Vol. 6 · pages 696–700

681 THE PRESENT PROBLEM IN INDIAN CURRENCY above its present value will mean to every merchant and every manufacturer not only that his product will fetch 76% less, but that he will have to give 76% more to the investing class from whom he borrowed and to the earning class whom he employed. The burden thus imposed upon the active and working elements of society would be intolerable. I must however guard against a possible misunderstanding. No one should imagine that because I am against lower prices I am for higher prices. All I insist upon is that we must not complain against high prices once that level is established. For things having adjusted themselves they are our normal level. A pre-war level would be abnormal and must therefore be rejected. We must therefore choose between 1s. 3 7/8d. and 1s. 6d. As for choosing one or the other of the two we should be guided by what is fair and just. We want that enterprise be helped against accumulation and we probably wish that the rich should go richer. But I am sure none of us wants that the instinct of having, which is the foundation of capital, should be discounted or that poor should go poorer. But this would exactly be the result of a swing towards 1 s. 6d. On the other hand, though we want capital to grow and the poor to fare better yet none of us wants that industry be set at naught. And yet this would be the result of keeping to 1s. 6d. I for myself would choose 1s. 6d. as the ratio at which we should stabilize if we can and for the following reasons. (I) It will conserve the position of the investing and the earning classes ; (2) It does not jeopardize our trade and prosperity by putting any extra burden upon the business class ; and (3) being the most recent in point of time, it is likely to give greater justice to the greatest number of monetary contracts most of which must be recent in time. Fortunately for us we are not dependent upon other countries for the stabilisation of our price level, as we must necessarily be for the stabilization of our exchange. In exchange stabilization we could not even if we would. But in the stabilisation of our prices we could if we would. It would indeed be better if we can stabilize our prices as well as our exchange. But because .other countries cannot, stabilise their price levels there is no reason why we

682 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES should not adopt measures that will give us stable prices at home which is really the most that is to be got out of a currency medium. In my opinion we should stabilize our prices forthwith by linking the rupee to gold at 1s. 6d. sterling. European countries will soon realize that it is insane to reach back to pre-war parities with gold and will learn that in matters of currency the real at any given time is the natural and normal. If they learn this earlier than we expect, we would find them stabilizing their currencies in terms of gold at the existing levels. In that case gold will again begin to function as an international standard of value and we shall have a stable exchange. But if before that we have stable prices in terms of gold it certainly cannot do us any harm. During the course of this controversy there has arisen a new standpoint which would want us to do nothing in the matter of rehabilitation of our currency until we first took measures which should substitute the prevalent system of managed currency by a new system of automatic currency. I have great sympathy with this standpoint, not because I am sure that an automatic currency will always be more stable than a managed currency but because it reminds us that the question ‘ how can we most nearly maintain stability after we have attained it’ is more worthy of our consideration than the question of attaining stability. But to suggest that we must do nothing to stabilize our price level till we have decided between a managed system and an automatic one, is to make hell of the earth because the angels do not consent to make a heaven of it. That was the reason why I thought it was a different matter altogether. Some comments on that might be useful at another time. But not now. zz

6 REVIEW CURRENCY AND EXCHANGES* INDIAN CURRENCY AND EXCHANGE, By H. L CHABLANI, M.A. (Oxford University Press, Bombay) 1925. 8 y 2 x 5 y 2 pp. 184 Rs. 4-8-0 THIS brochure is a poor production. Within the small compass of 180 pages devoted by the author to a hurried treatment of a somewhat complicated subject, there is neither sufficiency of information nor sufficiency of illumination. Methodology is conspicuous by its absence. There are so many contradictions and compromises in his book that it is difficult to know what is the exact position of the author. In one place he says gold cannot be circulated in India because India is poor. In another place he says gold does not circulate in India because there are rupees. After devoting one whole chapter to the discussion of the quantity theory of money— in itself the simplest and the most obvious proposition in Political Economy—he says the rise of the Rupee after 1893 was not altogether due to the limitation of its issue ! Similar contradiction appears in his chapter on Foreign Exchanges. There he contrasts the two theories—namely, the Theory of Purchasing Power Parity and the theory of the Balance of Trade—and gives his judgment in favour of the former as being the true theory. Yet throughout the book he argues on the basis of the wrong theory, namely, the Balance of Trade. Again, in his opening chapter he says that there is nothing absurd in reverting back to the silver standard ! Management of currency is according to the findings of the author, one of the greatest defects in our currency. Yet he recommends a convertible Rupee as the remedy for this evil! * The Servant of India; June 25, 1925

