OH. I

17

THE CLASSIFICATION OF MONEY

new era of management methods with the Act of 1844.This Act was compounded of one sound principle andone serious confusion. The sound principle consistedin the stress laid on the limitation of the quantity ofthe representative money as a means of ensuring themaintenance of the standard. The confusion lay inthe futile attempt to ignore the existence of Bank-Money and consequently the inter-relationships ofMoney and Bank-Credit, and to make Representa-tive Money behave exactly as though it were Com-modity Money. Indeed the confusion was so seriousthat it would probably have led to an actualbreakdown if it had not been for a second soundprinciple which, whilst not actually embodied in theAct, swam into the consciousness of the best practicalfinanciers at about the same date, namely theprinciple of Bank-rate. The efficacy of Bank-ratefor the management of a managed money was agreat discovery and also a most novel one—a fewyears earlier the Bank of England had not hadthe slightest understanding of any connection be-tween bank-rate policy and the maintenance of thestandard.

The gradual evolution of bank-rate policy underconditions, in London , peculiarly well adapted to it,coupled with a prodigious growth of Bank-Money ,characterised British monetary developments for thenext seventy years. But, whilst the practical efficacyof bank-rate became not merely familiar but an articleof faith and dogma, its precise modus operandi andthe varying results to be expected from its applica-tion in varying conditions were not clearly understood—and have not been clearly understood, in myopinion, down to this day.

Meanwhile other variants of Managed Money werecoming into vogue, particularly those which have beendiscussed under the generic name of ExchangeStandards, of which the Indian Rupee has been the

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