R. JOHN MAYNARD KEYNES has entered the field of economic controversy again; this time with a book under the comprehensive title “Monetary Reform.” He states in his preface that we have hitherto lacked “a clear analysis of the real facts,” but that if “the new ideas, now developing in many quarters, are sound and right” he does not doubt that “sooner or later they will prevail.” This would seem to promise at least some distinct and positive views regarding the manner in which Europe should deal with its depreciated currencies and depreciated foreign exchange rates. The reader will have to examine the book to the last chapter if he wishes to discover whether Mr. Keynes really has any practicable remedy to propose and what it is.

This latest book of Mr. Keynes is marked by the virtues and vices of his previous excursions into political economy. First among its virtues will be placed a clear and simple style which makes his discussion interesting even when his conclusions are unconvincing, and the capacity of analyzing plainly a complicated economic situation (the German paper currency episode, for instance) when that analysis does not encounter some of his pet economic hobbies. First among its vices must be placed his constant habit of dogmatic assertion without proof, his almost complete ignoring of the work of eminent economists of the past, his failure in most of his arguments to support his abstract reasoning with concrete evidence from the actual course of present-day finance, and his perilously close approach to the attitude, not at all unfamiliar in dogmatic economists, of approaching well-known facts with the virtual assumption that, if they do not agree with his theories, then they are not facts and should be ignored.

In no respect is this habit of mind more evident than in this book’s remarks upon the gold standard itself. That standard is a “barbarous relic,” an “outworn dogma.” It “had its value once,” but now it is “remote from the spirit and requirements of the age.” If it could be restored, it would mean “that we surrender the regulation of our \[England's\] price level and the handling of the credit cycle to the Federal Reserve Board of the United States” (page 189). We shall see that his dislike of that board and its policies warps his economic judgment as completely as does his angry feeling against the gold standard itself. As for what the author calls the “regulated non-metallic standard,” of that he triumphantly remarks that “it exists” \[the italics are Mr. Keynes's\]. One seems to recall the same comprehensive argument for submitting to indefinite depreciation, in the speeches against the British Bullion Report when Bank of England notes had depreciated during the Napoleonic wars, also in the Congressional tirades of 1868 against the specie resumption policy and in favor of perpetuating the depreciated dollar.

That this kind of dogmatic assertion and assumption disfigures a book which contains some useful discussion-as, for instance, its analysis of the German Government’s paper-inflation policy (pages 64-68)-the most friendly reader will be forced to recognize. But it may be doubted if its numerous fallacies put it in the class of so-called “dangerous books.” That political privilege is usually reserved for books which declaim about the grievances suffered at the hands of the gold standard, or which propose a new currency policy which is as simple as it is mischievous. Mr. Keynes’s monetary reform policies, set forth in this book, are as complicated and as perplexing to the ordinary reader as are his theories of what is actually happening to the American currency.

No doubt it is Mr. Keynes’s pronouncements on the economic, fiscal and monetary situation in the United States which will most attract interest among American readers of his book. That this situation is remarkable-in many respects highly abnormal and in some wholly unprecedented-most people knew without waiting for Mr. Keynes to tell them.

The flow of gold into the United States from every country in the world, amounting to $1,690,000,000 in the three years 1915 to 1917, inclusive, and to $1,289,000,000 in the three years ended with 1923, has considerably more than doubled the estimated $2,000,000,000 American stock of gold as of Aug. 1, 1914. Mr. Keynes has nothing new to say regarding the causes of this extraordinary economic movement; he does not, in fact, appear to be particularly interested in that question. His discussion consists of a series of assertions as to the policies of American financiers and the Federal Reserve

“Black Friday,” 1873, on Broad Street, Looking From Wall. By Henry Collins Brown. Published at 15 East 40th Street. From “Old New York.”

Board in handling this mass of treasure, and as to the actual meaning of the American situation. “Series of assertions” is quite the only phrase which can correctly describe his treatment of the subject, because he cites no authority or statistical evidence for what he announces as facts, produces no proof for his inferences or arguments, and does not even trouble himself to show by concrete instances whether or not the results which he declares to be unavoidable are in any respect visible in the tendencies of the markets.

