228

ESSAYS IN PERSUASION

PART

return of sterling, sooner or later, towards itspre-war parity would be both a desirable anda probable consequence of a sound monetarypolicy on the part of the Bank of England coupled with a less sound one on the part of theFederal Reserve Board .

What has actually happened? In the springof 1923 boom conditions in the United States seemed to be developing; but largely throughthe action of the Federal Reserve Board , themovement was stopped. Since July 1924,however, there has been a strong and sustainedupward movement, which—subject always tothe policy of the Federal Reserve Board —isexpected to go further. The earlier upwardmovement of American prices was duly followedby an improvement in sterling exchange; andthe relapse by a relapse. Similarly, the move-ment of American prices during the past sixmonths has been accompanied by the improve-ment in sterling exchange, which has caught thepopular attention. As Mr. McKenna pointedout, sterling prices have been a little steadierthan dollar prices, and this greater steadinesshas involved, as its necessary counterpart, someunsteadiness in the exchange.

The movement of the past six months, how-ever, has been complicated by abnormal factors.The improvement in sterling exchange is morethan can be accounted for by our monetarypolicy. It is true that short-money rates havebeen maintained at an effective \ per cent abovethose in New York, and that British prices have