A.—6

reducing the national income with the consequence that in order to balance its accounts the Government must take by taxation a larger and larger proportion of the income of the country. Sooner or later, usually sooner, this process is found to be intolerable, and countries bent on securing heavy reductions in costs and prices find that they have merely secured an unbalanced Budget for which no practical cure can be found. In the view of the British delegation therefore a solution of our present difficulties must be solved by means of a recovery in the wholesale price level. To bring about a recovery in wholesale prices action in various spheres will be necessary. The final settlement of reparations and war debts is not within the scope of this Conference, but such a settlement is essential if the measures taken in other fields are to be effective. As regards these, a number of reforms are required in the financial sphere : For example, the abrogation of exchange controls and the resumption of international lending; and also in the economic sphere, such as the co-ordination of production and marketing, the removal of prohibitions and similar trade barriers, and the reduction of excessive tariffs in order to permit a normal flow of international trade. I will refer to these later. But in order to attain the object of a recovery in prices, action is also necessary in the monetary sphere. The fundamental monetary condition of the recovery of prices is that credit should be made available by a policy of cheap money, and that such credit should be actively employed. This, together with the revival of business confidence, must form the indispensable background of trade recovery. The control of monetary policy is largely in the hands of the central banks, and the practical steps to give effect to the requisite monetary policy have to be taken by them, and, in particular, by those of the most important financial centres. These central banks should therefore undertake to co-operate with a view to securing the monetary conditions required for a rise in prices. In order that their action may have the desired effect, it is necessary that the policy of cheap and plentiful money should be clearly announced and vigorously pursued. Particularly, the wider extension of what is known as " open market operations " by central banks should in our view be developed. Experience in recent months has shown that cheap money in itself may not be enough to achieve the desired end rapidly unless means are taken to ensure that the credit made available is actively employed. This in turn depends upon the establishment of a sense of security and confidence in the public, and so again it is seen how inextricably finance and politics are intermingled. The question whether Governments can effectively assist in this matter by schemes of governmental capital expenditure will also require consideration. The United Kingdom delegation will be very ready to examine with the other delegations how far employment can be stimulated by such action. In our view, however, it would be a mistake to attempt to lay down any rigidly uniform policy for different countries on this point. The extent to which employment can be stimulated by governmental capital expenditure necessarily depends upon the circumstances of each country, and, in particular, upon the extent to which opportunities are still open for self-supporting schemes, which in turn must depend partly upon the extent to which in each country such schemes have already been promoted in the past. Bach Government must therefore determine, in the light of the situation in its own country, the size and nature of any further programme which it can widely promote, and the method by which it should be financed. A further matter which falls within the monetary sphere concerns the values of the principal currencies of the world in relation to each other. As the greatest international traders in the world, we fully recognize the great importance to international trade of stability of exchange rates. In our opinion, the attainment of this object must necessarily be attempted in two stages. The immediate objective should be to secure approximate stability between the currencies of the principal countries of the world in order that trade may not be hampered by violent and unpredictable fluctuations of what I may call the basic currencies. This end will be achieved in so far as the principal countries use their resources in order to counteract fluctuations in the value of their currency caused by temporary movements of capital rather than by fundamental economic factors This first stage should be dealt with immediately. As regards the second stage, the United Kingdom delegation endorse the view that the ultimate aim of monetary policy should be the restoration of a satisfactory international standard, and there is no doubt that a gold standard seems most likely to be generally acceptable. The time and the exchange parity at which a return to gold could safely be made, must, as was pointed out in the annotated agenda prepared by the Preparatory Commission, fall to be determined by the proper authorities in each country separately, but in order that all countries may work harmoniously towards the same goal I have no doubt that the Conference would wish me to state, in as positive and concrete terms as possible, the conditions under which the United Kingdom would feel justified in returning to the gold standard. One of these conditions is a rise in the general level of the wholesale prices of commodities sufficient to restore equilibrium between prices and costs. A second condition is an adjustment of the factors which caused the breakdown of the gold standard in the past, and which, if not corrected, would inevitably lead to a repetition of the process in the future. These factors include, of course, the disturbances due to reparations and war debt payments, and the obstacles to international trade caused by excessive tariffs, exchange restrictions, and other abnormal impediments to the flow of commerce. A third condition is that the gold standard shall in the future be so administered that wide fluctuations in the purchasing-power of gold (in so far as they arise from monetary causes) will be to the greatest possible extent prevented. Without entering in detail into the question of the requisite reforms in the working of the gold standard (in regard to which I hope that a substantial measure of international agreement will be found to exist) I will only mention three which seem to us essential — namely, the withdrawal of gold from internal circulation and its use only for settlement of international balances ; the reduction in the legal minimum proportions of gold which central banks are required to hold in their reserves ; and a closer permanent co-operation between central banks.

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