A writer who approaches his subject in this spirit-especially a writer who is applying to a foreign country, with whose financial system he is indifferently familiar, a set of preconceived theories-is always likely to make strange work of his exposition. Mr. Keynes achieves that distinction. The Federal Reserve Board, for instance (page 214), “is supposed to govern its discount policy by reference to the influx and efflux of gold and the proportion of gold to liabilities.” But “the theory is as-dead as mutton,” because the board “is influenced, in determining its discount policy, by the object of maintaining stability in prices, trade and employment.”

Yet the testimony before the Agricultural committee of Congress in 1921 established (if it needed to be established for men acquainted with the system’s history) the facts that the discount policy is shaped with no relation whatever to prices; that it is not supposed to be governed primarily even by gold movements; that on the contrary, it has contemplated solely restriction or control of credit at times when, as in 1920, credit has become visibly and dangerously expanded with accompanying excessive demands on the Reserve system’s resources. That prices were extravagantly high when the discount rate went up in 1920 to 6 per cent. and then to 7 and that prices came down afterward nobody disputes. But most well-informed men are aware that the rise of prices in that year to an average 15 per cent. above even that of Armistice Day in 1918 was a consequence of inflated credit, which was indicated by a fall of the New York Reserve Bank’s ratio to 35½ per cent., or less than the minimum prescribed by law. Mr. Keynes makes no mention of that fact.

All past experience of central banks taught that a situation of that nature on the balance sheet of such an institution must be met by advance of the rediscount rate. When, on the other hand, the inevitable bursting of the bubble of inflated credit had relieved the extreme pressure on Reserve Banks, and the reserve ratio had again risen well above the statutory minimum, it was equally in line with age-old financial practice that the discount rate should have been reduced again.

But Mr. Keynes has something more to say of the Reserve Bank’s discount rate. The theory of a discount policy governed by reference to the influx and efflux of gold and the proportion of gold to liabilities \ ** * perished, and perished miserably, as soon as the Federal Reserve Board began to ignore its ratio and to accept gold without allowing it to exercise its full influence, merely because an expansion of credit and prices seemed at that moment undesirable.

Mr. Keynes is fond of dealing in phrases and epigrams without explaining the concrete instances which they are meant to fit. Probably he means, however, that when the in-pour of gold continued, after 1922, the Reserve Banks acted inexcusably in not reducing their discount rate accordingly. We have seen that the rise in the reserve ratio between 1920 and 1922 was actually recognized by sweeping reduction of the discount rate. What Mr. Keynes must therefore mean is that although the system’s reserve ratio, which was 77½ per cent. when the New York bank rate came down to 4 per cent. in June, 1922, and has as high as 82 this year, the rediscount rate has not been lowered. We are not informed what the alternative policy ought to have been. Mr. Keynes has a way of enunciating general principles and ignoring specific proposals. Conceivably he may mean that when the reserve ratio rose after 1922 the rediscount rate should have been progressively reduced to 3 per cent., to 2, to 1. But most well-informed people are aware that it has always been the practice of central banks on such occasions, after fixing a normal rediscount rate-and experience has designated 4 and 4½ per cent. as normal in the American market-to retain such a rate unless open market rates declined so far below it as to put the central lending institution wholly out of touch with the discount market.

