The other problem was that, during the war, England hadadopted a massive welfare program and a strong network of laborunions. The reason this was a problem was that the only way tomake the pound acceptable in international trade was to allow itsvalue to drop to a competitive and realistic level, and that wouldhave meant, not only a drastic reduction in welfare benefits, but alsoa general lowering of prices—including the price of labor which iscalled wages. Politicians were quite willing to allow prices of commodities to move downward, but they did not have the courage totake any action which would reduce either welfare benefits orwages. To the contrary, they continued to bid for votes with promises of still more socialism and easy credit. Prices continued to rise.
1. The government hedged even on this provision. Only bars of gold bullion were available for redemption, not coins. This insured that gold would not circulate as money and that it would be used almost exclusively for large-scale international transactions-THE LONDON CONNECTION
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ENGLAND IN DEPRESSION
With the value of the pound set artificially high in order to sustain prices, wages, and profit levels, the cost of British exports alsobecame high, and they ceased to be competitive in world markets.
With exports in decline, the amount of money coming into the country also declined. England became a debtor nation, which meansthat her payments to other countries were larger than her incomefrom those countries.
As pointed out in chapter five, if an individual spends morethan his income, he must either increase his income, dip into savings, sell off assets, create counterfeit, or borrow. The same is true ofnations. England had already borrowed to the limit of her credit andwas rapidly exhausting her savings in order to continue purchasingforeign goods to sustain the high standard of living to which shehad grown accustomed. She couldn't counterfeit because paymentsfor these imports had to be settled in gold, which meant that, as hernational savings were spent, her gold supply moved out of thecountry. The handwriting was on the wall. If this process continued,the nation soon would be broke. It was a situation, incidentally,which was amazingly parallel to what has plagued the UnitedStates since the end of Word War II, and for mostly the same reasons.
