those who need it and taking goods from those who have made them and passed them on through the merchants for sale.

When we come to the narrower problem of money, the Professor is acute and illuminating. He sees that the quantity of money as compared with that of goods is the most important item in its value, "It ought to be in precisely the same relation to the revenue of wealth as a food ticket becomes to food supply, or a theatre ticket to a theatrical performance" (He surely means to the seats in the theatre). Again, the "currency must be regulated pari passu with the changing revenue, issued as the latter expands and destroyed as the latter contracts. Since it would neither be given away in the first nor taken away in the second event, but used to buy back old, or taken in exchange for new State Loans, the community as a whole would share the prosperity of good times as well as the stringency of bad ones, instead of only

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 the latter as under the existing system" (pages 16, 17).

This proposal for expanding and contracting the currency by debt redemption and debt issue might evidently be difficult and expensive to work and recent experience has shown that it is possible for an expansion of currency to coincide with a heavy fall in prices. But all this question of the possibility of keeping prices steady by expanding currency and credit like a concertina will have to be discussed more fully later on. We should have been glad of more light on it from Professor Soddy, for it is not really quite as simple as he seems to think. He says that he "will be asked by those who are unaware of the proposals made by Gesell on the Continent and by Kitson in this country, how is it possible to fix the purchasing power of money? The answer is simple enough: By fixing it, that is, by printing more as average prices, determined by Index Numbers, tend to fall and by withdrawing it from circulation as they tend to rise." This may be a "simple enough" answer, but as will be seen practice might be rather more difficult than precept. And one feels all the more confidence in doubting whether the Professor is really well-informed on the subject about which he lays down the law with such magnificent conviction, when one

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 finds that when he does condescend to give a few facts they look remarkably like figments. "It is," he says (pages 18, 19), "on record that a group of American financiers on one occasion, having sold British and bought American securities in advance, removed £11,000,000 from the Bank of England and put it into circulation in America, with the result that the prices of the securities they had sold fell greatly in value and those they had bought rose correspondingly." Surely when a distinguished Professor is lecturing to groups of young students he should not make statements of this kind without some attempt at corroborative evidence. Where is this amazing fairy tale "on record"? The Professor admits that this instance is an extreme one, but goes on to say that "when one inquires further as to who is in charge of the calibration arrangements that fix the purchasing power of money much that has hitherto seemed inexplicable about our time becomes clear. These powers are wielded, by private banks, like the Bank of England, in the steadfast interests not of the community but of the creditors of the community. Whereas no changes of revenue, so long as the currency remains constant, affect the relative proportion of the whole revenue secured by creditors, any increase of currency diminishes

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 their relative share, and hence is known as inflation, while any decrease increases their relative share and hence is called sound finance." This passage appears to mean that in the interest of creditors the Bank of England continually works to reduce the amount of currency in the country. If so, its effort has been singularly futile, seeing that at the end of 1869 (as shown in Bagehot's Lombard Street) its own note issue was £33,250,000 and at the end of 1913 it had grown to £52,250,000, to say nothing of its expansion to £144,000,000 at the end of 1922. Surely the Professor might have asked some office boy in the City a few elementary facts about what happens there, before making assertions that are so amazingly incorrect. Can this really be the system on which our greatest scientific minds conduct investigations?

A scheme with some theoretical attractions was worked out by Mr. Henry Lowenfeld in a book called Back to Prosperity published in 1923 (Effingham Wilson). He proposes that "a Corporation should be formed, composed exclusively of bankers, representatives of the entire banking interests of the country. The Government should authorize this Corporation to issue the 'money' of the country and should make that 'money' the exclusive legal

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 tender money. The sole business of this Corporation should consist in discounting bills with its own notes and coins. In this way, the new money will first of all pass into the hands of banks, and through them be put into circulation. The members will jointly and severally guarantee the new money issued by the Corporation, and also undertake that no money be put into circulation unless it is fully covered by bills in hand. The value of bills discounted, and consequently the amount of money in circulation, must be strictly adjusted to the existing requirements of Trade. Consequently there will never exist either a dearth or a superfluity of cash. The rate of discount charged must invariably be so adjusted that the purchasing power of money is kept as steady as possible."

Mr. Lowenfeld thus endeavours to unite in his scheme the beauties of the self-paying bill and the self-redeeming note, and regulation by expansion and contraction of cash, and also the price of credit. The strict adjustment to the requirements of trade would be likely to be a matter of difficulty, but he is working along the same line as the scientific stabilizers who will be considered later.

Another assailant of the gold standard is Mr. C. J. Melrose, who in Money and Credit

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 (Collins, 1922) argues for a currency of which each unit shall stand for a "true credit" and be a certificate of delivery—"a just demand to the return of an equivalent for what has been given up to be consumed by others." It will be noted that his expressions are somewhat vague, but his book is dignified by a "Foreword" from Professor Irving Fisher. Mr. Melrose contends, very truly, that his certificate money "is wholly within human control and only requires strict honesty and the aid of reasonable precautions to eliminate fluctuations entirely." But these requirements are, at present, rather a large order; and in the matter of money human control has not, in the last nine years, covered itself with glory.

An original touch in the attack on the gold standard is provided by Mr. Chas. P. Isaac who, in The Menace of Money Power (Jonathan Cape, 1921), implies that it is the cause of bad weather and bad harvests. He says in a Note to page 110: "It is interesting to note that, while bad harvests are usually thought to be the cause of financial crises, the truth seems to be that credit restrictions generally precede had harvests. The harvests prior to the credit restriction of 1826 (when notes under £5 were prohibited) were exceptionally abundant. Those following the Act of 1833,

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 which allowed the Joint Stock Banks, were similarly plentiful. The harvests of 1842-44 were very good, but when Peel's Act was passed bad harvests resulted"; so now we know why we had such a miserable summer in 1922.

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these difficulties that we have been feeling and expressing about our own monetary system at home have been greatly increased and complicated abroad by the much madder orgy of money manufacture that went on in other countries and in some of them has gone on unchecked. It need not be said that to those of our home reformers who thought that the way to salvation was through more money, the Continental example was most alluring. Mr. Kitson, for instance, in his little book on Unemployment that has already been quoted in interpretation of Major Douglas, uttered on page 7 a glowing appreciation of the most notable example of the system's working.

"The German Government," he said, "refused to enslave their people during or since the war by borrowing from the world's moneylenders to the extent and in the manner our Government have done. They used and are still using their own national credit in the form of paper money instead of borrowing the

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 credit of others, and they were not afraid of meeting the usurer's bogey—inflation! What have been the results? Although they suffered a terrible military defeat and are compelled to pay a war indemnity, they are to-day the most prosperous industrial nation in Europe. They have escaped the ruinous interest charges with which we and France are burdened! Their factories are running full time and they have but a very small percentage of unemployed—far, far less than any of the allied nations. Their industries are earning fabulous profits. They realize by experience that their cheap currency gives them an enormous advantage in trade competition over their riyals who are still deluded by the gold standard dear-currency theories! Hence they are capturing the world's markets as fast as their factories are able to turn out the goods. In short, whilst our orthodox Economists, financiers and Government officials are doing their best to strangle British enterprise by reviving their old and exploded financial theories, our sworn foe is invading our markets, capturing our trade, and that of our allies by adopting the very policy our orthodox Economists have condemned as impracticable and ruinous."

This passage is taken from Mr. Kitson's Foreword, which is dated May 20, 1921. It

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 is rather difficult to understand how Major Douglas's scheme, which was Mr. Kitson's final remedy, would be applied to foreign trade. In Mr. Kitson's explanation of its working in the coal industry he merely says that "the price of coal for export shall be fixed" (he does not say by whom) "from day to day in relation to the world market and in the general interest." Obviously the coal would have to be sold at a price that could compete in the world market, and presumably the difference between this price (if too low) and the cost of production would be made good, as in the case of coal sold at home, by a draft from the Treasury on the national credit account; and the final results of this system have already been exposed by the Labour Party Committee's analysis.

