bility. While, as we have just seen, the pound has varied considerably in relation to the dollar, sometimes rising, sometimes falling, the mean deviation from the yearly average price level in each of the years 1922, 1923, and 1924 has been less in England than in the United States. In 1922 the mean deviation from the British average was 2.87, and from the American 6.34; in 1923 the figures were 2.37 and 2.99, respectively; and in 1924 they were 2.58 and 2.91. If we take the whole period 1922 to 1924, the respective mean deviations were 4.30 and 4.90. Thus, on the basis of the official index numbers, the price level in England has been more stable during the last three years than in the United States. Measured by the standard of purchasing power, the pound, which is not on the gold standard and has no regular restriction on its issue, has maintained stability better than the dollar, which is based on gold. I have endeavored to explain the meaning of a managed currency and the method of maintaining its value by regulating the quantity of money through the control of credit, and I have shown that during the last three years a managed currency has been kept more stable than one based on gold. We can supplement this favorable view by the further observation that considerable economy is effected by its use, as there is no need to incur the cost involved in buying and holding gold as a reserve. But when so much has been said—and it must be granted that it is a great deal—the case for a managed currency must be regarded as closed. On the other hand, the gold standard has in existing circumstances great and striking advantages. In the first place, it establishes an international measure of value, common to the whole world and universally accepted. It is automatic in its operation, and it relieves the central banks of a responsibility which, notwithstanding our own fortunate experience, might not always be discharged with the knowledge and judgment indispensable for the prosperity of national trade. It is not, however, wholly inelastic. There is still scope under it for an exercise of discretion by the central institution, as we have seen in the recent action of the Federal Reserve Board. In our own country the effect of a movement of gold can to a considerable extent be counteracted by the Bank of England raising or lowering the ratio of reserve to liabilities. But in the present state of knowledge and feeling one of the greatest advantages of the gold standard is its moral effect. A nation will think better of itself, will almost regard itself as more honest, if its currency is convertible into gold. The fear of being forced off the gold standard acts as a salutary check on the extravagance of Governments who might be willing to face a mere fluctuation in exchange, but would not dare to suspend specie payment. It is a real advantage to a nation to have a currency founded upon a value which is universally recognized; it inspires confidence and facilitates international transactions. Even if the gold standard were not preferable for other reasons, its universality would be decisive in its favor. The argument may, it is true, be founded on psychological and not on economic grounds, but it is none the less powerful, as we have not yet reached the stage where economic considerations alone guide us in judging the desirability of any particular method or system. So long as nine people out of ten in every country think the gold standard the best, it is the best. If in the future there were an immense increase or decrease in the output of gold, and consequently a startling rise or fall in prices, reconsideration of the subject might be forced upon public attention, but at present there is no single nation, so far as I know, which is now off the gold standard, that does not regard the return to it as the most desirable of all financial measures. The chairman of the Bank of Liverpool and Martins said, with reference to the gold standard: The most gratifying feature has been the continued and substantial appreciation in the value of sterling in New York. This near approach to parity has caused talk of an early return to a free gold market in this country. There can be no question as to the advantages to be derived from the reestablishment of the gold standard. Such an action on the part of this country would be likely to lead to a similar step being taken by other countries still on a paper basis, and a consequent stabilization of exchanges. It is essential, however, that when the gold standard is restored, it should be on a sound and enduring basis. The economic position will not in itself suffice to keep the exchange near parity, and until hard facts, apart from sentiment, justify the change, it would be premature and unwise to take a step which might have embarrassing results. The large amount to be provided annually by this country for debt repayment to the United States is an enormous weight on the exchange, and it has also to be remembered that there are large American balances employed on this side which -2 might be recalled at any time. We can, however, rest assured that the able financial advisers of the Government will not recommend the removal of the embargo on the export of gold until they are confident that this can be done with safety. The Economist, in its issue for January 24, 1925, summarizes city opinion in the following terms: The sterling dollar exchange this week has made a new record, having risen above 4.80 on Thursday last. With this persistent movement in progress it is not surprising that the annual speeches of the chairmen of our leading banks and discount houses should be devoted to the subject of the gold standard and the problems we have to face if and when parity is restored. One aspect of the question under discussion is whether an early announcement should be made of British policy or whether the exchange should be left to take its course and specific action delayed until the exchange had remained at or about parity for some time. On this question Mr. Goodenough appears to be among those who would like to see an early decision. He asserts that as a result of American investment in Europe, the steady improvement of Britain's public finances, the improvement in the industrial outlook, the disappearance of war stocks, and other considerations "it is certain that sterling will return to gold parity," though no one can foretell the exact date. We must face the question of the gold embargo, and, he adds, "it is of the greatest importance that there should be an early return to a free gold market for London," provided, of course, the necessary steps are taken to insure that parity can be maintained. Mr. Sidney Peel, at the meeting of the National Discount Co., expressed some anxiety as to the difficulties that would be met with when the embargo on the export of gold is removed. "To discount houses frequent changes in the value of money are extremely disconcerting, and rapid rises in the bank rate would make it increasingly difficult to earn satisfactory profits." Similar hesitation is shown by Sir Christopher Needham, of the District Bank. "It would indeed be