THE H.B. TRIBUNE MONDAY, MAY 4, 1925. GOLD, EXCHANGE, AND PRICES.

Hawke's Bay Tribune, Volume XV, Issue 126, 4 May 1925, Page 4

THE H.B. TRIBUNE MONDAY, MAY 4, 1925. GOLD, EXCHANGE, AND PRICES.

The question of return to the gold standard is one that has already occasioned much discussion, and will be the subject of a great deal more now that it is on the eve of becoming an accomplished fact. On Saturday we gave some adverse views entertained by the chairman of the British Empire Producers’ Organisation. These are in a measure shared by Mr. J. M. Keynes, the well-known English writer on economic questions. In the course of a letter appearing in a recently received number of the London | “Times” he argues that a stable- ! price standard is a much more sensitive instrument than is a fixed ex--1 change standard (e.g., the gold ' standard) for adjusting a disequilibrium in the terms of international : trade. For a movement of the exchange immediately shifts in the rcI quired direction the prices of all British exports in terms of foreign money; whereas under a fixedexchange standard the same result can only be brought about by the long and painful process of altering the whole range of internal prices, loans, and wages, some of which are fixed in terms of money for considerable periods by custom or by contract. As an example of the same principle, Sir Basil Blackett has pointed out what great advantages ' of internal stability India has rei cently secured by allowing her exchanges to move. In Britain’s case, ! Mr. Keynes argues, if the exchange 1 is allowed to fall at tho same time • that bank rate is raised, her external 1 competitive power is strengthened I during the period of readjustment. But if, when bank rate is raised, the exchange is “pegged,” then her external competitive power is weakened, until the causal train set moving by higher bank rate, including the lowering of money-wages, has been at last completed. Indeed, he urges, the real criticism against the stable-price standard is that it is too sensitive. Commenting on this letter, the City editor of the “Times,” who holds quite a different view, says ! that, shortly, Mr. Keynes’s theory of monetary reform is, that Britain should aim at the stability of her own price, cost, and wage levels, regardless of the effect upon exchange, and whether or not she is losing business to her competitors in world markets. Under his system, i if the British price level should rise i above the competitive level she would have to rest content with I the hope that there would be an immediate adjustment of exchange . to re-establish, in terms of foreign money, an equilibrium of British prices. Tliis hope, the “Times” contends, would be a vain one, for it is based on a demonstrably false I assumption. It maintains that a managed stable price currency would I be liable, for more than one reason, i to interfere with competitive power 1 in the international market, as is I proved by -the existing state of unemployment. Mr. Keynes says just the opposite is true. But the “Times” calls upon him to substantiate his argument by a refer- ' cnee to experience, and goes on itself to point out that in the past : nine months the dollar value of [sterling ha s very considerably im- ' proved, and as a result British imI ports have undergone a considerable i expansion, the growth being more [marked than in exports. From | November, 1923, to November, 1924, ' the British price level, from being nine points below the American on a gold basis, rose to seven points above it. The facts, it is claimed, show that the purchasing power I parity theory (i.e.. immediate adjust- ' ment of exchange) i s merely a state--1 ment of a tendency, and not of a I practical fact. The history of every I country which has practised a

managed currency since the war demonstrates this very clearly. It h was because the adjustment of ex- j change was not in proportion to p price levels that Germany in 1922 and F 1923 was an amazingly cheap place in which to live. Goods and services in France at the present time are cheap compared with the English standard, owing to the failure of the a exchange to adjust itself to price, v Under a managed currency such as d Britain has had for the last ten years, we find that it has not solved our unemployment difficulties, and t that her export trades and other world-competitive businesses are ‘ more depressed than any other. s “There is no advantage,” the a “Times” writer concludes, “in c stabilising a price level which leaves 1| million unemployed. Surely we and the peoples of Europe have had . bitter experience enough of the fundamental deficiencies of a cur- ' rency managed without regard to t the exchange. It may be true S under a gold standard the painful process of price adjustments will 0 have to be undergone. But wc had p better undergo that process rather J than allow our export trades to languish and.disappear in the vain w hope that exchange will some day C restore our competitive power.”