In Germany there was no cumbersome machinery of a Douglas scheme; it was just a question of straightforward printing; firstly because the Government (like most others then and at most times) found some difficulty in otherwise balancing its Budget, secondly because for some years after the war the general confidence in Germany's recuperative power caused an enormous demand all over the world for German marks as a speculative "lock up" that was certain some day to go back to its

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 old pre-war value; thirdly, perhaps, because the amounts that Germany was to pay in Reparations had not been settled and the German Government, yery naturally from its point of view, was not at all eager to set its finances in order, but preferred that their chaotic conditions should give as unflattering as possible an appearance to the country's capacity to pay; fourthly because the actual payments that Germany made increased the difficulties of her position. And so the amazing process went on, by which, according to some estimates, gamblers in German currency lost as much as Germany has paid, and the Reichsbank's note issue has been multiplied so many times that the figures of its weekly returns are on an astronomical scale. It is most interesting to consider that a really acute financial observer foresaw before the Armistice, and tried to prevent, the danger to which unlimited printing powers left in the hands of the defeated countries exposed them and the rest of the world. Dr. Alois Rasin, the late Czecho Slovakian Finance Minister, relates in his book on the Financial Policy of Czecho Slovakia during the First Year of its History that when he took office he meant, None

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 at first, to stop inflation by means of international intervention. "I requested," he writes (page 26), "the Minister for Foreign Affairs, Dr. Edward Benes, who was then staying in Paris in connexion with the settlement of the Armistice conditions, to endeavour to have an International Commission appointed to control the German Imperial and Austro-Hungarian Banks, whose duty should consist in the prevention of the issue of bank notes not covered by private liability in order to put a stop to the inflation. . . . This idea of international intervention came to nothing, either because the nations with sound currencies could not imagine the terrible conditions of a paper currency inflation and its disastrous consequences, or because they were not in the humour to champion the rights of the conquered."

Dr. Rasin must surely have written the passage about nations with sound currencies with a gently malicious intention. At the time of the Armistice it would have been difficult to find a country whose currency had not been debased during the war, and most of the Entente Powers, if they had understood the Czecho Slovakian proposal, would have hesitated to enforce on the conquered Governments a financial ideal which they saw no chance of

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 reaching for themselves. It is also very doubtful whether such a prohibition could have been carried out effectively. To tell the central bankers of Germany and Austria that they were only to issue more notes when "covered by private liability"—that is, in the supply of advances to private borrowers—would only have stopped note printing on Government account as long as official and financial ingenuity had been unable to find a way round the restriction. But it might possibly have been effective and the difference that it might have made to Europe's history in the past four years is almost incalculable.

But that is another story. In fact there was the inflation in Germany that gave Mr. Kitson the text on which he preached so eloquently as quoted above, in company with a host of other less emphatic and confident exponents of the inflationary gospel. At that time, in 1921, he had a strong case. Unemployment was on an enormous scale both here and in the United States. He was able to quote an American Trade Journal as authority for a statement that "currency contraction had thrown out of employment some 4,000,000, operatives, and in the inflating countries there were few or none out of work." Whether unemployment was caused here and in America by currency

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 contraction, reason has already been given for doubting: in both it was probably caused by the collapse of trade which followed the discovery, first made in the Far East, that if people stopped buying prices would fall back. But it is undoubtedly true that inflation, up to a certain point, stimulates the home demand for goods, and so maintains employment and also that, while it is proceeding, it gives a temporary help to the export trade of the country that indulges in it.

The benefit wrought by inflation in tae home market is easy enough to see. Since inflation means multiplication of money in relation to goods and a consequent rise in prices it is clear that this process, especially when it goes so fast that everybody can see what is happening, makes folk eager to get rid of their money quickly, because it will buy less if they keep it another day, and to buy goods, because they will be dearer if they wait. Dr. Rasin describes very graphically, in the work already cited, the result of "want of confidence in the Krone" in Czecho Slovakia, even in its comparatively mild manifestations during the war. "Thus," he says (page 15), "with every failure of the Central Powers an aversion to the Krone set in, manifesting itself in the purchase of foreign currency (especially at the time before

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 the entry of the United States into the war), of securities expressed in foreign gold currencies, of national securities, and also of goods, furniture, clothes and linen. In these times peasant women sold only against materials and clothes and the wardrobes of the middle classes found their way into the villages, in exchange for flour, lard, butter and milk. The peasant women bought or bartered trousseaux for their daughters during the war; in many peasant cottages not only one but two pianos were to be found; and a peasant in the neighbourhood of Pisek, who already possessed every conceivable thing, finally bought himself a coffin with his paper Kronen."

It reminds one of Tony Weller's observation when Sam, consoling him for his bereavement, said that "there's a Providence in it all." "O' course there is," replied Mr. Weller, senior, with a nod of grave approval. "Wot 'ud become of the undertakers without it, Sammy?" (Pickwick Papers, vol ii, ch. 24.)

Such a state of things sets up feverish and quite artificial activity in trade, because in the headlong flight from the Krone or the mark or whatever it may be, everybody who has marks or Kronen hurries to turn them into anything else. And so the ordinary household becomes like a museum or a ship-chandler's shop, stuffed with

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 a varied assortment of articles that are not at all wanted for the purposes of consumption, but are known to be going up in price because the currency is known to be falling in value because the Government is getting too much of it printed. Whether it is not better to submit to the evil of unemployment and meet it by a system of allowances as we did, than to avoid it by such an official swindle perpetrated at the expense of everyone who has, or expects to receive money, is a question that can be answered according to the taste and fancy of the inquirer. Mr. Kitson prefers the inflationary path and so did another manufacturer, Mr. T. B. Johnston, well-known in the pottery industry at Bristol, who wrote to the Times in August 1921 a letter in which he expressed, in more temperate language and with fewer italics and exclamatory ejaculations, conclusions much the same as Mr. Kitson's concerning the success with which Germany was capturing the trade of the world thanks to the inflation of her currency.

In this respect again it is easy to see that inflation, while it is taking place, gives a fillip to the exporter, because its effect upon rates of exchange, which are arrived at by chaffering among a set of exceptionally nimble-witted and well-informed dealers, is almost always much

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 quicker than its effect on domestic prices and rates of wages, which are largely a matter of habit and convention, and are only shifted after a new and gradual process of awakening. Thus the exporter who is paid in foreign currencies, turns them into a rapidly increasing amount of his home money, which has lost value at home much more slowly than it has abroad.

To make the matter clear by a concrete and extreme example, if we suppose that German currency was doubled in one night, its value in pounds sterling would be halved much more quickly than its value in goods and wages in Germany. And so the Solingen manufacturer who was selling safety razors in England for a shilling would be able to turn his shilling into 100 marks instead of 50, long before the prices of the goods and labour that he bought at home had risen pari passu and so he would be able, if competition made it desirable, to take a much lower price in England and still make a profit at the expense of his employees whom he would be paying in money that had lost value, without their demanding more of it. If he took a lower price in England the British Consumer would benefit and the English manufacturer of safety razors would justly complain that he was being subjected to unfair competi-

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 tion caused by the depreciation of German currency. He would probably proceed to clamour for Protection and would be difficult to persuade that Protection in his own market would only make competition fiercer in neutral markets and would perpetuate the evil, which would best be cured by letting it work itself out.

It will be seen that both for the stimulation of home and export trade, the inflation must be continuous. As soon as it stops and the prices of goods are steadied at the new level arrived at, and higher home prices offset the advantage to the exporter from the large amount of home currency that he gets from his sales abroad, inflation is no longer a spur to production and export. Evidently therefore this remedy for unemployment, as advocated by Messrs. Kitson, Johnston, and many others, can only work for atime. There must be an end to the inflationary process and its apparent and questionable benefits. And its end, as seen in Russia, Austria, Poland and elsewhere, seems to be economic chaos, and a state of things which finally works its own cure because the country subjected to it is forced, with or without help from outside, to stop the process.

Even in its early and most flattering stages, there is a good deal of doubt about the extent

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 of the benefits in the matter of export trade, alleged to be wrought by inflation. At the time when complaints by British producers were loudest, of ruthless competition by Germans with the help of the depreciated mark, it looked as if there must be something else besides currency depreciation that was helping Germany. Because at that time currency depreciation in Poland and Austria—to say nothing of Russia—was very much more acute; it seemed therefore that if debasing the currency was the short cut to fortune through international trade, Poland and Austria ought to be the dangerous competitors rather than Germany. Moreover the surprising fact appeared that some of the competition by which British industry at the time of the depression that began in 1920 was most fiercely attacked came from countries the currencies of which were at a premium as compared with sterling.

