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have completely cleared away a difficulty which was often felt, and that too even after the war had been proceeding for some time. This is the fact that a rise of prices attributed to increase of currency was often found on careful inquiry to have preceded that increase. The unbeliever naturally adopted the converse of post hoc ergo propter hoc, and argued ante hoc, ergo non propter hoc, and even alleged that the rise of prices, which he usually ascribed to some quite impossible cause, compelled or called for the increase of currency, instead of being occasioned by it. Nowadays we can see that there is nothing more anomalous in people putting the value of money down some time before an additional issue is made than there is in their putting the value of cotton or wheat down some time before a plentiful harvest. In matters of prices man looks before rather than after. An expected change of prices causes prices to change at once : it is not in the least necessary that the public should have clear or correct opinions about the cause of the rise, but only that they should expect it.

On the demand side the experience of recent years has been even more useful than on the supply side. The old plan was to represent the demand for currency as coming from the people who wanted to sell goods, as if these people wanted money to eat instead of merely as a means for getting other goods or services in exchange. Attention was directed to the quantity of money in actual circulation or passing from hand to hand, in entire forgetfulness of the impossibility of assigning any magnitude whatever to the amount passing at a point of time, a point having itself, as Euclid says, neither parts nor magnitude. The amount passed in a day or a week would have a meaning, but the amount passing at a given moment had none. All this is now completely changed. Hoarders, defined by Mill as persons who keep money in reserve for contingencies which do not occur, and also the much more numerous persons who keep money in reserve for contingencies which do occur, are in the modern view the real demanders of currency, just as the persons who want houses to live in are the real demanders of houses. There is no longer any idea of balancing all the currency against some loosely conceived total of commodities for sale, but a definite conception of each person wanting to hold a sum of currency sufficient to buy her or him (for the “house-keeping money” of the matron is greater than the pocket-money of the master) the collection of commodities and services which she or he is likely to have to pay for in cash before the next replenishment of the holding. I do not contend that this conception was wholly unknown before the war : rummaging among old lecture notes, I find that I was teaching it orally ten years before I put it in a book in 1918. But the currency troubles of the war secured its wide acceptance by experts. They saw that currency depreciation was causing enormous increases in the amount of currency held per head of inhabitants in different countries, while at the same time the purchasing power of this increased holding was greatly reduced. The average German's holding of marks, for example, would increase from say 100 marks to 1,000,000 marks, and yet (owing to the depreciation) this holding would only buy him a collection of commodities about, say, one-tenth as large as the old 100 marks used to buy him. Then the experts would infer, quito justly, that this collection must be far too small for convenience, so that if the fear of further depreciation could by any means be allayed, the holders of currency would try to enlarge their holdings, which would reduce prices if no more currency was printed, or absorb a large amount of new issue without any rise of prices if the press was allowed to go on for a time. This line of argument, which was perfectly borne out as time went on by actual experience, is obviously founded on a basis of looking to holders of currency for the intensification and extension of demand for currency.

Nothing nowadays can be regarded as properly received into the economic church till it has been duly christened after some letter of the alphabet, so we may note that the collection of commodities commanded by the holdings of currency has been named k in Mr. Keynes's restatement of the quantity theory in his equation,

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k being doubtless chosen not for any personal reasons but because it is the same thing as a hard c, and c (which I might for personal reasons prefer) for Collection of Commodities Commanded might be confused with c for Cash or Currency. Mr. Keynes's n stands for the total of currency and p for price-level, so that the equation enshrines the truism that the total of currency equals the money-value of what can be bought with all the holdings of which it consists.

The importance of the new idea lies not in this truism, but in the clearer light which it throws upon causes of appreciation and depreciation of money. Those who used the old apparatus, if they recognised that increasing hoards tended to appreciation, had to regard the increase as tending to diminish the supply or quantity of money, in spite of the fact that every one thinks of the quantity as being shown by the amount outstanding, no matter whether that is held by hoarders or others : it is much simpler to think of the hoarder along with any other holder who is increasing his stock of currency as demanding more currency.

Again, the old apparatus was very unsatisfactory in relation to the effect of increased banking facilities. Such facilities were supposed quite rightly to "economise" money, and so to tend to reduce its value, but how they did it was left in great obscurity. The“use" or employment of money was supposed to be diminished, but why that diminished its purchasing power was unexplained. With the new apparatus we can see at once that the advent of a bank in a place formerly twenty miles away from a bank will straightway diminish the demand for currency by causing the holders in the place to be content with smaller holdings than before, while the bank's holding kept at the command of the customers will be much less than enough to counterbalance this.

