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the contents of this valuable monograph. The monograph is not on sale, and yet every economist and modern economic historian should have it. It gives him for his study of the economic life of a century ago quantitative results of a kind not always accessible in equal bulk and precision, for his study of contemporary affairs. Might one appeal to Harvard to reprint and put it on the market ? Few of us can find $100 per annum and so acquire it as subscribers to the Harvard Economic Service.

J. H. CLAPHAM

Money: its Connexion with Rising and Falling Prices. By

EDWIN CANNAN. (P. S. King & Son, Ltd. 4th Edition. viii + 106 pp. 38. 6d. net.)

It is one of the very agreeable consequences of what Dr. Cannan calls the “ very tolerable compromise” between the boom prices of 1920 and those of the pre-war era that the present edition of Money should contain twenty more pages of most interesting matter than did the third edition of 1921 and yet be sold at the same price. For all that, the present reviewer regrets the omission of some of the contents of the previous edition, e.g. the section there headed “ Erroneous Explanations of the Rise of Prices in 1914–20.” It is by no means clear that the attribution of the rise in prices to increase of bank deposits “ has now been so completely discredited ... that to go on refuting it would be flogging a dead horse.” Is not the dead horse of Dr. Cannan's phrase the gallant steed upon which the author of a Tract on Monetary Reform is seated at the present moment ? Be that as it may, Dr. Cannan's new edition is important upon two grounds.

Firstly, it contains the substance of the important paper on “ The Application of the Apparatus of Supply and Demand to Units of Currency" which appeared in this JOURNAL in December 1921. In incorporating the distinction between intension and extension of demand into monetary literature, Dr. Cannan has permanently enriched monetary science, although the germ of the later treatment of the point was already contained in the remarks upon elasticity of demand for coin on pp. 18-19, the importance of which had been somewhat overlooked. Secondly, Dr. Cannan has supplied, in his new section on “Banks and Prices (pp. 79–85) an important criticism of the view that bank deposits are “money," and shows that the aggregate money spending is not increased if deposits lent to banks are re-lent by them. If the opposite view is taken, one is forced to suppose that banks“ make something out of nothing, and the only wonder is that they use their power with extraordinary moderation." Of course distinguished authorities do attribute these miraculous powers to banking institutions, their moderation being explained by the fact that bankers must maintain a conventional ratio between “cash ” and deposits. But these authorities have evidently not fully grasped the lesson of Germany, where unparalleled increase in cash reserves has not resulted even in a proportionate increase of deposits—due to the fear of depositors that bank deposits were not “ wertbeständig” even for short periods—whilst in Austria the cessation of inflation has led to renewed confidence and to a rise in deposits. If there is anything in the idea that “cash " limits deposits, instead of deposits determining the volume of cash which bankers find it desirable to retain, the whole recent banking experience of Austria and of Germany should have been the reverse of what it actually was.

Dr. Cannan throws light upon the real nature of bank deposits by an ingenious simile based on the death duty returns. Loans by and to banks would not “cancel out " if everyone died at the same time : those in credit at their banker would have a taxable credit balance, those indebted to bankers would have an estate equal to the difference between property acquired by the loan and the loan itself, provided they possessed no other property at all. This estate would of course be negative if the value of the property had fallen below the value of the bank loan.

The influence which bankers exert on prices is due, according to Dr. Cannan, to changes which their varying demands for cash exert on the value of money When bankers increase their cash balances they increase the demand for money, and this tends to lower prices. Lower prices will result even if the total stock of cash in the community remains the same, because, as the author points out expressly in another connection, “ we must not expect to find evidence of increased or decreased willingness to hold currency in actually increased or decreased stocks of currency. If the total is a fixed amount it cannot vary in that way. The evidence is to be looked for in the fact that more or less goods are actually being given for the unit of currency. We can have an increased and a decreased demand for houses without finding any alteration in the number or size of houses.In the particular case of bankers, increased willingness to hold currency shows itself in a rising bank-rate.

In a rewritten third section dealing with “ The Recent Histori

cal Experience " the author deals with the Cunļiffe Report and the wisdom of the policy pursued since the issue of the famous Treasury Minute of December 15, 1919. Dr. Cannan believes that the evils of deflation are in any case less than those of inflation : what inconveniences there are “must be regarded in the same light as those which a spendthrift or a drunkard is rightly exhorted by his friends to face like a man.” Further, stabilisation at or near the level of highest prices was impossible : the mere: cessation of inflation was quite sufficient to cause a slump. Finally, as already indicated, Professor Cannan thinks that, as the value of gold is still much below pre-war level, a return to gold payments is a “very tolerable compromise."

The London and the Cambridge schools of economists are engaged in fruitful co-operation in many fields of intellectual endeavour : over currency theory and policy they meet in battle. Each school is fortunate in the possession of a leader of brilliance : how happy the country which in the pursuit of monetary truth can draw upon a controversial literature rich in wit as well as wisdom !

T. E. GREGORY

Valutafrage und öffentliche Finanzen in Deutschland. Von

WALTER LOTz. (Schriften des vereins für Sozialpolitik. 164

Band.) (Munich : Duncker und Humblot. 1923. Pp. 118.) Markkurs, Reparationen und russisches Geschäft. Von JULIUS

WOLF. (Finanz- und Volkswirtschaftliche Zeitfragen. 81 Heft.)