For instance in October 1921 there was a debate in the House of Commons on a Trade Facilities Bill and various examples were given of the alleged helplessness of British industry in the face of its foreign rivals. Sir Fortescue Flannery told the House that a ship went aground in the North Sea. She was brought off and taken into a Thames dry dock and tenders were invited for repairs. "The lowest

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 one may go further, and observe, that even the ridicule of false virtue hath been sometimes attended with mischievous effects. The Spaniards have lamented, and I believe truly, that Cervantes's just and inimitable ridicule of knight-errantry rooted up, with that folly, a great deal of their real honour. And it was apparent that Butler's fine satire on fanaticism contributed not a little, during the licentious times of Charles II., to bring sober piety into disrepute. The reason is evident: there are many lines of resemblance between truth and its counterfeits; and it is the province of toil only to find out the likenesses in things, and not the talent of the common admirers of it to discover the differences."

But if these evils result from ridiculing religious error, what shall be said, if vv'hat you have ridiculed be after all the truth? And yet, because ultra- Protestants of the present day think any truth to approximate to Popery, it follows not that it is Popish, or if found in Popery, it follows not that it is untrue, else must all the Catholic verities be untrue also. Whenever you shall be pleased to abandon the ground of ridicule, and to treat questions of religious truth with seriousness, then will we also show, that the positions which you have ridiculed are neither Papistical nor untrue, but that you have been ridiculing the truth. Meanwhile, we propose for your consideration a catalogue of writers (which might easily be swelled to any amount), who, upon the subject which you have chosen for your chiefest ridicule, and which ultra-Protestants of this day are most ashamed of, have spoken as strongly as they, whom you on that ground decry as Papists: I mean, Apostolical Succession.

I would only observe by the way, since persons in these days dispense lightly with truths, the value whereof they do not understand, that in jesting at the doctrine of apostolical succession you despise a fact, wherein one of the acutest writers of any age or land saw an evidence for the truth of our holy faith. The apostolical succession of ministers is a £act which satisfies Leslie's criteria of the truth of the history wherewith it is connected; and the sceptical Middleton in vain attempted, during

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 Thames side tender was £6,700: a better one from the North of England was £5,500, but from Rotterdam a Dutch tender was received for £1,800." Naturally the ship went to Rotterdam to be repaired; but she herself had knocked a hole in the much battered bottom of the Safeguarding of Industry Act, designed to protect our industry against competition encouraged by depreciated currency. For this tender, offering to do a job for less than a third of the best British bid, came from a country with an appreciated currency. Sir Fortescue accounted for the puzzle by saying that Dutch labour is almost as highly paid as labour in the North of England, but the Dutchmen worked longer hours and were free from many of the restrictions that cramp the British workman's elbow, and employers were content with a smaller profit. It is true that Holland got steel from Germany at half the price of ours, but that could not account for the enormous difference between the two tenders. Better work, fewer restrictions, and organizers of industry who were not too greedy were the causes on this occasion of the foreigners' success and probably were in many of those that were ascribed to currency depreciation.

My own personal experience in the matter was also strange. I happened at about the

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 same time in the Autumn of 1921, to need a saw for domestic purposes, went into one of the best tool shops in the City and got what seemed to be an excellent weapon at a reasonable price. Then I noticed on the blade the name of an American maker and observed to the shopkeeper that it seemed queer, with the dollar below four to the pound and thousands of unemployed in Sheffield, that we should be buying American saws. He evidently understood about the dollar exchange and what it meant, for he said that it certainly was queer and what was queerer still was that in spite of all that we read about slackness in Sheffield he could not get half the tools that he wanted from English manufacturers, and was glad enough to be able to get some from America, while the Sheffield people were thinking about beginning to wake up.

It was thus evident that currency depreciation among its trade rivals was by no means the only cause that was depressing British trade. My excellent American saw had probably been sold here cheap because its maker had the sense to see that the way to set trade going again was to get prices down and give the poor old public—bled white by the tax-gatherer and the wage earner and the captain of industry—a chance of buying some cheap goods and feeling

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 for once that it was not being fleeced. Just as the cure for competition based on depreciated currency is to let the public have the goods as fast as the foreigner will turn them out and leave the foreign worker to find out that he is being swindled, as he very quickly would. Whereas what happened was that industry squealed, naturally wanting to have things arranged as comfortably as possible for itself, and the Government perpetrated the farce of the Safeguarding of Industry Act which was only redeemed by futility from being really mischievous.

And then there arose the curious belief that Germany was not only beating our trade by debasing the mark, but would surely be still more effective as a trade competitor if she had to pay an indemnity to the victorious Allies. So much so that it would pay England, as most likely to be affected by German competition, not to receive anything at all by way of indemnity from Germany. Fears of the consequences of the indemnity payment had been expressed by some of our leading statesmen even before the Reparation figure dictated by the Allies in their Memorandum of May 1921 had been agreed to by the Germans. After that, and during the very short time in which it was believed that Germany was really going

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 to make an effort to make the payment demanded, these fears became one of the burning topics of the day.

It will be remembered that by the terms of the Allied ultimatum Germany had to acknowledge a liability to pay £6,600,000,000, with another possible £150,000,000 to cover unadjusted claims and accounts. Even in the ultimatum, however, the chance that Germany would be able to pay any such sum was by no means taken for granted. She was ordered to create and deliver partly by July 1 and partly by November 1, "A" and "B" bonds for £2,500,000,000, and she was to pay £100,000,000 a year and a sum equal to 26 per cent. of her exports. It was estimated that this sum would produce another £50,000,000, and so she would be paying £150,000,000 a year in all, which would provide 5 per cent. interest and I per cent. sinking fund for the extinction of the debt, on the £2,500,000,000 imposed on her. The balance of £4,100,000,000 odd was to be represented by "C" bonds to be issued and handed to the Reparations Commission, but they were only to be handed over by the Commission to the countries receiving the indemnity, as and when it was satisfied that Germany was able to provide for interest and sinking fund.

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 Thus this Allied Ultimatum which has been so often held up to scorn and ridicule as an attempt at impossible and unconscionable extortion was in fact really rather an effort at moderation. It looks as if the £6,600,000,000 touch was put in to amuse the gallery in all the countries concerned, and produce an impression that the big promises that had been made might perhaps be fulfilled some day, while the actual amount definitely named was reasonable, and yet provision was made for the possibility that Germany's recovery might be much more rapid and complete than then seemed to be likely.

It was in fact a quite workable plan with one very important exception. The fixed sum of £100,000,000 a year, to be forthcoming at once, looked doubtfully large and one felt that it would better have been reduced with an addition to the sum to be based on the volume of Germany's exports. Nevertheless there seemed to be first a possibility that the scheme might work. But it was not to be. Such opinion here as had long been eloquent on the theme that the Allied claims on Germany were extravagant and impossible, loudly proclaimed that the task imposed was too heavy. These vociferations helped to make themselves true by frightening speculators in German marks

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 into throwing them on the market and so putting the exchange against Germany and making it more difficult for her to make payments. Her first payment was handled by the Reparations Commission with a clumsiness that was amazing and upset the exchange markets much more than was necessary or healthy. The depreciation of the mark, due to these external causes, reduced its purchasing power at home and so made the task of the Government in making both ends meet all the more difficult, because expenses went up faster than the proceeds of taxes imposed before the fall, and so the Government, which was perhaps pleased to see its efforts to pay thus defeated, printed more and more notes to fill the gap and so made matters worse, and the vicious circle spun round faster and faster and continued to do so till its pace was still more quickened by the Ruhr occupation and passive resistance. And now some people say that it is all France's fault!

To the voice of the German sympathizers who said that Germany could not possibly pay, was added that of those who maintained that Germany could only pay by damaging our trade. This view was put by Mr. McKenna with all that lucidity and force for which his utterances are so justly noted. In a paper read

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 before the Institute of Chartered Accountants on June 15, 1921, he showed that in order to pay the final liability of close on £400,000,000 a year, that would be necessary when all the £6,600,000,000 of indemnity bonds had been issued, Germany's exports must amount to not less than £1,200,000,000. "German foreign trade," he continued, "could not be expanded to this point and such a large exportable surplus could not be maintained unless wages were kept extremely low by comparison with those paid in competing countries. . . . At this moment wages in Germany—I speak of course of real wages—are not more than half those paid in this country, and yet the German workman is labouring for long hours with great efficiency and with apparent contentment, or at any rate acquiescence. We may, perhaps, find the reason for this industrial facility in the superiority of his present lot over his recent condition. During the war all classes in Germany suffered very great privations in consequence of the blockade. We remember to what straits they were reduced—clothes made of paper, food substitutes of every kind, an almost complete absence of fats, very little oil, and indeed, general privation such as no other people suffered. Though the German workman may be ill paid now, by comparison with

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 what he endured in the war he is tolerably well off."

