Monetary management

A VOLUME on Monetary Management is welcome evidence that the unreasoning prejudice against what used to be termed "monetary manipulation" is rapidly dying out. As long ago as 1922 the Report of the Genoa Conference warned the monetary authorities of the world that the gold standard was not facing up to post-war problems and would collapse unless reinforced by intelligent monetary management. Its warning was unheeded, and less than ten years subsequently, the gold standard collapsed exactly as predicted.

Part II of the Macmillan Report, published in 1931, is a brilliant essay on monetary management. It explained in great detail the monetary policy necessary to finance the complex requirements of post-war industry and finance. It came too late to save the gold standard. But it described exactly the measures necessary for a new system of inter national currency to take the place of the gold standard when it proved unequal to the task of financing Britain's international requirements.

The Macmillan Report proposed the adoption of a Commodity Standard of Money, camouflaged, during the period of transition, by a nominal adherence to the gold standard. The collapse of the gold standard, three months after it was published, rendered the camouflage unnecessary. The international monetary system outlined in the Mac millan Report was tentatively adopted by Britain the acceptance of the Ottawa Monetary Report in August 1932. After a practical experience of its operation for eleven months, the failure of the World Economic Conference of 1933 demonstrated the impossibility of restoring the gold standard. The Currency Declaration of July 1933 thereupon confirmed the provisional monetary system initiated at Ottawa as the official monetary policy of the nations of the British Commonwealth.

The initial ters of the present volume, in their description of the operation of this new and unfamiliar monetary system, gradually lead up to the vitally important Chapter XI entitled "The Elimination of the Business Cycle." A serious volume on monetary policy, claiming with some justification the solution of this long-standing and elusive problem, is worthy of the attention of statemen, financiers, and business men, as well as providing a textbook for students of Economics.

The author makes no claim to the discovery of this solution. He demonstrates very clearly that the elimination of the business cycle is the natural and inevitable result of the monetary measures outlined in the Macmillan The solution had previously been concealed by the perverse Report monetary paradoxes of the economists; such paradoxes as "that money is not wealth," "that money does not perform the function of storage of value," and "that the volume of

money does not determine the rate of interest." As long as these paradoxes held the field, the causation of the business cycle defied detection. But the secret, which had cluded the investigations of economists for over a century, was revealed in less than two years by a Govern ment Commission, which pursued its inquiries into the operations of industry and finance as they actually exist, and assigned to money the importance it exercises in the actual world of industry.

The new commodity standard of money has had to fight for its existence against numerous forces of inertia, ignorance, and entrenched interests. The Gold Bloc, the blocked and barter currencies of many nations, the Tripartite Agreement of 1936, which placed the Pound in a position of vassalage to the Dollar, the American Deflation of 1937; these are among the adverse influences which have hampered the attainment of its objective-the elimination of the business cycle. The gold-standard mentality dies hard. Its influence in producing an approximate stability of the Sterling-Dollar exchange through the Tripartite Agreement was the cause of the transmission of the American Depression of 1937-8 to Britain and to the nations of the Sterling group. The opera tion of these adverse influences is clearly explained in the narrative of the volume, more particularly in Chapters VII and VIII.

The chapter on International Monetary Management (No. XII) is, next to the analysis and solution of the business cycle, the most striking feature of the volume. It foresees the international currency being jointly financed by Britain and the United States, and outlines the nature and the limitsof co-operation between the monetary systems of the two countries, in order that the international currency shall attain its maximum ency.

The disruptive action of international commerce and international currency on the internal industry and economy of a nation, described in Chapters XII and XIII, throws a revealing light on the adoption of policies of self-sufficiency by some nations. The issue of Free Trade versus Protection is presented as a contest between the beneficial and disruptive operations of international commerce. The effect of the commodity standard in providing a cushion to protect the internal currency and industry of a nation from adverse external influences is clearly depicted.

How internal monetary management, if so protected, can secure a high standard of employment and a high standard of living for all nations is the theme of Chapter XIII.

The final Chapter, incorporating the monetary reforms of the first two months of 1939, affords a remarkable con firmation of the foresight and judgment with which the earlier chapters of the volume were compiled.

The artificial depression of 1937-8, caused by the tem porary abandonment of the commodity standard, has pro vided many valuable lessons for the future.