The more the view regains ground that general business fluctuations are to be explained by reference to the credit policy of the banks, the more eagerly are ways sought for by which to eliminate the alternation of boom and depression in economic life. It was the aim of the Currency School to prevent the periodical recurrence of general economic crises by setting a maximum limit to the issue of uncovered banknotes.

Irving Fisher’s scheme is symptomatic of a tendency in contemporary currency policy which is antipathetic to gold. There is an inclination in the United States and in Anglo-Saxon countries generally to overestimate in a quite extraordinary manner the significance of index methods. In these countries, it is entirely overlooked that the scientific exactness of these methods leaves much to be desired, that they can never yield anything more than a rough result at best, and that the question whether one or other method of calculation is preferable can never be solved by scientific means.

9. The Gold-Exchange Standard29

Peel’s Bank Act, and the ideas on which it was based, still sets the standard by which credit policy is ultimately governed nowadays; even those countries that do not follow the example of the English bank legislation, or do not follow it so faithfully as others, have yet not been able to withstand its influence altogether. Here we are confronted with a strange phenomenon.

The most obscure and incorrect concepts are current concerning the nature of the discount policy of the central banks-of-issue. Often the principal task of the banks is said to be the protection of their cash reserves, as if it would pay them to make sacrifices for such an aim as that.

4. The Gold-Premium Policy11

The legal provisions which have permitted the Bank of France to follow the gold-premium policy were absent in those countries which until recently were on a pure gold standard.

In the returns of the Bank of France it has been repeatedly asserted that the gold-premium policy was directed only against those who wished to withdraw gold from the bank for speculative purposes.

The endeavors of the central banks-of-issue to build up as large gold reserves as possible have led to the employment of devices which have just the opposite appearance to that of the premium policy and the systems similar to it. By raising the price they paid for gold imports the banks used to try to diminish the cost to the importer of importing gold and so to reduce the lower gold point.

In Germany, where before the war relatively very much gold was in circulation, there was a constantly growing endeavor to withdraw it from circulation by an extension of check and clearing transactions and to divert it into the vaults of the Reichsbank. The aim of this propaganda is set forth in a circular of the elders of the Kaufmannschaft of Berlin, s.d.