(ii) The Stabilisation of the Franc (1928)

One blames politicians, not for inconsistency, but for obstinacy. They are the interpreters, not the masters, of our fate. It is their job, in short, to register the fait accompli. In this spirit we all applaud M. Poincaré for not allowing himself to be hampered by a regard for consistency. After declaring for years that it would be an act of national bankruptcy and shame to devalue the franc, he has fixed it at about one-fifth of its pre-war gold value, and has retorted with threats of resignation against anyone who would hinder him in so good a deed.

The figure finally chosen seems about right. There are high authorities in France who argue that one-sixth of pre-war (150 francs to the £) would be better and safer. But about one-fifth (124.21 francs to the £) has the great advantage of conforming to the rate which has actually existed for some eighteen months. None of the relevant statistics suggests that M. Poincaré has made the mistake of stabilising at a figure which involves Deflation. No lower value for the franc (in terms of gold) than that now chosen has ever existed except during the hectic twelve months from December 1925 to November 1926, when internal prices had no time to adjust themselves to the furious fluctuations of the exchanges. Moreover, the Budget balances with the burden of the rentes on the taxpayer bearable at the present level. I see no sufficient reason, therefore, to choose a lower figure.

Is the value too low? For that is the line of criticism in France itself. There are two chief tests. Is it lower than the figure to which internal prices are adjusted? Does it demand too great a sacrifice from the rentier? The official Index Numbers, if taken at their face-value, suggest that prices are in line with a gold value of the franc nearer to one quarter (100 francs to the £) than to one-fifth of the pre-war value. But the French Index Numbers are very crude affairs subject to a wide margin of error, and the two and a half years which has elapsed since the franc was worth more than the figure now fixed, is a fair time to allow for an adjustment of prices upward—a much quicker business than a downward adjustment can be. House rents doubtless must rise, but it is probable that other prices will trend only a little upward if at all, compared with gold prices abroad. As for the rentier, a very drastic capital levy having been brought about de facto and the awkward consequences surmounted, it is asking too much to undo gratuitously what is already done. Three other arguments, however, of a practical order are probably those which have convinced M. Poincaré. To choose a higher value for the franc might disturb the equilibrium of the Budget which has been so painfully achieved. It would upset the industrialist exporters—who have their means of exerting political influence. And—most tangible of all—it would involve the Bank of France in a loss on the foreign exchange, said to amount to some £300,000,000, which, as an agent of the Government, it has bought up at the present rate. To fix 100 francs to the £, for example, might cost the Bank of France £60,000,000, of which no mean proportion might accrue to foreigners. This is just the sort of argument which M. Poincaré and every other Frenchman is able to understand.

The deed, therefore, is done. Since it removes an element of uncertainty from the Money Markets and Stock Exchanges of the world, and since French importers and manufacturers need hesitate no longer, a good deal of purchasing power, which has been lying idle, may be returned to active employment. M. Poincaré has, therefore, done something—perhaps for the first time in his career—to make the rest of us feel more cheerful.

It is interesting to compare the several fortunes of France and Great Britain over the post-war period. In Great Britain our authorities have never talked such rubbish as their French colleagues or offended so grossly against all sound principles of finance. But Great Britain has come out of the transitional period with the weight of her war debt aggravated, her obligations to the United States unabated, and deflationary finance still in the ascendant; with the heavy burden of taxes appropriate to the former and a million unemployed as the outcome of the latter. France, on the other hand, has written down her internal war debt by four-fifths, and has persuaded her Allies to let her off more than half of her external debt; and now she is avoiding the sacrifices of Deflation. Yet she has contrived to do this without the slightest loss of reputation for conservative finance and capitalist principles. The Bank of France emerges much stronger than the Bank of England; and everyone still feels that France is the last stronghold of tenacious saving and the rentier mentality. Assuredly it does not pay to be good.

Perhaps we deserve what we have got. France has abandoned principle and consistency alike, but she has always refused sacrifices which were avoidable and has obeyed in the end the teachings of experience. We in England have not submitted either to the warnings of theory or to the pressure of facts, obstinately obedient to conventions.

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