Monetary Stability. by J. R. BellerbyReview by: W. H. C.Journal of the Royal Statistical Society, Vol. 89, No. 2 (Mar., 1926), pp. 340-342Published by: Wiley for the Royal Statistical SocietyStable URL: http://www.jstor.org/stable/2341321 .

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340 Reviews of Statistical and Economic Books. [Mar.

Dr. Adams holds that the rest must follow. But in his opinion the initiation of prosperity is not a natural outcome from the period of recovery; it is generated then only if there is some special operating factor, e.g. war, new exploitations of natural resources, inventions. Apart from cycles and general secular trend, economic conditions are in a state of rather small oscillations about a position of equi- librium.

Dr. Adams devotes an interesting chapter to summarizing and criticizing other important theories of business cycles. He also deals with possible controls of the cycle by private or public means. His conclusions are not unhopeful, but he feels that the most promising method lies in the restriction, by prior Government enactment, of commercial credit during the period of prosperity.

The book is eminently readable. A. Z.

6.-Monetary Stability. By J. R. Bellerby. xvi + 174 pp. London: Macmillan, 1925. Price 7S. 6d. net.

The keynote of reform in monetary science was struck by the International Economic Conference at Genoa, 1922, when it en- visaged a common standard-that of gold-and the maintexance of the value of each country's currency, expressed in gold, at a stable level, if the economic reconstruction of Europe was to be achieved. In other words, the value of gold, that is, its purchasing power over commodities in general, must be stabilized. As the Conference said, the object would be to centralize and co-ordinate the demand for gold and so avoid wide fluctuations in its purchasing power. Since these dicta were pronounced, the world has learned by bitter experi- ence the power of the monetary factor in its economic problems.

Mr. Bellerby has built his book on these foundations. As he rightly points out, the policy of stabilization is already being tested in practice. The Federal Reserve Bank in the United States is, not avowedly, it is true, but none the less clearly, experimenting with the regulation of credit policy in such a way as to avoid re- straining legitimate trade expansion, whilst at the same time eliminat- ing undue speculation. If this policy is to be extended and followed in other countries, central banks must have a clear conception of their aim. Mr. Bellerby contemplates two alternative systems of price stabilization, and his essay is devoted almost entirely to an examination of their respective merits. Under his first method a definite level of prices-definite, that is, as already existent at some chosen time-would be adopted as the normal level. The policy would then be to hold the price-level at all times as nearly as prac- ticable to that norm. Alternatively, no fixed normal level would be selected and the price-level would be allowed to experience long- period or secular movements. All that would be attempted would be to check short, sharp and abrupt movements whenever the authorities that be regarded them as unhea]thy. In each case the main in- strument of control would be the rate of discount, and the barometer to be -watched would be the economic indices of prices, employment

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1926.] Reviews of Statistical and Economic Books. 341

production, etc. The relative advantages of these alternative methods of stabilization are then examined under six heads, viZ.:-

(i) Ease of application. (ii) Effect on total long-period consumption. (iii) Relationship to current conceptions of social justice. (iv) Influence on industrial and social relations. (v) Expediency from the international standpoint. (vi) Expediency in relation to the Genoa Resolutions for a gold-

exchange standard. Mr. Bellerby concludes that the fixed normal price-level emerges

on balance from these tests as the preferable method. His view rests, as the ultimate case for stabilization must rest, on the test of social justice and the influence of the price-level on industrial and social relations. He bolsters his position on error, however, when he suggests that the private investor is unable to protect himself against currency depreciation when lending to a foreign government in terms of that government's currency. Surely the normal course is that a borrowing government floats its loans in the country where it geeks them in terms of the lender's currency. It follows that the risk of the investor is a risk of movement of value in his own currency, and that is one which investors are usually ready to take. Mr. Bellerby does not perhaps emphasize sufficiently the difficulties of international agreement in any sphere, and especially in the intricate sphere of finance. It may be, as he says, that " the only policy which will be capable of giving general satisfaction will be that which

is capable of clear definition." Unfortunately, clear definition " is the one thing which seems almost unattain-

able when formulating a policy of stabilization. The use of indices of economic welfare is as yet an undeveloped science. Movements, whether regular or irregular, of the immediate past are hard to interpret, and present action designed to influence future events must often be taken largely in the dark. In real life the actual price-level is the resultant of very numerous factors, often disconnected, as a result of which fluctuations will never be eliminated. It is with these minor movements, and particularly with the movements of the prices of separate commodities, that the business world is most concerned. A policy of stabilization must at times provoke much criticism for this reason. The unique position of the Bank of England compared with other central banks is not discussed, nor is the ultimate responsibility of the State as the representative of the community adequately dealt with. Can the immense power contemplated be entrusted to a private concern, of which the virtual executive head may change from year to year ? As the public welfare is undoubtedly concerned, can the State ignore its responsibility ? If gold is to be stabilized in value, a surplus stock must be maintained. The uneconomic expense arising will fall primarily on the central banks, but as this charge is one incurred in the public interest, must it not properly fall upon the State ? There

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342 Reviews of Statistical and Economic Books. [Mar.

is, however, much distrust of State interference, with its risk of political bias. How to eliminate ihese difficulties is the real problerm of stabilization. Mr. Bellerby throws little light on it.

Stabilization will be a plant of slow growth, but the stream of literature on the subject should encourage study, and Mr. Bellerby's book should be welcome to those whose thoughts are first turning to this difficult but fascinating subject. W. H. C.

7.-Financial Reconstruction in England, 1815-22. By A. W. Acworth. 158 pp. London: P. S. King, 1925. Price 8s. 6d. net.

This book is a very good example of how economic history ought to be handled. It is full of. facts, but is not overloaded; for the facts are given significance by being brought into relation with economic theory.

Humanity cannot hope for wisdom except through experience, and it is the function of the historian to interpret experience. It is possible to learn from distant times and places and from conditions apparently quite different from our own. Mr. Acworth's theme, however, gains interest from the fact that it is by no means so remote. It furnishes, indeed, in many respects a striking parallel to the present post-war problems. He has, as he says in his preface, " refrained from pointing comparisons or contrasts with the events of the last seven years," but comparisons and contrasts readily suggest themselves to the reader.

They had their capital levy controversies in those days, free from the taint of socialism, and even from the complication of graduation.

Mr. Acworth gives a clear and interesting account of the notorious sinking fund established by Pitt. He brings out an aspect of the matter which has escaped the notice of other writers. The sinking fund was applied to the redemption of funded debt, and the fresh borrowing by which alone it could be kept supplied often took the form of additions to the floating debt. It was, therefore, not merely futile and a source of loss, but at times was an inflationary influence.

Herein Mr. Acworth finds the explanation of the set-back in the value of the currency after 1816. In the two years 1816 and 1817, " in effect the Government paid off some ?I2 millions (nominal) of Funded Debt by borrowing notes from the Bank of England to the required amount."

Naturally the resumption of gold payments occupies a large part of the book. Some account is given of the proposals for a " managed" currency, particularly of Thomas Attwood's, and then we come to the actual legislation of 1819, embodying Ricardo's ingot plan. Mr. Acworth shows that the plan was not in the event carried out. Whatever the Act of 1819 said, "'it lay with the Directors of the Bank of England, a body of men that Ricardo did not trouble to placate, to make or mar the ingot plan."

The essence of the plan was to economize gold by abstaining from the use of gold coin in circulation, but to maintain gold parity by the sale of gold bullion for export. But there was no economy of

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