value of this unit following the value of gold. But the essential point in Fisher's system is that the price of gold should not be fixed. The necessary stability should be given to the monetary unit by fixing the price of the mass of commodities comprised in the calculation of the index-number. Clearly, gold has nothing to do with such a standard, and the quotation of its price by the bank would be of no use from the monetary point of view except so far as it could facilitate payments to other countries. But this end could just as well be attained by a quotation of the exchanges on these countries. Only for payments to lessdeveloped countries still desirous to have gold could a quotation of gold perhaps be of some use.

Professor Fisher's plan means, therefore, in principle, the ultimate abandonment of gold as a monetary standard. If we wish to retain gold as basis of our money we certainly must fix the price of gold in our monetary unit. But if we, at the same time, wish to keep the general level of prices as constant as possible, we must take measures to regulate the value of gold, and we then come to the regulation of the monetary demand for gold proposed above. Having regard to our bad experiences with paper money in recent years, most people would probably find it highly desirable that the paper money of the future should be redeemable in gold at a fixed rate. For payments to other countries this guarantee would without doubt be of real importance. A redemption at a variable rate would never present the same degree of security, at least not in the eyes of the public.

Of course, the advantage of a stable value of gold could not be had for nothing. In periods of superabundant supply of gold the central banks would have to buy up large quantities of gold, and in a corresponding degree to diminish their income-yielding assets. They would thereby suffer a loss of income. From the point of view of social economy a stabilised value of gold would mean, at such periods, an unnecessary and therefore wasteful extension of the production of gold. The system of Professor Fisher has the advantage of discouraging, in periods of abundant supply, the production of gold by lowering its price. But, leaving the possibility of very great new discoveries of gold out of consideration, we have rather, as is shown above, to reckon for the future with a growing scantiness in the supply of gold. Under such circumstances, it is a distinct advantage to cut down the monetary demand for gold instead of keeping up a very uneconomical production by raising the price of the metal.

Under a growing scarcity of gold it would perhaps ultimately

seem impossible for the central banks to reduce further their gold holdings. They would then probably find it expedient, in order to avoid a fall in the general price-level, to raise their price of gold. This would mean the victory of the Fisher system. But, as I have already explained, there is no reason to believe that such a system could be anything more than a transitional stage to a definite abandonment of gold as a monetary standard.

It is often believed that we might check the present inflation by simply reverting to work and bringing up the world's production to its old level. Some people even go so far as to expect a complete restoration of the old purchasing power of money by keeping the present supply of means of payment unaltered while an increasing production grows up to a level with it. But this would be rather a slow process. With a normal rate of progress of, say, 3 per cent. a year, it would take thirty-one years to overcome an inflation of 250 and nearly thirty-eight years to fill up the abundance of money in a country where the inflation has reached 300. To put an artificial restraint on the world's supply of means of payment during such a period is clearly quite out of the question. Besides, the continued fall in the general level of prices which would be the result would, of course, hamper all enterprise and cause a severe economic depression. Under such circumstances it would be vain to expect that normal progress of the world's production on which the whole plan- rests. We must, therefore, without doubt, in the main take the present level of prices in the actual gold standards, e.g., in the United States, as given, and adjust our monetary demand for gold so as to keep up this level of prices.

DJURSHOLM, SWEDEN, January, 1920.

GUSTAV CASSEL

I must use this opportunity for an answer to some remarks by Miss Van Dorp in the last number of this JOURNAL. She attacks me for holding the popular view that an export-surplus must cause the money of a country to rise in value in foreign places above its purchasing-power parity. But I have never said that and never thought that. On the contrary, I have directed, during all the years of war, a considerable part of my scientific work to efforts to destroy the popular fallacy that the movements of the exchanges could be explained by the balance of trade. The exchanges are, according to my theory, determined essentially by the purchasing-power parity between the monetary standards compared. A deviation from this purchasing-power

