Ill

THE RETURN TO GOLD

*95

not on the value of sterling. It is not easy, itseems, for men to apprehend that their moneyis a mere intermediary, without significance initself, which flows from one hand to another, isreceived and is dispensed, and disappears whenits work is done from the sum of a nation’swealth.

(ii) Stability of Prices versus Stability ofExchange

Since, subject to certain qualifications, therate of exchange of a country’s currency withthe currency of the rest of the world (assumingfor the sake of simplicity that there is only oneexternal currency) depends on the relation be-tween the internal price level and the externalprice level, it follows that the exchange cannotbe stable unless both internal and external pricelevels remain stable. If, therefore, the externalprice level lies outside our control, we must sub-mit either to our own internal price level or toour exchange being pulled about by externalinfluences. If the external price level is un-stable, we cannot keep both our own price leveland our exchanges stable. And we are com-pelled to choose.

In pre-war days, when almost the wholeworld was on a gold standard, we had allplumped for stability of exchange as againststability of prices, and we were ready to submitto the social consequences of a change of pricelevel for causes quite outside our control, con-