Ill

THE RETURN TO GOLD

2 53

in the sheltered industries also. The way to dothis will be by credit restriction. By means ofthe restriction of credit by the Bank of England you can deliberately intensify unemployment toany required degree until wages do fall. Whenthe process is complete the cost of living willhave fallen too, and we shall then be, with luck,just where we were before we started.

“We ought to warn you, though perhaps thisis going a little outside our proper sphere, thatit will not be safe politically to admit that youare intensifying unemployment deliberately inorder to reduce wages. Thus you will haveto ascribe what is happening to every conceiv-able cause except the true one. We estimatethat about two years may elapse before it will besafe for you to utter in public one single wordof truth. By that time you will either be out ofoffice or the adjustment, somehow or other, willhave been carried through.”

(ii) The Balance of Trade and the Bank ofEngland

The effect of a high exchange is to diminishthe sterling prices both of imports and of exports.The result is both to encourage imports and todiscourage exports, thus turning the balance oftrade against us. It is at this stage that theBank of England becomes interested; for ifnothing was done we should have to pay theadverse balance in gold. The Bank of England has applied, accordingly, two effective remedies.