The Rate of Stabilization
ALTHOUGH several economists can claim to have foreseen that the revalorization of sterling to its pre-war parity would become the source of immense difficulties, none of them foresaw the principal cause that led to the failure of the efforts to maintain its stability. The opponents of the restoration of the pre-war gold standard did not anticipate, any more than the authorities responsible for that policy, that Great Britain would be confronted with a world-wide economic and financial crisis such as that of 1931. It would have required uncanny prophetic faculties to foresee in 1925 that in 1926 France would stabilize her currency in circumstances that would lead to a calamity without precedent. For it was the seeds sown by France in 1926 that brought the harvest of 1931. Even though admittedly there were powerful fundamental factors at work undermining the stability of sterling, the gold standard in Great Britain would certainly have survived, but for the world economic
crisis of 1931, caused largely by the French demand for gold since 1927. The fundamental cause of that demand was the stabilization of the franc at a low level, as a result of which prices in France were some 20 per cent below world prices.