The idea of a self-regulating mechanism directly responsible to the needs of trade, either with inconvertible paper or as a supplement to a metallic base, was clearly a false scent. But it was far on in the nineteenth century before there was much overt discussion of the degree of increase desirable even in an ideal closed system, let alone in a world of different moneys and different mechanisms of monetary supply. After the Return to Cash Payments in Great Britain with its intense deflationary pressures, so oddly minimised by the main classical economists, the intellectual energies of members of this school were chiefly preoccupied in this respect either with a rather wooden defence of metallic standards in general against paper heretics, 2 or with controversies concerning the regulation of bank issue with a view to’avoiding financial crises. The gold discoveries of the late forties brought a period of rising prices whose ‘ powerfully beneficial effects’ – to use Jevons’ phrase 3 -on the general temper of economic activity did not escape notice. But it was not until the tailing off of these effects and the apprehensions of gold shortage caused by the abandonment, or prospective abandonment, of bimetallic standards, that speculation concerning the desirability of monetary policies or systems designed to offset such shortage became at all widespread

The great controversy regarding bimetallism, now almostforgotten, is the cra~Ue of subsequent thought on the subject. There are two aspects of this discussion which are especially deserving of notice from the point of view of this survey. First it should be noted that throughout the immediate concern was focused on the value of money rather than on production or employment. The question under discussion was the question of the price level – should policy be directed to procure stable prices or prices gradually falling with productivity? It is true that the justification of policy – at any rate in part – was the effect on production. But this was not the immediate focus.

As for the effects on employment, although these came into the discussion, it is safe to say that few of the participants would have adopted these as the ultimate criterion – not beca”Qse they were indifferent to the ups and downs of employment but because they thought that these had a habit of adapting themselves to more fundamental influences and also, I am bound to add, because they would have thought, if it had been put to them, that exclusive concern with employment to the disregard of the value of money was likely to lead to bad effects both on production and distribution.

The second· point to note about this discussion is its inconclusiveness as regards the final criteria of price movements. In so far as it was concerned with deliberate policy – and of course day-to-day policy as distinct from systems only gradually comes to the fore – there was no recommendation of price inflation. The benefits of an unanticipated rise in price levels and the accompanying profit inflation I were not unrecognised, although not without reserve. But the idea that an announced policy of continuous depreciation would have similar effects was something which has been reserved for the more naive spirits of our own generation.

Mter all it must be remembered that it was this period which saw the publication of Irving Fisher’s Appreciation and Interest – the classic demonstration that in this respect at least while you can fool some of the people some of the time, you cannot fool all the people all the time. But on the relative merits of stability in the price of ultimate commodities or of stability in the prices of factor services therewas no general agreement; and perhaps it is true to say that there is no agreement even at the present time.

It would be beyond the scope ofthese lectures to trace in detail the course ofthe discussion from Marshall and Foxwell and Giffen in its early stages to Fisher and Keynes and Hawtrey in our own day. But perhaps it would be a fair generalisation to say that where distributive justice has been the main criterion, the argument has tended to favour the policy of prices falling with productivity on the ground that it would enable all participants in the economic nexus to benefit from the results of progress; and that where the effects on production have been the chief object in view, the policy of stable prices has been recommended on the ground of its gentle incentive to profit via the loosening of the burden of fixed debt. From the point of view of the theory of development, at any rate as regards the long period, therefore, perhaps the consensus can be regarded as being expressed by Marshall’·s cautious statement, ‘I think the general interests of the country are best promoted by stationary prices.