20

A TREATISE ON MONEY

BE. I

jective standard. The cases of “ official support ”and of “ pegging ” of rates of exchange, variablefrom time to time, during the post-war period ofEuropean currency collapse are well-known examplesof this.

Finally, just before the war, there came into beingthe greatest managed system which the world has yetseen—the Federal Reserve System of the UnitedStates , a system which was mainly borrowed at itsinception from the British system but has since beendeveloping along new and original lines of its own—though what, precisely, these are to be is still a matterof some doubt and controversy.

As regards the British System, in the form in whichit has emerged, by virtue of the Currency Act of 1925,out of several years of Fiat Money, it is still too soonto speak. One definite change, however, is pmbodiedin the Act — the British currency is no longer acomposite system. Pre-war commodity money, inthe shape of the sovereign, has not been restored;Ricardo’s proposal of a hundred years previously hasbeen adopted; and sterling is established by law asa pure Managed Money.

The controversy which preceded the restorationof the Gold Standard in Great Britain was believedby many people to concern the question whethersterling should be henceforward a Managed Moneyor an “ automatic ” money. But this was a mis-apprehension. Unless “ automatic ” money means amoney rigidly linked in quantity to the supply of“ commodity ” money, it means nothing; and ofthis there was no likelihood or possibility. The mis-apprehension occurred because the public knew nothird alternative between the Fiat Money of thepost-war period and the Commodity Money of thepre-modern age. Nevertheless it was precisely thisthird form which was certain to be adopted, what-ever decisions might be made on other matters —