684 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES The compromises which the auhtor makes are witnessed by the fact that he agrees with almost every proposal made for the reconstruction of Indian Currency. He sees good in Dr. Fisher’s plan, in reverting back to the silver standard, and also in an universalised Gold Exchange Standard. Nevertheless, the author has his own pet plan and that is to have a ‘Convertible Rupee’, convertible not in gold coins but in gold bullion only. The author does not disclose it, but it is the plan suggested by Ricardo in his “Proposals for an Economical and Secure Currency”. Fortunately for England it was not adopted. The reasons were simple. To legislate that notes shall be converted into gold bars of certain weight meant that only those who had notes of the value of the gold bars, could convert. The rest could not. In other words, it was felt that such a system would considerably weaken the effect of convertibility and would thereby give an opening to inflation. The proposal was not therefore deemed to be secure enough. The point whether the proposal was economical was not debated upon at the time, and may here be conveniently dealt with ; since there are so many writers in India—and our author is one of them—who, in order to show themselves civilized, indulge in vituperations against what they call the barbarity of using gold as currency. All these civilized writers on currency spend their energy in demonstrating the self-evident proposition which no one disputes that to use paper as a medium of exchange is more economical than to use gold. But these same writers never care to prove that such a plan besides being economical will also be secure in the sense of ensuring stability of prices. A merely economical plan which does not guarantee security is of no use. The plan to be acceptable must be both economical and secure. It will do, if it is not economical; but it will certainly not do, if it is not secure. Now I submit that the proposition that to economize gold as a currency is to impair its utility as a standard of value is as self-evident as the proposition of the civilized writers that to use paper as a medium is more economical than to use gold. For what does this discarding of gold from currency use mean ? It simply means this; that by economising the use of

685 REVIEW gold you thereby increase its supply, and by increasing its supply you lower its value i.e. gold by reason of this economy in its use becomes a depreciating commodity and therefore unfit to that extent to function as a standard of value. It cannot be denied that issues of paper money, or any other substitute for that matter, affect the demand for metallic money. There are no doubt some who make the reservation that the demand for metallic money will or will not be affected by a paper issue according as the paper money is convertible or inconvertible. But this is an error. The test is whether the paper issues are covered or uncovered by a metallic reserve. If they are covered then they will not affect the demand for metallic money. But if they are uncovered, then they will affect the demand for metallic money whether they are convertible or inconvertible. The reason is : covered notes merely represent metallic money ; but uncovered notes add to the stock of value. Therefore you cannot both economize gold and also use it as a standard. If you want to economise gold, you must abandon gold as a standard of value. Besides, in the present day there is no necessity to economise gold, because there is all over the world such a great plethora of money that the less we economise gold the better. From this point of view the Gold Exchange Standard, once a boon, is now a curse. It served a very useful purpose for some time. From 1873 the production of gold had fallen off and the economy effected by the Gold Exchange Standard was indeed very welcome ; because it helped in a period of contraction to expand the money of the countries of the world and thereby maintain the stability of the international price system by preventing the rapid fall in prices, which would have been inevitable if all the countries which established the gold standard had also adopted gold as currency. But after 1910 conditions changed and the production of gold increased, with the result that the continuance of the Gold Exchange Standard thereafter not only did not help the countries to check the rise of prices but actually helped to raise them by causing as a result of the economy in its use a redundancy of the already overproduced gold. The author approvingly quotes Prof. Fisher