Mr. McKenna went on to show that since Germany and Great Britain were by far the greatest exporters of manufactured and partly manufactured goods before the war, the brunt of the competition which her indemnity effort would produce would fall upon our trade, and suggested that in order to avoid the grave damage to us that would be involved by Germany's meeting her obligations under the Reparations scheme, Germany should be required to send to this country and to France and the rest of the Allied countries, to each according to its requirements, articles such as coal, timber, potash and sugar, all of which she produces in large quantities. He admitted, however, that by these means nothing like the agreed figures of the indemnity figure could possibly be paid, and did not explain why France should be expected, because we did not like the prospect of fierce trade competition, to reduce her demands upon Germany. Indeed there can be little doubt that the frankness with which the effects of the indemnity payment were discussed here in the light of its expected damage to British trade, must have been one of the reasons why France later on decided to take a line of her own in dealing with Germany,

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 rather than proceed in step with a leisurely partner who seemed to fear nothing quite so much as success in getting payment from his late enemy.

A Memorandum dated May 17, 1921, and addressed to the Prime Minister by the employers and workmen of the Iron and Steel Industry expressed its grave concern "at the possibility that, unless there is a rigid control of the whole of Germany's export trade, any Reparation settlement will have the effect, either by maintaining the exchange in a depreciated condition or otherwise, of encouraging the general export trade of Germany."

In June of the same year Mr. Edgar Crammond, well known as a bold and hard-working statistician, was telling the Bankers' Institute that Germany would "become the central workshop of the world, although operating under depressing conditions and at famine wages; her central shop would stretch out its tentacles to all markets of the world, aided by the boundless passion and tenacity of a people fighting for its life with the whole force of its concentrated productive machinery."

Fears such as these echoed by statesmen, bankers, statisticians and producers must have been balm to the spirit of Germany, showing her that important classes here feared the

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 effects of her payment and would thus be most reluctant to press her: time and currency chaos were on her side; she only had to leave things drifting and go on printing notes and she might, with luck, escape the indemnity payment altogether.

How much ground was there for these fears? They always seemed to me enormously exaggerated if not altogether baseless. Of course it was easy to make our flesh creep by imagining the scope of the trade that Germany would have to do before she could place an export surplus of £400,000,000 a year at the disposal of her victorious enemies. But that was most unlikely to happen and could only happen if the world at large had shown an effective demand for industrial goods such as would have justified the hopes of tremendous trade expansion that were current at the end of the war.

That she could provide a surplus of £150,000,000 a year, the figure at which she was asked to begin, and gradually increase it ought surely to have been a programme which need not have terrified British industry, because British industry would, from the circumstances of the case, have had a double handicap in her favour. For Germany industry would have had to bear the taxation involved by the

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 indemnity payment and British industry would have been freed from taxation to the extent of the share of the indemnity received by Britain. It is true that Germany, by wiping out the value of her currency, has also wiped out her internal debt, incidentally ruining her investors; but taxes imposed for purposes of payments abroad have a much heavier weight than those which are merely collected to be paid out again at home; if Germany had to turn goods into dollars and relieved us from this uncomfortable duty laid on us by our debt to America, then with this double advantage British industry, if its organization and spirit were fit to carry on the tradition of those who had built it up, ought to have been able to deal so effectively with German competition that Germany could only have been able to pay the indemnity by supplying markets which Britain, for reasons entirely of her own, was prepared to leave her.

And surely it ought to have been obvious that the German competition which was thought so formidable, was not going to be made more so by the indemnity payment, because German industry was certain, whether an indemnity was imposed or no, to make every effort to sell goods all over the world.

But this was a time of curious delusions, and many people, even among those who were cry-

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 ing out loudest against the high taxation that was alleged to be strangling our own industry, were quite ready to talk in a way that implied that the imposition of an indemnity on Germany, and the high taxation involved by it, were going to make German industry work all the harder and all the better.

And so we seem to be led to the curious conclusion that the royal road to the capture of the world's trade lies through two gates, the first of which is currency debasement, and the second is the obligation to pay a crushing indemnity. But was there any reason to suppose that because the German employer and workman were going to be taxed to pay an indemnity they would therefore work harder and better? Perhaps there might be a few highly patriotic souls who could really maintain such an effort in order to free the Fatherland from economic bondage. But to most of them—though German patriotism is surely a marvellous force—the effect of this payment would seem to be more likely to have a damping effect on the daily and yearly effort. If there were no indemnity to pay and all that German industry earned went into its own pocket and that of Germany, then one might well imagine that the "boundless passion and tenacity" spoken of by Mr. Crammond would

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 be devoted to the recovery of the economic strength of the Fatherland.

More than a year later—in October 1922—Mr. McKenna was discoursing on the subject of Reparations and International debts, at an American Bankers' Association Convention, held in New York. He reminded his hearers of the results of the payment of the French indemnity after 1871, and Bismarck's observation that the next time he defeated France he would insist upon paying an indemnity; and went on to show that in spite of full employment and hard work in Germany and the advantage given to the German exporter by the falling mark ("so much so that there is hardly anywhere a manufacturer, producing goods for export, who does not complain of German competition") German exports "are still barely equal to imports" and "the conclusion seems inevitable that Germany has no present capacity to obtain a surplus from the export of goods." Further, that if she could pay she could only do so by exports of manufactured goods, in the teeth of competition, and the result would be that she and her competitors would work longer for less wages, cut profits and reduce imports, and that a "general lowering of the standard of life" would result.

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 But surely this would be a most curious effect to follow a great flood of production of cheap goods poured out upon a world which for years had been suffering from scarcity and dearness of goods and over-production of money. From the point of view of the taxpayer and consumer—and we are all of us both—the effect of a big indemnity payment on the countries that receive it would seem to be highly beneficial, if it is used wisely and is not allowed to promote inflation and inflammation as happened in Germany after 1872. We at least could always haye made an excellent use of any money that we were likely to receive from Germany by using it in payment of our debt to America, and after that if there were anything more, in restoring the foreign investments that we had to sell during the war, to the detriment of our strength as a financial centre. Mr. McKenna, however, seemed to think that not only could Germany not produce an exportable surplus, but that it was equally impossible for France or any of the Allied debtors. He thought that Germany could pay something, namely the amount of her foreign assets which he estimated at a billion dollars—£200,000,000. England he showed to be the only debtor possessing any large accumulation of foreign assets—enough

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 to cover her debt to the United States two or three times over. France and italy he believed to have no similar reserves, and so he concluded that "these international debts are far too great for the capacity of any of the debtor countries except England."

My own yiew has already been expressed that France and italy ought to have been released from their debts to England on the day after the Armistice, and that this act would have cost us nothing, and would have had an immeasurable effect for good on Europe's financial atmosphere. But Mr. McKenna surely proves too much in implying that it is not possible for a nation like Germany, gifted with great natural resources and with unrivalled powers of work and application, to produce a very considerable exportable surplus if she made the necessary effort and the necessary diversion of her productive power.

For how, except by producing an exportable surplus, can England and Germany have in the past accumulated the foreign assets which now alone, in his view, give them the power to make payments abroad? Germany may have done it by selling marks to speculators. But we, as Mr. McKenna shows in the course of this very address, have done it by doing just what he seems to think that Germany

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 cannot do. "For over two centures," he said, "British capital has been lent to other countries. Year by year England produced more than she either consumed herself or could exchange for the products of other nations, and she could not obtain a market for the surplus unless she gave the purchaser a long credit. Foreign loans and foreign issues of all kinds were taken up in England, and the proceeds were spent in paying for the surplus production." Quite so; we had an exportable surplus, and sold it abroad, giving credit to the buyers. When we think of all that has been said about Germany's power to compete, there seems to be no reason why Germany should not provide an exportable surplus, and sell the goods and services abroad just as we and she and perhaps other countries were doing before the war. As we all remember in those days her "peaceful penetration" in Italy, Mexico, Brazil, and other places was supposed to be a menace both to our trade and to our financial supremacy. What she did then in order to invest she can do now in order to pay her debts.

