Monetary Reform

Citation preview

i

pra

a

|

;

iz ee

BY THE SAME AUTHOR |

i

ei)

ae

—™S

‘THE ECONOMIC CONSEQUENCES OF THE PEACE Pp. viii + 298.

8

oc

1920.

A REVISION OF THE TREATY

$2.50

Pp. viii + 242, 1922. $2.00

fA

if

:

MONETARY

REFORM

BY

JOHN FELLOW

MAYNARD OF

KING’S

COLLEGE,

KEYNES CAMBRIDGE

Ab NEW

HARCOURT,

YORK

BRACE AND 1924

COMPANY

COPYRIGHT, 1924, BY HARCOURT, BRACE AND COMPANY, INC.

PRINTED IN THE U.S. A. BY THE QUINN & BODEN COMPANY

3

RAHWAY, N. J

:

‘

PREFACE WE leave Saving to the private investor, and we encourage him to place his savings mainly in titles to money. We leave the responsibility for setting Production in motion to the business man, who is mainly influenced by the profits which he expects to accrue to himself in terms of money. Those who are not in favor of drastic changes in the existing organization of society believe that these arrangements, being in accord with human nature, have great advantages. But they cannot work properly if the money, which they assume as a stable measuring-rod, is undependable. Unemployment, the precarious life of the worker, the disappointment of expectation, the sudden loss of savings, the excessive windfalls to individuals, the speculator, the profiteer—all proceed, in large measure, from the instability of the standard of value. It is often supposed that the costs of production are threefold, corresponding to the rewards of labor, enterprise, and accumulation, But there is a fourth cost, namely, risk; and the reward of riskbearing is one of the heaviest, and perhaps the Vv

11647

vi

PREFACE

most avoidable, burden on production. This element of risk is greatly aggravated by the instability of the standard of value. Currency Reforms, which led to the adoption by this country and the world at large of sound monetary principles, would diminish the wastes of Risk, which consume at present too much of our estate.

Nowhere do conservative notions consider themselves more in place than in currency ;yet nowhere is the need of innovation more urgent. One is often warned that a scientific treatment of currency questions is impossible because the banking world is intellectually incapable of understanding its own problems. If this is true, the order of Society, which they stand for, will decay. But I do not believe it. What we have lacked is a clear analysis of the real facts, rather than ability to understand an analysis already given. If the new ideas, now developing in many quarters, are sound and right, I do not doubt that sooner or later they will prevail. I dedicate this book, humbly and without permission, to the Governors and Court of the Bank of England, who now and for the future have a much more difficult and anxious task entrusted to them than in former days. J. M. Kryness. October 1923.

CONTENTS PAGE

BORA OMA

wee

ae

a

CHAPTER

I. As Affecting Distribution i the dnvesting, Class... 2. The Business The

Earner

AND

CHANGES

I. Inflation as a Method

3

A

.

:

:

;

y

eral

“

:

;

:

5

3

3

.

.

«

.«..:

IN THE VALUE

of Taxation

CHAPTER

OF MonEy

.

:

.

46

-

.

46

.

;

69

.

81

ee, a ci . . . .

ach es 116 125

III

Tue THEORY OF MONEY AND OF THE ForEIGN ExcHANGES The The The The

Quantity Theory of Money. . Theory of Purchasing Power Parity. Seasonal Fluctuation. . . . Forward Market in Exchanges. .

vii

31

3886

II

II. Currency Depreciation versus Capital Levy

I. II. III. IV.

7 if

ar

Class

CHAPTER FINANCE

IN THE VALUE 5 . J F

es en > ss,

a7- As Affecting Production.

PuBLIC

ae

I

THE CONSEQUENCES TO SocIETY OF CHANGES or MoNnrEY ‘ c a : Z

3.

Eo a

Vili

CONTENTS CHAPTER

ALTERNATIVE I.

II. III.

AIMS

IN Monetary

Devaluation

versus

IV

PoLicy

Deflation

III.

INDEX

$

:

a.

PAGH 152

.

164

167

The Restoration of a Gold Standard.

PosirivE SUGGESTIONS MONEY Z I.

.

:

Stability of Prices versus Stability of Rxciaiee .

CHAPTER

II.

i

Great

Britain

The United Other

3

FOR

;

=

3

reap

erie

REGULATION é 4 A

OF .

192

V

FUTURE r 2

d

3

:

;

P

A

‘

Z

?

«

2193

‘

:

,

‘

‘

5

3

als

;

;

3

:

.

:

«221

:

’

“a

a

:

-

»

States

Countries

Z

THE

.

5

.

4

223

[I have utilized, mainly in the first chapter and in parts of the second and third, the material, much revised and re-written, of some articles which were published during 1922 in the Reconstruction Supplements of the Manchester Guardian Commercial.—J. M. K.]

CHAPTER

I

THE CONSEQUENCES TO Socinty of CHANGES IN THE

VALUE

OF MONEY

Monzy is only important for what it will procure. Thus a change in the monetary unit, which is uniform in its operation and affects all transactions equally, has no consequences. If, by a change in the established standard of value, a man received and owned twice as much money as he did before in payment for all rights and for all efforts, and if he also paid out twice as much money for all acquisitions and for all satisfactions, he would be wholly unaffected. It follows, therefore, that a change in the value of money, that is to say in the level of prices, is important to Society only in so far as its incidence is unequal. Such changes have produced in the “past, and are producing now, the vastest social consequences, because, as we all know, when the value of money changes, it does not change equally for all persons or for all purposes. A man’s receipts and his outgoings are not all modified in one uniform proportion. Thus a change in prices and rewards, as measured in money, generally affects different classes unequally, transfers wealth 3

4

MONETARY

REFORM

from one to another, bestows affluence here and embarrassment there, and redistributes Fortune’s favors so as to frustrate design and disappoint expectation. The fluctuations in the value of money since 1914 have been on a scale so great as to constitute, with all that they involve, one of the most significant events in the economic history of the modern world. The fluctuation of the standard, whether gold, silver, or paper, has not only been of un-

precedented violence, but has been visited on a society of which the economic organization is more dependent than that of any earlier epoch on the assumption that the standard of value would be moderately stable. During the Napoleonic Wars and the period immediately succeeding them the extreme fluctuation of English prices within a single year was 22 per cent; and the highest price level reached during the first quarter of the nineteenth century, which we used to reckon the most disturbed period of our currency history, was less than double the lowest and with an interval of thirteen years. Compare with this the extraordinary movements of the past nine years. To recall the reader’s

mind to the exact facts, I refer him to the table on the next page. I have not included those countries—Russia, Poland, and Austria—where the old currency has

EFFECT

OF

CHANGES

IN VALUE

OF

MONEY

9)

long been bankrupt. But it will be observed that, even apart from the countries which have suffered revolution or defeat, no quarter of the world has escaped a violent movement. In the United States, where the gold standard has functioned unabated, in Japan, where the war brought with . it more profit than liability, in the neutral country of Sweden, the changes in the value of money have been comparable with those in the United Kingdom. INDEX

NUMBERS

a

gei/3n/ Be ae Se

OF WHOLESALE PRICES EXPRESSED PERCENTAGE OF 1913 (1).

eile] 3 Ss

ibe!

£

-

=

a

5

a

2/2] =|