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ESSAYS IN PERSUASION

PART

orthodox doctrine, when prices are too high inA as compared with B, gold flows out from Aand into B, thus lowering prices in A and raisingthem in B, so that an upward movement in B’sprices meets half-way the downward movementin A’s.

At present the policy of the Bank of Eng-land prevents this from happening. I suggest,therefore, that they should reverse this policy.Let them reduce the bank-rate, and cease torestrict credit. If, as a result of this, the “bad”American money, which is now a menace to theLondon Money Market, begins to flow backagain, let us pay it off in gold or, if necessary,by using the dollar credits which the Treasuryand the Bank of England have arranged in NewYork. It would be better to pay in gold, be-cause it would be cheaper and because the flowof actual gold would have more effect on theAmerican price level. If we modified the ruleswhich now render useless three-quarters of ourstock of gold, we could see with equanimity aloss of £ 60,000,000 or £70,000 ,000 in gold—which would make a great difference to con-ditions elsewhere. There is no object in pay-ing 4J per cent interest on floating Americanbalances which can leave us at any moment, inorder to use these balances to buy and hold idleand immobilised gold.

Gold could not flow out on this scale, unlessat the same time the Bank of England wasabandoning the restriction of credit and wasreplacing the gold by some other asset, e.g.