In fact it is very puzzling, in view of all the complaints of manufacturers about the cut-throat competition which Germany is alleged to have been carrying on, to account for her

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 recent failure to produce a big trade balance in her favour. If she was really capturing the world's markets as fast as Mr. Kitson and other people thought, her trade with the rest of the world should surely have been on a basis most satisfactory to herself. Yet we find that when a bevy of foreign experts, including Professor Cassel of Stockholm, Professor Jenks of New York, Mr. R. H. Brand, a partner in Lazard Brothers' London house, and Mr. J. M. Keynes, went to Berlin in the Autumn of 1922, at the German Government's invitation, to advise it concerning measures for the stabilization of the mark, it was faced by the difficulty, among many others, of determining whether the adverse balance of trade which was alleged to make stabilization impossible without help from outside, really existed. Finding itself unable to arrive at solid results from the figures supplied to it by the German Government, it made calculations of its own which brought it to the conclusion that the adverse trade balance could not be very great.

In view of the wild fluctuations in the mark it was naturally very difficult for Germany to present any trade figures which gave anything like a true picture of her trade, and the report of these sympathetic experts seemed to confirm the general belief that Germany—as was

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 most natural from her point of view—was not making serious efforts either to show what her industry was doing in the matter of exports, or to put any brake on the pace at which her finances were slipping into chaos. Why should she do so as long as there was a chance of reducing the Indemnity Bill by looking as bankrupt as possible? These learned gentlemen point out that "no other currency has fallen into decay with so great a potential support still unused," referring to the store of gold in the Reichsbank; and they call on the Government to practise economy and collect its taxes rigorously, and remind it that "capital expenditure for the public services should not be charged to revenue but paid for out of funded internal loans," thus showing that the Government had been printing notes not only to stop the gap between income and expenditure but also, for the provision of capital expenditure, which ought to have been paid for by loans subscribed to by investors.

In fact it seems very likely that the great additions made by Germany to capital equipment go far to account for her failure to balance her foreign trade account. It was noted above that in August 1921 Mr. T. B. Johnston, a well-known Bristol manufacturer,

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 had written to the Times echoing Mr. Kitson's contention that Germany's currency policy was winning the world's trade for her. His views having been questioned by the Times City editor and others, Mr. Johnston sent over a qualified investigator, Mr. E. S. Dane, to look into the state of Germany. Mr. Dane wrote an interesting and impartial report, published under the title of What is Germany doing? Mr. Johnston, in his preface to it dated July 1922, says that its findings largely substantiate his early contentions, and that "huge profits are being made by the German industrialists on their export trade." And yet Mr. Dane, when he came to the trade figures, was also tempted, without doubting the sincerity of the statisticians, to consider whether the figures were accurate. "Taking English and American returns as a basis," he added, "it seems that Germany does not yet export goods in the ordinary way of commerce to nearly the extent which she did before the war." He maintains, however, that the export trade is undoubtedly thriving, though he goes on to admit that many foreign orders have been cancelled recently owing to unsatisfactory delivery.

He thus leaves his readers puzzled and bewildered as all investigators must who in 1922 tried to find out what Germany's export

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 trade was doing, but incidentally and as by a side-wind, he blew to bits the contention of Messrs. Kitson and Johnston that there was no unemployment in Germany. They were quite right in a sense because the unemployed were got rid of by putting two men to do one job. "Government offices," he says, "are enormously over-staffed, and the late Dr. Rathenau estimated the number of 'Invisible unemployed' at four millions. Taking into consideration the decreased area of Germany, officialdom experienced an increase of 49 per cent. in 1920, compared with 1914—a remarkable figure considering the disappearance of the army and navy." It certainly is a remarkable figure and helps to account for many things. But it was on the point of capital expenditure that we turned to Mr. Dane. "Capital construction," he says, "is being indulged in on a colossal scale; one sees new factories and buildings, the latest machines, and improvements everywhere. Germany is, in fact, going through much the same phase in an intenser form as we experienced in the days of E.P.D. The causes in her case are the finance policy, the non-collection of taxes and the ever-rising prices, which make construction cheaper to-day than it will be to-morrow. . . . We have the anomaly of a

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 bankrupt nation preparing for the greatest building boom on record, equipping a floating exhibition ship to capture foreign markets and inaugurating huge canalization, electric power and other schemes."

From all this mass of queer and conflicting evidence it will appear that if Germany has not an exportable surplus at present, she is very well equipped for getting one as soon as it is made clear to her that it will pay her best in the long run to try to meet the payments demanded on indemnity account. "With a properly limited currency," said Professor Cannan in one of the Manchester Guardian Commercial's "Reconstruction" numbers, "Germany will soon find her feet again and be able to pay a good deal, if she is willing. I have no patience with those who imagine that how much she can pay can be discovered by an examination of her balance of trade, either before the war or now. One of the most certain things in economics is that a country's balance of trade depends on what she chooses or is obliged to pay." Just as we, as Mr. McKenna showed, year by year produced more than we consumed and lent the balance to our customers, so Germany can produce more than she consumes and pay the money raised by her sale of the balance to her

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 creditors or to parties named by her creditors. It will be remembered that Mr. McKenna's interesting analysis pointed out that we could not obtain a market for our surplus unless we gave the purchaser a long credit. Under present circumstances this difficulty of a market is solved, in part, by the fact that all the Allied creditors of Germany are debtors of the United States, and that the United States with their huge consuming power can hardly refuse to admit European goods in payment of what is owed them by the Allies. It is true that they have lately put their tariff wall up a little higher in accordance with the prevalent fashion by which the Governments of the world, having solemnly agreed through their representatives at a Brussels Conference that the exchange of goods between all countries should be furthered in every way, are doing their utmost to restrict it, by tariffs and preferences and licences and other devices dear to the politician and the bureaucrat, and exasperating to the business man except when they keep out goods that compete with what he makes or owns. But in spite of their raised tariff the United States haye been buying more and selling less, as a creditor must unless he will go on lending more.

As far as we are concerned all that we are

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 likely to get from Germany for some years to come can be paid by her through the sale of goods to America, or to other countries from which America takes goods. If the time comes when our share of what she pays is more than we need for the service of our debt to America, then we shall have to lend to other countries that want loans the proceeds of the goods that Germany exports on our account. For example Germany can build railways in Russia, or if Russia has not returned within the economic community of nations, in Hungary, Rumania, Brazil or anywhere else; and Russia or whoever it may be will owe to us the railway which Germany will have built on our account and so we shall part of our fabric of investment, so much of which had to be pulled down during the war and exchanged for things that were more pressingly needed.

Some of our manufacturers will, like true Britons, gnash their teeth at the thought of anybody but themselves selling anything to anybody; but let me remind them once more that they will have a big enough pull, in the taxation laid on Germany and escaped by us through the indemnity, to enable them to beat Germany when they want to; to say nothing of the fact that they seem to be able to hold

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 their own as it is, partly because a British contract is preferred; at least in the Federation of British Industries Bulletin of July 17, 1923, it was recorded that the Paterson Engineering Company of London had obtained the contract for a water supply for Reval, although several of the competing tenders, one of which was German, were lower than theirs.

Whence it follows that Germany can only pay an indemnity if the world has been allowed by its Governments to settle down into a state of sufficient political recovery and tranquillity to enable the manufacturer and the merchant and the financier and the investor to go forward in confidence to a great effort of expansion and construction and reconstruction. There is an enormous amount of work waiting to be done, millions of people wanting to do it, other millions wanting it to be done, and thousands of organizers and financiers ready to start it and carry it through, if the statesmen who are supposed to interpret the will of the nations would only get out of the way and leave free play to mankind's entirely sensible instinct in favour of growing, producing and exchanging the goods that it needs for its comfort.

If such a state of things could happen Germany's capacity to pay would look very different. By her policy of currency debase-

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 ment she has wiped out her internal debt and also the debts and charges of her industry and her agriculture. And even now after all that we have heard about the impossible demands of the Allies, it is quite likely that Germany may yet prove to haye been let off much too lightly, unless someone can devise some ingenious scheme by which the Allies will benefit from an unexpectedly quick recovery of her economic strength, without discouraging her effort to secure it.