To give one more example, the old apparatus was quite insufficient as an equipment for any one who wanted to explain the enormous divergencies between the rates of increase of currency and the rates of depreciation which we have seen in recent years. With the aid of the new conception we can attribute them with ease and certainty to the varying fears and hopes of holders of currency which lead them to try to reduce their holdings to the lowest possible point at one time and to increase them largely at another.

All this improvement, by clearing away difficulties about the relation between quantity of currency and prices, makes it far easier than it was before the war to see that for the maintenance of the value or purchasing power of a currency limitation of supply is essential.

It was for want of our experience that the pre-war theorists never made it plain to the public that the value of their currency was actually kept up by strict limitation of supply. Gold, it is true, could be turned into coin in unlimited quantities by any one who could get it in unlimited quantities, but nobody could do that; there was a limited quantity above ground, and nobody could get more out except slowly and at considerable cost. Paper currency existed, but was limited by various regulations, and over and above those regulations, by convertibility, to the amount which could circulate without falling below the value of the gold it promised to pay. But that the virtue of limitation was not clearly grasped is shown by the persistence with which textbooks continued to assert that the value of our token coins was kept up by limitation of their legal tenderability instead of, as of course it really was and is, by the limitation of their issue to the amount which will circulate at par.

For want of recognition of the necessity of limitation, at the beginning of the war nearly all countries—most of them without the smallest excuse except a desire to be in the fashion---suspended their regulations and convertibility without instituting any other system of limitation or apparently ever thinking that any kind of limitation was necessary. The only difference between the countries was that some allowed their Central Banks to make a profit by lending the additional legal-tender inconvertible notes to private persons as well as to the Government, while others, more prudent, like the Bolshevists and the British, took care that the notes issued should buy commodities and services for the Government only.

The natural consequences followed: the issues grew and grew, and depreciated enormously, and we have not seen the end yet except in the few countries which have returned to gold.

Some limit is absolutely necessary, and the choice for all except currency cranks is between founding the limitation on some parity, old or new, with gold, and founding it on a parity with some collection of commodities such as is summed up in an index-number of prices.

Of these two principles, the second or general-price principle is naturally far more attractive to the monetary theorist as an ideal to be worked for in the future. To tie the purchasing power of money to that of a single metal, though that metal is a very fine one which would be put to an immense number of most important uses if it were less scarce than it is, has been rightly described as an expedient fit only for a barbarous age. But can any one who has lived through the Great War have any doubt that a barbarous age is precisely what we have for the moment to provide for? The cruder and simpler principle may suit us best for the present and the immediate future. We, barbarous mankind, are still divided into suspicious and malevolent tribes, occupying territories which we regard as our tribal properties. There is not the least chance of the various nations agreeing on any uniform system of limitation of currencies by prices which would give us the stability of international exchanges which we possessed before the war. On the other hand, there is every probability of a general return to the gold principle, which would give us that stability. On this I think Mr. Keynes was unquestionably right when he said in the Manchester Guardian Reconstruction Number of April 20th, 1922, “I see no other solution of stabilisation” (international exchange stabilisation, that is) “except this traditional solution—namely, a gold standard in as many countries as possible.”

For the advantage of exchange stabilisation we ought to be prepared to sacrifice a good deal of the other kind of stability, stability of domestic prices between one time and another. Particularly should we be ready to do so if we happen to belong to a small country with a large foreign trade and extensive financial interests outside itself.

But it is difficult to believe that we should in actual fact sacrifice any internal stability by re-adopting the “barbarous" principle of limitation by parity with gold rather than the more refined principle of limitation by general prices. The limitation by gold can be enforced by convertibility in a simple and straightforward way, as it was in the past. I am inclined to admit that the paper pound might conceivably be made convertible in a roundabout way into the large basketful of commodities which serves as the basis for an index-number of prices, but the proceeding would be complicated, unintelligible to the ordinary mind, and liable to be thrown out of gear by changes taking place while the necessary statistics were being made up. It seems to be admitted by the best exponents of the general-prices system that the necessary measures would have to be taken by anticipators rather than by clerks working on statistics collected some days or weeks ago. So long as the anticipators were honest and intelligent and anticipated correctly, things would go well, but we may be permitted to doubt whether on the whole the shortperiod vagaries and the long-period general biases of the anticipators would not more than equal the short and long period fluctuations of gold.

I do not say that gold must for ever continue to be the best possible standard. I am enough of an historian not to believe in the permanence of anything. As soon as we economists have been a little more successful than we have hitherto been in getting elementary ideas into the heads of the public, it will become possible to modify the gold standard either by working on the supply of gold and the demand for it or by altering gold parity with currencies in such a way as to make the standard more stable. Such measures will have greater chance of success if they are taken by a world already on the same standard.

However that may be, one thing stands out as absolutely certain, and that is that to one or other of the two principles of

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