XIXSCRAPPING THE GOLD STANDARD
19.1.24
Among recent events of conspicuous importance is the publication of a new book byMr.J. M. Keynes,A Tract on Monetary Reform. Among the large trivial happenings of the time, revolutions, movements of crowned heads in and out of exile, new French alliances, and the antics of eminent politicians, it is refreshing to have something of real significance on which to make one’s weekly comments.
I incurred great odium a little while ago by saying thatMr.J. M. Keynes could claim to have achieved success while at the same time I excluded those popular heroes, Napoleon I andMr.Lloyd George, from the list of true successes. But here is a fresh book fromMr.Keynes, simple, outspoken, well written, and making a definite step forward in our understanding of the world’s problems. You might read all the speeches and orations of Napoleon orMr.Lloyd George through and you will know no more about men and things than when you began;Mr.Keynes will leave you different—enlightened.Mr.Keynes thinks with scientific lucidity and sayswhat he thinks exactly and skilfully. What he says stands and will necessarily affect the history of money in a real and permanent way. Did Napoleon ever say anything or hasMr.Lloyd George ever said anything except what seemed likely to impress or humbug people in general?
It is a peculiarity of the mind ofMr.Keynes that it is at once penetrating and limited. He seems to think that the British Empire is a permanent instead of a manifestly transitory arrangement and that the United States of America and the Empire and the various States of the European patchwork are always going to retain their sovereign independence in financial and economic affairs. He assumes this much, and never questions it. But within the limits of this assumption, he writes with a lucidity and a frankness that are a liberal education for the reader.
To write of currency is generally recognised as an objectionable, and indeed almost as an indecent, practice. Editors will implore a writer almost tearfully not to write about money. This is not because it is an uninteresting subject, but because it is, and always has been, a profoundly disturbing subject. The whole modern world has been brought up on cash and on credit reckoned in terms of money. Four or five generations of us have lived by the faith that a dollar was a dollar and a pound a pound, and that if you left them about they grew at so much per cent. per annum, and also increased in value. Most things became cheaper and cheaperthroughout our young lives. That cheapening seemed in the nature of things. We worked for money; we saved the stuff, we looked forward to a comfortable old age. Now we live in a phase of fluctuating and on the whole mounting prices. Whosoever saveth his money shall lose it. Even the dollar buys two things where ten years ago it bought three. The pound sterling is in a worse case, and many of the other currencies have sunken to levels beyond the wildest fantasies of 1913.
Now this, asMr.Keynes points out, is a breach of the understanding between society and the common individual. In this system in which we and our predecessors have lived for a century and more, the system which Socialists will call the “Capitalist” system but whichMr.Keynes much more properly calls the “Private Capitalist” system, there has always been an implicit guarantee that the money we worked for and saved up and lent and invested in various ways wasgood. It was good for our needs whenever we chose to spend it again. This was the incentive to work; this was the driving force of the whole hundred years of industrial production from Waterloo to the Marne. And to a large extent the incentive has gone. Money is no longer good; it has become treacherous. Unless it can be restored this system of ours must break down and lead either to social chaos and human decadence or to a new and different system.
NowMr.Keynes is not a Socialist. He believesthat the existing system of individual competition is “in accordance with human nature and has great advantages.” But it cannot go on unless money is made trustworthy again. And his proposals to restore our confidence in money are very bold and remarkable indeed.
The vice, the almost incurable vice, of cash and credit systems, since first the methods of money became dominant in the Roman Republic, has been its tendency to expand debt to impossible dimensions. Every country at the end of the war found itself owing preposterous sums to the creditor class or to foreign countries, and forced in various measure to tax the productive classes, to tax its creditor class either directly by income-tax and capital levy, or indirectly by currency inflation, and to bilk its foreign creditors. Every sovereign State in Europe had its own policy and set about the business on its own lines, with the result that to-day Europe is a museum of methods of economic collapse, from Britain, crushed by taxation and unemployment in an attempt to deflate back to the gold standard, to Germany, smashed into complete economic paralysis by extreme currency inflation. No country remains now with its currency based on a gold standard, not even the United States of America. True, you can exchange dollar bills for gold at Washington, but then you lose by the transaction. The United States has over-bought gold and is still accumulating and hoarding gold—at a loss. If all America’shoarded gold were minted and circulated, the value of the dollar would fall. The American dollar is the extreme case of deflation, as the exploded German mark was the extreme case of inflation.
Now whatMr.Keynes wants the world to do is to scrap gold altogether as a monetary standard and to substitute a “managed” currency. For the present he would have two independent units in the world, the dollar and the pound, because he is sceptical of the Americans and British ever working together without friction—even in so vitally important a matter. In both the United States and Britain he would have the banks and Treasury co-operating to keep in circulation such an amount of currency as would maintain internal prices at a steady level. They would decrease currency if prices fell, and increase it if they rose. He would take the price of a “standard, composite commodity”—so much steel, so much wheat, so much rice, so much rubber, and so on—and he would make that the new standard of value. He believes that the other currencies in the world would finally steady down into fairly stable relations with the “managed” dollar and the “managed” pound. And then we would go on again with our “Private Capitalism,” buying, selling, saving, investing, competing, as we did in the happy days before the war.
But there are certain curious implications in this.Mr.Keynes seems to recognise them and yet not give them their full value. The underlying assumptionof Private Capitalism is that human beings will work better for gain, will show more enterprise and industry for profit, than for any other motive. But here, at the heart of the system,Mr.Keynes proposes to establish a disinterested group of managers, bankers, and officials who are not to accumulate private fortunes, though they could do so very easily by playing with the fluctuations of prices, but with a single-hearted devotion are just to maintain them for the public good. He seems to realise the difficulty here. He insists at several points that a system of Private Capitalism cannot survive without moderation; that if private enterprise will insist upon gambling upon the exchanges and working for profits regardless of any other consideration, the whole system must collapse. But if we are to rely upon the spirit of service and not upon the incentive of gain in our banks and Treasury officials, why should we not rely upon it generally? If currency can be “managed” in the public interest by men working, not for profit, but for service, why not also the production of staples and land and sea transport? But a system of economics run on the motive of service is not individualism at all; it is Socialism.
I think that in the long runMr.Keynes will be forced to realise this. A “managed” currency is a long step towards a deliberately organised world. The gold standard was the standard of individualenterprise and go-as-you-please. The gold standard has failed and passes. Unless human society is to fail also, the age of scientific management is close at hand.