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purposes of this merely popular discussion, there is no need to go more deeply into the Quantity Theory of Money than to recognize that if money, by which we mean any coin, or bit of paper, or other article that is commonly taken in payment, is multiplied and circulated faster than goods come forward for sale, the general level of prices will go up and vice versa. From this it is any easy and alluring jump to the conclusion that changes in the general price level need no longer happen, and that by regulation of the quantity of money the price level can be kept steady or moved up and down to any point that we like to choose. If so we have found what the old critics of our gold standards have for many years been seeking and we have got, in regulated paper, a standard that shall be as trustworthy as a yard measure. Mr. Kitson—or his particular embodiment which sought for stability rather

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 than the moral right of everybody to all the credit that he wanted—and Professor Soddy join hands with some of the most distinguished exponents of economic science, Irving Fisher who for years has been hammering away like a Trojan at his plan for "stabilizing" the dollar, Gustav Cassel, the great Swedish master who ever since the Brussels Conference has been imploring mankind not to add the folly of deflation to the crime of inflation, and J. M. Keynes and R. G. Hawtrey, the brilliant English champions of stabilization. What we humbler mortals have to consider is firstly whether stabilization is as simple a matter as it seems: secondly, whether, even if it were all that its admirers claim, it is wise to widen the power of Government, especially in a field in which it has blundered with unusual vigour and recklessness; and even though the actual regulation were put into the hands of the Bank of England, Parliament would, I think, certainly claim the ultimate nght of control. Thirdly, if we do decide to stabilize, at what point we should steady our price level.

After giving the above list of names in favour of stabilization, it seems almost profane to suggest that this doctrine involves big assumptions; but surely the Quantity. Theory, as any complete statement of it must show, depends

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 for its truth not only on the quantity of money in relation to things to be bought and sold but on the use that is made of the money by its holders, that is to say, on the velocity or slackness of its circulation. You may contract and expand—if you can—the volume of currency and of bank credits like a concertina, but if the public makes a nimbler use of the scantier currency and credit left after contraction, and leaves idle in its pocket and in its bank balances the larger amount produced by expansion, the effect on prices will be little, if any.

And the original contraction and expansion is not going to be as easy as it looks. Professor Soddy told us all about one way of doing it, dismissing it in a couple of sentences as a thing which went without saying. "Currency," he said, "must be regulated pari passu with the changing revenue, issued as the latter expands and destroyed as the latter contracts." (It should be noted that the Professor when he talks of revenue does not use the word in its ordinary sense, of the Government's income, but means the whole income of the whole nation.) "Since it would neither be given away in the first nor taken away in the second event, but used to buy back old, or taken in exchange for new State loans, the community as a whole would share the prosperity of good

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 believe in Christ, he deprives himself of the universal benefit.’ St. Augustine: ‘God sent not his Son into the world to condemn the world; but that the world through him might be saved (John iii. 17). And then as to the physician: he came to cure a patient; and he who does not wish to keep the commands of the physician achieves his own ruin. The Saviour came into the world,—why is he called the Saviour if not because it is his aim to save the world, and not to condemn it? Do you not wish to be cured by him? You will be your own judge.’” (p. 280.)

Before this it was said in the councils that he who asserts that for our purification from sins God expects our consent, and that we can choose the good, is not right, but here it suddenly turns out that a man must choose by all means. Then follows Art. 192, which is to prove that there is a predetermination, and that there is no predetermination.

“3. St. Paul teaches distinctly that divine predetermination is based on prescience, saying: For whom he did foreknow, he also did predestinate to be conformed to the image of his Son, moreover whom he did predestinate, them he also called; and whom he called, them he also justified (Rom. viii. 29, 30). He did not simply predestinate, says the apostle, but he predestinated, because he foreknew; whose deserts he foresaw, those he preordained, or, as St. Jerome expresses himself: ‘Of whom God knew that they would be conformed to the image to his Son in their lives, those he preordained to be conformed to him in the glory itself.’”

This whole article about predestination bears upon itself the distinctive character partly of the Byzantine but more especially of the Russian theology. Here is repeated what we find in all debatable passages of the Theology. Some theologians say that the whole matter is in works, while others say that the whole matter is


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 times as well as the stringency of bad ones, instead of only the latter as under the existing system." Why our peevish friend should suppose that the community as a whole does not share the prosperity of good times we need not pause to inquire. What is curious is to find his system of currency regulation depending on the existence of a national debt, in view of the many eloquent passages in his pamphlet which are devoted to denunciations of usury. The fact, however, that only a nation with a debt can use the system is never likely to be an objection.

In this country the system would work, I suppose, somewhat on this wise. If prices went down and it was therefore desired to increase the volume of currency, the official broker would be sent into the Consols market to buy the necessary number of millions of Government securities, and new notes, either Treasury notes or Bank of England notes, would be issued to the sellers in payment for their stock; this would be a simple and inexpensive operation. Interest bearing debt would be paid off by the issue of paper which would only bear the cost of printing.

But when it is the other way and debt is issued so as to contract currency at a time of rising prices, the process seems likely to be

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 both expensive and unpopular. No use could be made by the Government of the currency received from subscribers to the new loan; it would have to be destroyed, to carry out the scheme, and so the operation would be dead loss; at a time of expansive prosperity implied by the circumstances the Government would probably have to pay a handsome rate to get its loan out, and it would have to lay this sacrifice on the shoulders of the taxpayer, knowing that thereby, if the measure succeeded, it would be checking the rise in prices that makes the business world so happy.

There would probably be plenty of people who would argue, that the Index Numbers, which are supposed to record the average movement of the prices of the principal commodities, were all wrong, and that prices are not really rising at all. Dr. E. C. Snow in an article in the Manchester Guardian Commercial of July 19, 1923, observed that "the perplexity in which those who have attempted to make practical deductions from the movements of price Index Numbers in the past few years have been placed is sufficient evidence of the inadequacy of these Index Numbers for the purpose." And as I write in August of the same year, a dock strike is still going on which began because the dockers, whose pay was to be

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 reduced because an Index Number had fallen, knew, or thought that they knew, that there had been no fall in the cost of living which the Index Number was supposed to record.

Mr. Kitson, in his expansive embodiment, would be saying that "sales are limited by the amount of money or credit offered"; that "production is necessarily limited by the quantity of money or credit available for commercial purposes"; and that "a study of the currency and bank methods of all industrial nations for the past century will convince every unprejudiced person that the scarcity of wealth and the limited amount of production has been due primarily to the legally restricted supply of money." (Money Problems, page 32.) One can hear the rattling cheers of the Opposition back benches as the leader of the Kitsonian party makes his points, and convicts the cowering Administration of throttling, at the bidding of misleading statistics in which nobody believes and armchair economists with cosmopolitan leanings, the industry of England just struggling to expand.

Professor Irving Fisher will always be associated with the rise of stabilization to the position of an ideal, for which people were ready to work. His system is expounded in his well-known work on the Stabilization of

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 the Dollar published in 1920, but the first sketch of it was outlined in 1911, in his Purchasing Power of Money. It has always seemed to me to be rather too clever and complicated for the public ever to understand, and that it would therefore always be received with suspicion and made responsible for earthquakes, harvest failures, and epidemics. Professor Fisher, in his own summary of his scheme, says that his method is "to vary the weight of the gold dollar so as to keep its purchasing power invariable. We have now a gold dollar of constant weight and varying purchasing power; we need a dollar of constant purchasing power and therefore of varying weight. . . . If prices tend to rise or fall, we can correct this tendency by loading or unloading the gold in our dollar, employing an Index Number of prices as the guide for such adjustments. The process for doing this is as simple as clock-shifting for daylight saving and would produce its effects unobtrusively."

The plan has now been embodied in a bill which has been introduced in the United States House of Representatives and referred to the Committee of Banking and Currency. Its working is explained as follows by Mr. T. Alan Goldsborough, a member of the House, in the January 1923 number of the Proceedings of

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 the Academy of Political Science, New York:

"The mechanism of the bill provides for the retirement of gold coin by the payment of a small premium, leaving gold certificates, or yellowbacks, in circulation. There will then be a certain number of dollars in gold in the Treasury either in gold coin or gold bars. Should the general wholesale commodity price level rise, say, 1 per cent. in a given period (two months in the bill), the amount of gold in a gold dollar is increased arithmetically 1 per cent., which leaves 1 per cent. less of gold dollars in the Treasury, which necessitates the retirement of 1 per cent. of the yellowbacks, which in turn contracts the total volume of potential money and credit by 1 per cent. This process is followed every two months until the price level is down to normal. Should the price level fall below normal, say 1 per cent., the amount of gold in a gold dollar is decreased 1 per cent., which increases the number of gold dollars in the Treasury by 1 per cent., which permits the issuance of I per cent. more of gold certificates, which in turn increases the potential money and credit throughout the country by 1 per cent."

Clock-shifting for daylight saving, if it happened whenever the thermometer moved,

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 would be a most unpopular arrangement, and there is reason to fear that Professor Irving Fisher's scheme would be a cause of much bewilderment, and that if it were adopted by a large number of nations, it would make questions of exchange more difficult than ever to unravel. It is easy to answer this objection by saying that the scheme is quite simple to those who are clever enough to understand it, and that its working would naturally be entrusted to such folk. But the general public, I think, has a rather well-based suspicion of schemes that can only be understood and carried out by very clever people.

