CHAPTER XVII 
THE ECONOMIC EFFECTS OF THE RETURN 
TO GOLD IN 1925 
"The re-adoption of the gold standard may prove in the future to have been the 
wrong policy to adopt: revolution may undo again what was done last year, or the 
slower and more subtle modifications which the development of technique can 
bring with it may perhaps make the recent change irrelevant. But for the moment 
bhe fundamental decision, fatal or beneficent, good or evil, has been taken; and we 
are now concerned, not with questions of high principle, but with questions—irri- 
tating, difficult, insistent questions—of immediate policy and results. It is with 
these questions, and not with the gold standard as such, that we are concerned 
aere.”—Prof. T. E. GREGORY, The First Year of the Gold Standard. 
"The credit restriction already in force has been effected in several ways which are 
vartly independent. First, there is the embargo on new issues which probably 
retards the normal rate of the circulation of money; then in March the bank-rate 
was raised; more recently market-rate was worked up nearer to the bank-rate; 
astly—and far the most important of all—the Bank has manceuvred its assets 
ind liabilities in such a way as to reduce the amount of cash available to the 
Clearing Banks as a basis for credit. This last is the essential instrument of credit 
restriction. . . . Credit restriction is an incredibly powerful instrument . . . especially 
n circumstances where the opposite course is called for. The policy of deliberately 
ntensifying unemployment with a view to forcing wage reductions is already partly 
n force, and the tragedy of our situation lies in the fact that, from the point of view 
of the advocates of the gold standard, this course is economically justifiable.’— 
Mr. J. M. KeyNEs, The Economic Consequences of Mr. Churchill, 
For Australia the decision to return to gold was made at a most 
propitious moment. Actually, in point of time, the event could 
not have happened more fortunately. But the ease with which 
the change was accomplished, and the apparent absence of 
untoward consequences, have been responsible for a too-ready 
acceptance of the belief that the restoration has had none but 
good effects upon the economic situation in the Commonwealth. 
Yet we should be justified, on the grounds of economic theory 
alone, in adopting an attitude of profound scepticism towards 
this belief ; and, in fact, all the weight of the evidence is in the 
other direction. In the first place, Australia is, financially, so 
dependent upon Great Britain,! and the monetary systems of the 
two countries are so vitally connected, that a circumstance which 
! ‘There is no evidence that the position of dependence is likely to be changed 
in the near future. Australis at present finances most of her external payments 
through London, and accepts the prevailing rates of exchange ruling in London. 
There is thus no independent exchange market; and the rates of exchange vary 
only occasionally as announced by the banks after agreement with the Common- 
wealth Bank. —Copland in Foreign Banking Systems, p. 85.