The past history of the Bank of England is witness to that policy. In the world-wide reaction of trade and of demand on credit which followed the panic of 1893 that institution did indeed reduce its discount rate progressively from 5 per cent. to 2. But when it first lowered the rate to 1 per cent. open-market three months’ bill had for a week been bringing only 3 per cent. in Lombard Street, and the 2 per cent. bank rate of 1894 and 1895 was accompanied by a “private discount rate” which at no time got above 1½ per cent. and which repeatedly fell below three-quarters of 1 per cent. One wonders if Mr. Keynes (supposing him to be familiar with that chapter of British economic history) considers that the Bank of England’s traditional discount policy “perished miserably.” No one discovered the fact at the time. Yet the Reserve Bank has an even better case. The open-market rate for paper rediscountable at that bank has consistently remained, up to the present writing, above the existing 4½ per cent. rate of the New York Reserve Bank. This March the “best names” in the Wall Street commercial paper market commanded 4¾ to 5 per cent. If legitimate borrowing requirements existed for which the Reserve system’s credit facilities were required, member banks were in a position to rediscount their bills and relend the proceeds to their own customers at a profit.

Most people familiar with banking would have described this as a normal situation. Earlier in this book even Mr. Keynes had spoken (Page 5) of the United States, where the gold standard has functioned unabated:“ But he changes his mind in a later chapter. Here is what happened, from his somewhat imaginative viewpoint, when the Reserve Board, as he puts it (Page 215), “began to ignore its ratio and to accept gold without allowing it to exert its full influence”:

From that day gold was demonetized by almost the last country which still continued to do it lip-service, and a dollar standard was set up on the pedestal of the Golden Calf. For the past two years the United States has pretended to maintain a gold standard. In fact, it has established a dollar standard, and, instead of insuring that the value of the dollar shall conform to that of gold, it makes provision, at great expense, that the value of gold shall conform to that of the dollar.

The italics are Mr. Keynes’s. If they betray strong feeling, it seems to arise, first, from dislike for the gold standard as such, and, second, from irritation that the Reserve Board will not walk into the net which Mr. Keynes spreads in the sight of it. He even hints at the punishments which are awaiting the recalcitrant board. One is “the possibility of that, some day soon, the mints of the United States may be closed to the acceptance of gold at a fixed dollar standard.” The other, doubtless more alarming, is that some Senator might not read and understand this book.“

It might be supposed, after this glance at the numerous misstatements and fallacies which surround Mr. Keynes’s description of the American situation, that his recommendations regarding the proper monetary policy for the world to pursue would be somewhat erratic. But in truth, it is a bit difficult to discover just what he thinks ought to be done. Since he entitles his book “Monetary Reform,” the reader naturally looks for a concrete program of reform. Such a program, whatever its economic merits, Keynes produced in his brief to the Genoa conference of 1922, which the conference promptly rejected. Arguing for the “devaluation” of all the European currencies, he advised the establishment of “guaranteed conversion rates” at which those currencies should be converted into gold. He made his “initial fixed and guaranteed conversion rate” $4.41 for the pound sterling, as against a normal parity of $4.86⅔. For the franc the “conversion rate” was to be 8⅔ cents against parity of 19 ⅓; for the Danish kroner 22.31 cents against 26.8, and so forth.

But of all this we hear nothing in the chapters of “Monetary Reform,” which merely revert to discussion of the academic merits of “devaluation” and the academic demerits of “deflation.” Perhaps the author has lost some of his cock-sure conviction of 1922 that the whole exchange situation could be adjusted by such arbitrary overnight decrees. What he now lays before the reader is, first, an exceedingly complicated plan whereby the Bank of England should arbitrarily fix its buying and selling price for gold once a week and, second, that the Federal Reserve Board should somehow cooperate in “stabilizing” the dollar, “each authority letting the other into its confidence so far as may be.”

As to what this cooperation is to be, Mr. Keynes’s position is obscure. He recognizes the theory (he calls it “the notion”) that America “can get rid of her gold by showing a greater readiness to make loans to foreign countries.” But the notion is “incomplete.” Investment of “real American capital” in foreign securities, he tells us (page 219), will never effect redistribution of the American hoards of gold. If, however, “the United States places a large amount of dollar-purchasing power in the hands of foreigners, as a pure addition to the purchasing power previously in the hands of her own nationals, then no doubt prices will rise and we shall be back on the method of depreciating the dollar, just discussed, by a normal inflationary process.” Mr. Keynes’s philosophy may safely be left to the reader with this flight of economic fancy.