Professor Lehfeldt of Johannesburg, however, who really understands these matters, says in his clear and excellent Restoration of the World's Currencies that the Fisher plan is not only ingenious, but has serious practical merits to recommend it. He has no doubt that the system would work and that it would confer great benefit on a world plagued with ill-regulated currencies; "it would, however," he adds, "be necessary to convince the commercial and political classes of its merits," thereby seeming to imply that neither of these classes is likely to show much eagerness in making the mental effort necessary for grasping the beauties of the system. Professor

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 Lehfeldt decides that the simple gold standard being familiar to everyone should first be restored to get us out of our present distresses, and that after that we can go on to discuss new devices and improvements.

Regulation by discount rate remains as a third method of controlling the volume of currency, and at present perhaps the most fashionable among reformers—especially those who may be referred to with no intention whatever of disrespect as academic. In this country and in others where legal tender currency is only used in wages payment and retail transactions and as the bankers' cash reserve against deposits, the amount and circulation of "bankers' money"—bank deposits and cheques drawn on them—is evidently a most important influence on prices. When we have all got growing balances at our banks and are constantly turning them over by drawing cheques against them, a rise in prices is certain to happen unless the volume of goods coming forward for sale is growing as fast as the figure of our bank balances.

These bank balances are contained in the deposits held by the banks and it has been shown that these deposits are created by the banks in making advances, discounting bills None

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 (Treasury Bills or the bills of exchange of commerce and finance) and investing in securities. If then the bankers raise the rate that they charge for advances and discounts it is easy in theory to assume that those who have borrowed from them will be inclined to repay advances and discontinue discounting, and that there will thus be a reduction in bank balances and a consequent fall in prices; and vice versa when the banks lower the rates that they charge for accommodation borrowers will be encouraged, deposits will expand and prices will go up.

And so we proceed to the ideal set forth by Professor Cassel of Sweden, of a "true bank policy." He tells us on page 103 of his work on Money and Foreign Exchange after 1914 that "the supply of credit must be so regulated that no rise in prices and, naturally, no fall in prices either, takes place. In order to keep demands for credit within the limits of available means, the banks must apply interest rates fixed with that object in view, but in their continual scrutinizing of the demands for credit must also be able to effect the necessary restrictions. The main factor determining interest rates throughout the entire banking system in a country is the central bank's discount rate, and in addition the central bank naturally possesses

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 a very great influence owing to the general advice it is able to give to private banks as to their credit policy." A little later he says that "a fixed value (of the monetary unit) can only be kept up by properly limiting the granting of credit and principally, therefore, by a suitable discount rate."

Now this scheme of regulating prices through credit contraction and expansion, brought about by raised and lowered rates for loans, the rises and falls of which were prompted by movements in the central bank's official rate, was tentatively, and as I venture to believe quite ineffectively tried in this country in 1919 and the following years. As was shown in Chapter V the rises in Bank Rate in 1919 and 1920 were certainly followed by a catastrophic fall in prices, which, however, was accompanied by a further expansion in bank deposits. It was clear that to produce actual contraction of bank credits, under the circumstances then ruling, Bank Rate would have had to go up at a pace that would almost certainly have precipitated panic. The fall in prices happened not because banking credits had been contracted—because they had not—but because, stimulated by the Chinese example, consumers all over the world stuck in their toes like an overburdened, over-beaten ass and refused to

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 go any further. Professor Cassel admits on page 226 of the work already cited that "the common purchasing strike, both on the part of business enterprise and consumers, may perhaps be regarded as the immediate cause of the fall in prices. But this purchasing strike," he adds, "has been a direct and natural consequence of the restrictive policy adopted by the bank administration." The Professor might have explained how a restrictive policy which failed to restrict could have produced a fall in prices.

In 1919, however, conditions were quite abnormal, with prices soaring so fast and furiously that producers and merchants might well think that hardly any rate for money could make it advisable to take in sail. In normal times a few turns of the Bank Rate screw might certainly be counted on sooner or later to produce the desired effect. But when the wind is on the other cheek, when depression prevails and it is desired by lower money rates to induce enterprise to tuck up its sleeves and get to work, no such success can be expected with any confidence. If people think that any business that they do is likely to involve them in loss, they would evidently be born fools to do it, even if the money needed was lent them for nothing.

This difficulty is admitted even by Mr.

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 Hawtrey, whose belief in the overwhelming influence of monetary conditions on trade is carried to such amazing lengths in his brilliant and interesting works. In his Monetary Reconstruction, page 142, he says that "even lending money without interest would not help, if the borrower anticipated a loss on every conceivable use that he could make of the money. . . . But such a condition of stagnation is not possible except in the course of reaction from a riot of inflation. If the inflation is prevented, the stagnation will never arise." It must indeed be pleasant to possess a mind like Mr. Hawtrey's that can arrive at this completely confident certainty about matters which to ordinary mortals seem to be so full of doubts, difficulties and complications. How does he know that if there has been no previous inflation there can be no—business stagnation? Might not stagnation arise from political or social upheaval or apprehension thereof, or from the effect of a plague or the failure of a harvest which might seriously disorganize the business of the world?

Surely the price that enterprise has to pay for the use of money is only one among very many items that it has to consider when it is deciding whether to spread or take in canvas, or just to "keep her so," and it is a big assump-

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 tion to suppose that by varying this one item a certain and prompt effect can be produced on industry's decision.

This assumption, however, Mr. Hawtrey not only makes without an effort but expects the rest of the world to take on the strength of his personal pronouncement. "Whatever other factors," he says (page 143), "affect the purchasing power of the monetary unit, one, the volume of trade borrowing, is amenable to human control. By its means the agency which exercises the control, that is to say the Central Bank, can correct the effect of all the others." Hence it follows that, whatever disasters happen such as—wars, plagues, pestilences and famines, trade will continue steadily on an even keel as long as the Bank of England makes appropriate use of its Bank-Rate weapon. "It is quite superfluous," our Mentor continues, "to seek for other causes of depression and unemployment when there has been so tremendous a deflation as to reduce prices by half in less than two years. . . . This does not mean to say that we do not suffer through the distresses of Europe. Our loss is heavy enough, but it does not take the form of Unemployment. Unemployment is due to a defect of organization, a maladjustment of the monetary machine. The

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 defect can be cured, the maladjustment can be corrected." So our lack of foreign customers and our failure to get peace, and the action of France on the Ruhr which so many have held responsible for our continued depression, have had nothing to do with our unemployment; and a new Gengis Khan might sweep over the whole of Europe and Asia with fire and sword from Pekin to the Bay of Biscay, and might then proceed to inflict the same inconvenience on North and South America, Africa and Australasia, but as long as the Governor of the Bank of England moves his official rate according to Mr. Hawtrey's directions, employment will go on steadily in England!

Well, one can only hope that Mr. Hawtrey is right, but the admissions which he himself makes seem to show that his theory is not quite as impregnable as his confidence. For he observes on page 120 that "a deflation so intense as to reduce prices of commodities by nearly 50 per cent. and to throw 2,000,000 people out of employment has been accompanied by no visible fall in bank deposits. And it is even argued that there has been no deflation at all, as if the quantity of purchasing power were the sole test of the state of credit. The kind of deflation that is practically

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 important is deflation not of the outstanding aggregate of purchasing power but of the flow of purchasing power." But this new complication seems to upset the whole theory of the control of prices through money rates. There is a great deal to be said for the belief that higher rates will tend to restrict the volume of credit, as long as this belief is not pushed to extremes. But now Mr. Hawtrey, finding that the fall of 1920 was not produced by a restriction of credit, because credit was not restricted, begins to bark up quite a new tree and tells us that what really matters is restriction of the flow of credit.

Everybody recognizes that the effect of the quantity of money in relation to goods in raising and depressing prices is complicated by the pace at which the owner of the money turns it over, and this is one of the reasons why some of us doubt the efficacy of the remedy that Mr. Hawtrey proposes for all our economic ills. But it seems to be making a new claim on our credulity to expect us to believe that because Bank Rate goes up therefore people are certain to make less use of their bank balances and turn them over more slowly. If the rise in Bank Rate makes them expect a fall in prices it may through psychological influence produce this effect. But at the end of July 1914 we

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 remember that a 10 per cent. Bank Rate was accompanied by a consumers' panic and a scramble both for money and for goods.