(Stuttgart : Ferdinand Enke, 1922. Pp. 81.) Germany and Her Debts : A Critical Examination of the Reparation

Problem. By L. L. B. ANGAS. (London: Harry J.
Simmonds, 1923. Pp. xxviii + 158.)

The indemnity question threatens the economist with a new and alarmingly prolific literature. And yet, from the economic standpoint, the issue is simple enough. Given a certain population, with a given standard of skill and a certain store of inherited and accumulated wealth, how much can that population be induced to provide in the way of tribute ? Two essentially practical points rise : the willingness to pay and the capacity to produce, and the means to maximise both. The determination of these issues by politicians requires, so it seems, an endless series of conferences, “all successful,” an expensive advisory and supervisory body of experts, immense expenditure on forces of occupation, armed and unarmed, and, lastly, an infinite incapacity for seeing that you cannot eat your cake and have it.

The books under review are primarily concerned, not with the productive aspects of the indemnity, but with its currency side. Haye, the Allies ruined the mark-currency by their folly, or have the Germans ruined their currency in order to evade the payment of Reparations ? This is equivalent to the issue : supposing the Allies not to have demanded any Reparationspayments at all, would the mark be in its present position ? The answer depends on the assumptions made as to the tax policy of the German Government. The mere absence of a certain type of expenditure does not necessarily prove that the remaining expenditure would have been covered by taxation, other than that involved in any case in inflation. The temptation to lighten the burden of direct taxation by reducing the real value of national debts is one which is not easily resisted, especially by a revolutionary Government. But however that may be, it is clear that a Government subject to a process of constant terrorisation, and asked to provide large sums in a relatively short time, is hardly likely to in a position to exercise philosophic discrimination as to the sources of revenue. Thus, although it is impossible to measure the magnitude of the responsibility of Allied statesmanship, it is clear that this has been a considerable contributory factor in the present collapse, which looks like solving the whole issue in a very drastic fashion. (Written at the beginning of October.)

Prof. Lotz is one of the relatively few German economists who have not been led into monetary mysticism under the influence of Knapp's theories. His little book in the space of 117 pages, deals fully with the history of the indemnity question up to the spring of 1923, and is therefore valuable in bringing the sordid tale more or less up to date. Here he offers nothing essentially new, though for English readers it will be useful to have in fair detail the German as well as the Allied version of what Germany has paid.

The author is critical both of the German financial policy and of the stabilisation schemes propounded in the autumn of 1922 by the international experts. The German funded debt is being reduced whilst the floating debt is enormously increased (p. 8); the technical advice proffered to German statesmen has at times been most unsatisfactory (p. 48); there is a great deal to be said for the view that a return to gold payments or a gold exchange standard in 1918 would have prevented most of the financial difficulties from which Germany has since suffered. This is no doubt true : the only question is whether such a step was likely to have been successful in view of the political situation, and though Prof. Lotz is clearly of opinion that such a policy should have been attempted, he does not deal directly with the chances of its success, had it been tried. It would certainly have brought the question of Germany's real capacity to pay to a head almost at once; but it would have prevented Germany's fictitious prosperity being made the basis of inferences unfavourable to Germany's good faith, whilst it might have smoothed the way to an international loan. Further, whatever open taxation might have been enforced, it could hardly have equalled in savage effectiveness the taxation borne by the middle classes since 1918 through inflation.

The Commission of International Experts is criticised in the following terms : “ The reports of the foreign experts are in error in depriving the Reichsbank of part of its gold: in not thoroughly disposing of the non-interest-bearing floating debt of Germany: in the proposal to create a special institution as currency-office or gold-bank, thereby interfering with the unity of action of the Reichsbank; lastly, in that an end is not made of the abuse of the Darlehnskassenscheine ” (p. 110). This summary does not do justice to Prof. Lotz's criticisms, of which a word more must be said. He stresses particularly the impossibility of the cessation of note-issue against Treasury Bills unless the bank is previously solvent, but this would be impossible unless the bank is relieved of the Treasury Bills it already holds. But an internal consolidation of the floating debt is impossible, “ for if this consolidation were to take place from within, through Germany herself, this would mean that then the paper mark would be exchanged for an infinitesimal amount of its face value in gold. Such a drastic devaluation in a country with a highly developed credit system is a barbarity and a partial state bankruptcy.” The reform should therefore be undertaken by means of a foreign loan. The Empire should convert its bills into five-year dollar bonds, “ with the co-operation of a guarantee Syndicate in New York, London, Amsterdam, Scandinavia and Switzerland, which should buy mark-notes and transfers on Berlin at a fixed rate, the total proceeds of the new interestbearing dollar loan to be used to buy back from the Reichsbank and in the market the total floating non-interest-bearing debt in paper marks at face value. The Reichsbank would receive foreign bills in place of Treasury Bills. The paid-in banknotes and the assets of the consortium intended for the extinction of the floating debt would be used to diminish the liabilities of the

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