little short of a disaster if after a return to a gold standard it became necessary in order to protect our gold to raise rates to an extent which might press unduly on commerce.' The speaker thinks it would be equally undesirable to be dependent on the cooperation of the Federal Reserve Board. Mr. Colin Campbell, on the other hand, at the meeting of Alexander's Discount Co., was more impressed with the fact that until a free market in gold is reestablished the financial conditions in this country can not be really normal. "If this year is destined to see this much-desired result brought about we shall indeed be able to assert that another big step forward has been taken in reestablishing the preeminent position which this country has always enjoyed for credit among highly organized communities." GENERAL FINANCIAL SITUATION Through refunding measures the make-up of the national debt has taken on a different appearance in the last 12 months. NATIONAL DEBT AT THE END OF CALENDAR AND FISCAL YEARS The effect of the changes in the principal of the debt upon the interest and sinking-fund charges for service of the debt is shown in the following table: It is the customary practice of British annual financial review to quote the total of the floating debt as of the last day of the calendar year. The result is an incorrect understanding of the nature of this debt, as the total is swollen by heavy borrowings by the exchequer from the Bank of England and from Government departments in order to meet very heavy end-of-the-year payments. At the first opportunity the bank advances are repaid and the floating debt resumes its normal condition, when treasury bills comprise nearly the whole total. For the above reason the floating debt is here quoted for a date three weeks after the beginning of the year. Although the total shows a material decline in the course of a year, it is some £16,000,000 above the figure of March 31, 1924, the end of the fiscal year. Treasury bills are a convenient three months' investment for banks, bought by tender with respect to the particular day of the week, three months later, when they mature. Their total may be reduced through conversion into treasury bonds £16,876,370 of such bonds having been sold during the fiscal year 1924-25 up to January 24. TREASURY BILL RATES GUIDE TO MONEY SUPPLY The bills are offered for tender on Fridays and the average rate of discount gives a good idea of the relative ease or stringency of the money market. During the first six weeks of 1924 the rates rose gradually from about £3 1s. (discount per £100) to £3 11s. Thereupon an almost continuous decline followed to about £2 18s. 4d. in the middle of June, enough below the 4 per cent bank rate to show clearly that the latter was not effective. A sharp rise then followed in the manner already discussed, and for the remainder of 1924 the rate was consistently firm at a rough average of £3 14s., or 3.7 per cent. 1 Total gross expenditure under the 1913-14 budget was £207,817,437. THE BANK OF ENGLAND The statement of the Bank of England at the end of each of the last four calendar years shows little change in the separate items until the year just past. The significance of the changes shown in the last column becomes somewhat clearer upon an analysis that sets credits against loans in a manner to reveal the degree to which the bank responded to business demands for accommodation. CREDITS EXISTING AT END OF YEARS 1922, 1923, AND 1924 Before the war the amount of bank credit, determined in the same way, was £40,268,000. The more important comparison, however, is that between the last three years. Two years ago the bank credits were 5.5 per cent greater than those of 1922, while 1924 still further expanded credits by 7.6 per cent, which accords closely with the general evaluation of 1924 trade as some 7 or 8 per cent better than that of the year before. Similar calculations applied to leading joint-stock banks shows that the official policy of deflation operated up to the middle of 1923, after which time the slow expansion began. There has been no increase in the bank rate, to aid deflation, since July, 1923. CURRENCY NOTES ACCOUNT A sidelight upon the degree of credit expansion or contraction is afforded by the circulation of currency notes. These "Bradbury" pound and 10-shilling notes were valued at £319,257,000 in December, 1921. A year later the total was £297,478,000, which increased slightly by December, 1923, to £299,070,000. Part of this total is backed by gold or Bank of England notes; the unbacked portion, or fiduciary issue, may not exceed in any one year the preceding year's maximum, on the following basis: The closeness between the last two years indicates that business needs are increasing and that no further reduction may be expected under present conditions. Indeed, the main consideration, in some minds, is how the currency note maximum may be increased beyond the established maximum. The public has found the notes so much more satisfactory than metal and £5 notes that there is little doubt that they will remain in circulation, with gold backing, after restoration of the gold standard. The topic was referred to in an interesting way by F. C. Goodenough, chairman of Barclay's Bank (Ltd.) at the annual meeting on January 21, 1925: The arrangements for a return to a free-gold market will open up the whole question of currency and of the steps that may be necessary to protect the gold held against the notes in circulation. Up to the present it has been found possible, during a period of inactivity and depression, to follow the plan recommended in the Cunliffe report, which limits the amount of currency notes issued and not covered by gold or Bank of England notes, to the maximum amount issued in the previous year. In the year before the recent slump it was found difficult to maintain the rule, and although since then its observance has generally been easy, owing to the conditions that have prevailed, lately it has only been possible to adhere to it through purchases of notes from the Bank of England by the treasury, and this has had the temporary effect of causing a heavy fall in the bank's reserve. If it should be decided to transfer the treasury note issue to the Bank of England at a date earlier than that contemplated by the Cunliffe report, before it should become practicable for the fiduciary issue to be fixed with reasonable certainty, then the present regulations as regards the fiduciary limit would no doubt be continued and would maintain the power to contract the total volume of currency. On the other hand, if expansion were needed and gold were not forthcoming in the ordinary way, except possibly through a very high bank rate for a prolonged period, it would be necessary to make provision for such expansion as would be really needed. It is in the interest of trade and industry that there should be the power of expansion as well as of contraction. THE BUDGET There are several unique features about the budget for 1924-25. It was the first one to be framed by a labor party, although half of the time usually at a chancellor's disposal in the compilation of his |