It should be noted that Mr. Keynes expresses himself much more cautiously than Mr. Hawtrey on this subject of price regulation through control of credit. In a letter published in the Times of August 7, 1923, he only claims to be "supported by expert opinion in the belief that . . . it lies in the power of the Bank of England and the Treasury, within wide limits to determine in the long run how much credit is created," and he argues that "the policy of the Cunliffe Committee assumes that the authorities have the power in the long run to fix the price level, just as much as the policy of price-stabilization assumes it."

And Mr. Carl Snyder, statistician to the Federal Reserve Board New York, shows doubt of the efficacy of mere movements in the discount rate by proposing, in a scheme published in the American Economic Review of June 1923, to reinforce them by automatic increases and decreases in the Central Bank's holdings of securities and acceptances. But surely if there is one thing that a Central Bank cannot do, it is to refuse to lend or discount at a price. If it is to become a merely automatic machine, with no elasticity or power of dis-

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 crimination, it will lose the greater part of its right to exist.

Moreover even if the system of regulating the general level of prices through the discount rate were as certain and simple as its distinguished exponents believe, even if it were possible with Professor Cassel to lay down that "the supply of credit must be so regulated that no rise in prices, and naturally, no fall in prices either, takes place," should we then have removed from the minds of organizers of industry all fear of loss and from their workmen's all fear of unemployment? The Index Numbers of the average price of commodities would march, serenely stabilized, in a steady straight line across the charts that are so dear to statisticians. But the leather merchant and the bootmaker might very likely say "A murrain on your Index Number, what's going to happen to hides?"

For it is these special fluctuations that affect one commodity and one trade and are not by any means lessened by the most successful stabilization of the general price level through credit regulation, that affect those who are concerned much more seriously than a movement in which all other prices are joining. For instance, if wool rises or falls with other prices, the cloth maker and the tailor are comparatively

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 little affected. Their raw material is rising and their finished commodity likewise (or the rise in raw material could not go on rising long), but so also are all the other materials that enter into food, clothes, shelter, and transport. For a time, owing to the habitual "lag" in wages, they may earn an extra profit at the expense of those who work for them; but this cannot last and when it is over what they make on cloth and clothes is offset by higher prices for all the things that they have to buy. And in the case of a fall it is likewise, except that then the advantage of the lag in wages is on the workers' side.

But if wool, cloth and clothes go up or down when other things are steady or moving in the opposite direction, then there is a big gain or loss. If the cloth maker can make a bigger profit and buy other things more cheaply, or suffers a loss at a time when all that he has to buy is dearer, then it may be a question of fortune or of ruin, and such things are quite possible with a successfully stabilized Index Number. And in spite of Mr. Hawtrey's conviction to the contrary there is surely something to be said for the view that trade depressions begin owing to these special fluctuations in the fortunes of particular enterprises, which arise because of the uneven

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 pace of development and production in different industries, and spread to others like an unwholesome contagion.

If this be so, the notion that we can secure real stability in enterprise and freedom from unemployment, even if stabilization of the general price level were entirely successful, might bring with it grave disappointment.

Champions of stabilization are already arising who go all the way with Professor Cassel and Mr. Hawtrey but insist that when their goal is achieved it must only be a first step towards the stabilization of individual prices. Mr. E. M. H. Lloyd has lately produced a book entitled Stabilization, an Economic Policy for Producers and Consumers, which is all that a book should be in brevity and clearness and brightness. He is very eager and earnest, thinks private property in land and railways an "anachronism," and takes things for granted with an airy confidence that is very pleasant; as Mr. Edmund Gosse once said of a French theorist about Shakespeare, "he leaps to conclusions with the sudden agility of a chamois." He seems to think that because thirty-one Governments assembled at the Genoa Conference have officially endorsed the "important new doctrine, that the general level of prices, and consequently the general

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 state of trade and unemployment, can be to a large extent stabilized by appropriate action on the part of the Central Banks," therefore this so desirable stabilization may soon be expected. Was not there a Brussels Conference and did it not officially endorse balanced Budgets, cessation of finance by printing press, and inter-change of goods between nations, and have not most of the Governments which endorsed these ideals continued to spend more than their income from revenue and to maintain and increase restrictions on trade? And how long would it take before the Central Banks of Europe and America could really be got to work together and to hand over the control of their credit policy to the majority of a committee or whatever the machinery proposed might be?

Mr. Lloyd, however, leaves America out, on the curious ground that "so long as public opinion in the United States will insist on repayment of European debts not much progress can be made in monetary stabilization." Why America, whose interest in the war was so much remoter than Europe's, should be expected to lend huge sums for it and then remit them, he does not explain. Following Mr. Hawtrey and the Genoa Conference he proposes a European Monetary Convention

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 and a sort of European Consortium to be formed by the Central Banks, which would pool their gold. "Let us assume," he says, "for the sake of simplicity that all the gold is deposited in London." It would be simple, but is it likely as long as there is any possibility of war between any of the Powers included in the scheme? "Being thus linked together, with a single pool of gold, the Central Banks would need to pursue a common discount policy. In other words, the expansion and contraction of credit and the regulation of the volume of money and circulation would be effected by alterations in the Bank Rate at a common centre. This would virtually restore the state of affairs which existed before the war, when the London Bank Rate exercised a determining influence over monetary conditions in other European countries." How many French bankers would allow the truth of this last statement?

But as already indicated, the most interesting point in Mr. Lloyd's programme is that having taken the stabilization of the general level of prices in his stride, as secured by the Genoa resolutions, he goes on (page 79) to doubt whether stabilization "can be effectively achieved by manipulating the Bank Rate and co-operation between the Central Banks, so

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 long as the marketing of staple commodities, which enter into the general Index Number of prices, are [sic] carried on under competitive conditions," so he proceeds to a plan to apply stabilization to "certain basic raw materials and foodstuffs such as coal, petroleum, wheat, sugar, cotton, rubber, nitrates, and other similar commodities in universal and fairly constant demand."

Well, all this may happen some day and may be very nice when we have got it, though on the other hand regulation of the prices of staple commodities by international control opens a wide door to possibilities of economic mistakes. Mr. Lloyd, in his very fair examination of the objections to his scheme, admits that "a new use for rubber to replace some more expensive commodity, or the substitution of wheat for rice as the staple article of diet for the Far East, might enormously increase the demand for rubber and wheat and necessitate the raising of prices as the only means of checking consumption."

In the meantime, after this rather dizzy walk along the mountain tops in the company of minds that are able to soar into the region of the problematically attainable, let us get back to a less rarefied atmosphere and consider what in this world of workaday fact we should like to

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 see our monetary authorities doing or trying to do.

Should we "devaluate" the pound sterling to something like its present gold value and so hasten the return to a gold standard? Or should we continue the effort that we have begun to restore sterling to its old gold value and its old parity of exchange with the dollar? Or should we abandon all connexion between gold and our currency, and go frankly to paper officially regulated as suggested by Professor Soddy?

I think most of us will rule out Government control in view of all the crimes and follies committed by Governments during and since the war in their handling and abuse of our machinery of credit, that had been brought so near to perfection by bankers working for industry and commerce. It is rather amazing, seeing that we live in the midst of a world brought very near to utter shipwreck by the failure of Governments to do their international job decently, to find that any one should propose to put new duties, of the highest importance to our welfare, into the hands of our political rulers.

In one of Lord Macaulay's speeches on the Reform Bill, lately quoted by the Times Literary Supplement, he asked whether there

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 can be "any stronger contrast than that which exists between the beauty, the completeness, the speed and the precision with which every process is performed in our factories, and the awkwardness, the rudeness, the slowness, the uncertainty of the apparatus by which offences are punished and rights vindicated. . . . Surely we see the barbarism of the thirteenth century and the highest civilization of the nineteenth century side by side, and we see that the barbarism belongs to the Government, and the civilization to the people." Since Macaulay spoke there have been improvements, which he would have thought incredible, in our industrial processes, but at least in matters of finance the barbarism of Governments is even more barbarous than it was, as has been shown above, and the late war was not nearly as well paid for as the Crimean or the Napoleonic.

If ever the day comes when democracy or any other "cracy" can solve the problem of getting a continuous supply of the right people to do the governing job, and when all the other nations have done likewise, and when the nations have also learnt to live together so friendly and trustfully as to have confidence in an international paper currency, then perhaps we may be able to enjoy the use of a

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