parity is possible on two main grounds: (i) The prices of the goods exported from a country may not truly reflect the general price-level of that country. If they, e.g., have risen more than this level, the money of that country will probably be valued abroad somewhat lower than would correspond to its purchasingpower parity. Thus the exceedingly high price of export coal in England probably is the main cause of the undervaluation of sterling in Sweden which existed during 1919. Miss Van Dorp touches this point on p. 501, but does not further develop it. (ii) Every one-sided interference between the trade of two countries, e.g., prohibitions of exports or of imports, custom duties, etc., must cause the rate of exchange to deviate from its purchasing-power parity. Miss Van Dorp does not seem to have understood this most important cause for a deviation of an exchange from its purchasing-power parity. At any rate, her quotation on this point of my article in No. 112 of this JOURNAL is quite misleading. Her objections against my views on the connection between inflation and the increase of paper money (p. 501) are, to say the least, unnecessary. Of course, I have never denied that a reduction of the "consumption stock" to the half would have the same influence on inflation as a doubling of the stock of money. But I have emphasised, during the war, the overwhelming influence of the abundant supply of money, and that for the simple reason that where the stock of goods has perhaps been diminished by 20 or 30 per cent., the stock of money has usually been augmented by 200 or 300 per cent. And I still venture to think that it is very important to clear up popular opinion on this point.-G. C.

CLASSICAL PRINCIPLES AND MODERN VIEWS OF LABOUR

SAYS the Peace Treaty: "In fact and in right the labour of a human being should not be treated as merchandise or as an article of commerce." Says Ricardo: "Labour, like all things that are produced and sold, and which may be increased or diminished in quantity, has its natural and market price." Which of these two rival principles is going to hold the field? Before the war we accepted in the main the view that labour was a commodity, fundamentally akin to merchandise and articles of commerce, that it was bought and sold, and that the payment made for it, like the payment for other commodities, tended in the long run to be equal to its value. Now we have the Peace Treaty denouncing this treatment of labour as an offence against both "fact" and "right." Unless we are prepared to dismiss the Labour Charter of the Treaty off-hand as nothing but sound, designed to allay fury, it behoves us to inquire how far the facts already justify this novel view of labour; what will be the ultimate results of carrying the new policy into effect; what are the conditions essential to its success, and whether these can be permanently maintained. The life of the Treaty has not yet passed the space of the short period. Who knows whether in the long run the Ricardian principle will not find means to revenge itself?

The period of the war has seen certain clearly-marked developments in the remuneration of labour. It has seen, first, a very great rise in money wages; second, a new departure in the practice of adding a bonus, war-wage, or cost of living advance to the basic rates of wages; and, third, the perfection of this policy in the regulation of wages by a sliding-scale governed by an index of the cost of living. This last development has lately acquired special prominence in the popular view by its introduction into the settlement which is to govern the future wages of railwaymen. Each of these influences which have affected the payment for labour in the last six years has an important bearing on the

1 The term "value" is used throughout in its purely economic sense;

without a savour of ethics.

question how far the reward of labour has become divorced from its value in precise terms the value of its net product at the margin. The method of automatic regulation of wages by the movements of the cost of living probably has most significance in this connection, but the rise in wage levels and the prevalence of the bonus idea cannot be ignored. Let us deal with these lesser matters first.

In order to ascertain whether the general trend of wages during the war and after has been such as to be gratifying to the doctrinaire theorist or the reverse, we need to know two things. What movements in real wages do the observed movements in money wages portray? And what are the changes in the value of labour which the general disturbance of economic conditions would lead us to anticipate? If the answers to these two questions bear any similarity, then the time-honoured conception of labour as a commodity is still justified. Those who wish to denounce it must give up the plea of fact and content themselves with that of right. Unfortunately, to ascertain what has actually happened to real wages during the war, still more what have been the movements of demand and supply, would require an immense amount of detailed research into facts, of -which those that are accessible are frequently presented in an incomplete and misleading form, whilst others can scarcely be said to be accessible at all. However, there seems to be a general agreement on rough outlines; if this is a consensus of error, time and riper study will doubtless dissipate the product of human fallibility. In the Labour Gazette of May, 1919, a sketchy attempt was made to summarise the changes in wages which had occurred during the war. The final conclusion reached is that "rates of wages, for manual workers generally, have been more than doubled during the war"; and there is "little doubt" that the general average increase on pre-war rates lies between 100 and 120 per cent. As between trade and trade it is found that the trades which led the way in the grant of successive increases were the munition and transport trades, together with certain other industries (e.g., coal-mining) in which "the supply of labour has been much below the demand." In the building trades a general average increase (weighted in proportion to the numbers of men employed in different occupations) of nearly 110 per cent., reduced perhaps to about 100 per cent. by shortening of hours, is recorded. For "all classes of workers in coal-mines" the figure given is from 110 to 120 per cent. (apparently including the Sankey wage). Iron and steel millmen in the principal districts "have mostly had