CONSTANT FLOW

Evening Post, Volume CX, Issue 140, 11 December 1930, Page 9

CONSTANT FLOW

OUTCOME OF WAR

ECONOMISTS CONCERNED

Maldistribution of the world's gold supplies has become a subject of worldwide interest and debate among leading economists. According to one | point of view, given particular j emphasis in Great Britain, the accumulation of a disproportionately large amount of metallic reserves in the vaults of the Federal Reserve Banks and the Bank of France is largely resonsible for tho drastic fall in prices in the past year and the current worldwide business depression. The situation, as it is viewed by these thinkers, is sufficiently serious to jeopardise the workings of the gold standard. While this view of the gold problem is not generally accepted by American economists, there is widespread agreement upon the actual fact of maldistribution, ■ and the opinion has been growing among bankers that the United States would benefit rather than lose by a redistribution, of some of its surplus gold stocks. I The condition grew out of the war and its disruption of international finance. The heavy purchases made in the American market by the belligerent nations at a time when they were making no compensating exports to the United States resulted in substantial transfers of gold during tho war. Following the cessation of hostilities, the United States was the only actual free gold centre in the world, and as a natural consequence the metal continued to move there. RISE IN GOLD STOCKS. The monetary gold stocks of the United States advanced steadily from 1,891,000,000 dollars in June, 1914, just prior to the outbreak of tho war, to 4,587,000,000 dollars in 1027. In the last three years there has been little net change, the figures being 4,534,000,----000 dollars on 30th June' of this year. In the case of France, the gains in goldJioldings have taken place entirely within the last three years, following the stabilisation of the franc. lv the period when French exchange.was declining rapidly, French capital was shipped abroad in largo amounts and gold within the borders of the country was hoarded. Tho stabilisation of the franc brought a return flow of gold to tho Bank of France sufficient to lift that institution's gold reserves to the highest levels in history. According to a recent statement gold holdings of tho Bank of France were over £374,----000,000, and it is expected that the figure of 2,000,000,000 dollars may soon be exceeded. The following table, compiled from figures contained in The American Fedoral Reserve Bulletin, shows the wide disparity between tho gold holdings of the various nations. It lists those of the various central banks and governments as of June, 1030, witli the. percentage oii'the total held by each, and covers 44 central banks and governments.

TRENCH AND AMERICAN. The figures show that Prance and the United States together held £■!,- ---181,000,000, or 55.37 per cent, of tho entire gold holdings of the 44 countries included in the compilation. Changes in the distribution of gold siuce June have served to reduce somewhat the holdings in thfe United' States, but have added materially to those of France.

One of the leading advocates of tho theory that the recent fall ill prices is duo to maldistribution of tho world's gold supplies is Sir Henry Sfrakoseli, whoso views in au article on gold and the price level, published as a supplement to "The .Economist" of London of sth .Tilly, have received wide ;il tenlion. Sir Henry asserts that the accumulation, of excess gold holdings in.

America, in Argentina up to the end of 1928, and in France since 1928 has brought about a "sterilisation" of part of the world's gold reserves. Per head of population, ho declares, tho gold reserves of the United States were roughly 100 per -cent, greater tbnn those of Great Britain, while those of France were, in 1928, So per cent, greater, and in ID2£> no less than 140 per cent, greater. This flow of gold to countries where it was "sterilised," he contends, resulted in a growing deficiency of the gold supply in relation to the assumed requirements of a 3 per cent, annual increase in world production. In 1929, according to Sir Henry, the Avholo of the new gold that became available for monetary purposes was absorbed by France and the 'United States, and in addition these two countries depicted the reserves of other gold standard countries by £14,000,000 after allowing for the-release by Argontina of £36,000,000 that it had formerly sterilised. Between them, Franco and America practically buried gold to the amount of £110,000,000, depriving the gold standard woi-Id of tho pos-' sibility of augmenting tho amount of currency and credit that was needed for the exchange of its increased production. CAUSED DEPEESSION". Commenting on this theory, the | quarterly review of J. Henry Schroe- I der and Co., the famous American j broking house, remarks: "If these ! views are correct America and Franco, i by their monetary policy, have thus unwittingly inflicted widespread depression. " Schroed-er and Co. see another curious effect of this "maldistribution" of the world's gold supplies and tho consequent fall in commodity prices in the addition to the weight of the debt owed by Europe to America. "This debt," the Teview reads, "is payable in gold, and France, by sterilising gold, and so making it scarce and artificially increasing its buying power, puts an unconvenanted benefit into tho pocket of America, whoso financial domination is so much dreaded in Europe. Every point that the index number falls marks an appreciation of the money that America collects from her debtors. From this point of view French monetary policy looks curiously short-sighted." The review suggests that the remedy for tho situation, so far as Franco is concerned, lies in the opening up of the French market to long-term financing. Failing'the adoption of this cor-j reetiv-e, the British banking house fore- ! sees serious consequences. "If France continues to follow the line she has lately pursued in the bullion market," the bankers warn, "and docs not invest in long-term foreign loans, she will seriously endanger the working of the gold standard, already tho object of much emphatic criticism. The business world will not long tolerate tho domination of a standard which inflicts depression and loss on the world owing to its faulty working by some of those who handle it." CHAKGE DISPUTED. The charge that tho United States has sterilised gold is disputed in a bulletin of the American National City Bank, which states that although the Federal Reserve authorities did not look with favour upon tho absorption of credit in stock speculation in 1928 and 1929, a large expansion of bank credit has occurred and still exists. "The figures show," the review says, "that with a gain of 2,433,000,000 dollars in the -country's gold stocks from 1914 to 1929, additional bank credit to tho amount of 37,685,000,000 dollars was put into ■circulation, or 15.49 dollars of bank credit to each additional dollar of gold. In view of tho final results of that credit -expansion many persons have been of the opinion that it went quite far enough for tho good of the whole world." While the National City Bank is not prepared to endorse tho opinion that changes in tho world's supply of gold havo had anything to do with the price disturbances of the past year, the bank recognises tho drawbacks of tho heavy accumulations of gold in New York and Paris since 1914. The two countries have more than they can advantageously use, while other countries havo less. All of this gold would have been more serviceable to the two countries that have received it if it could have been retained in tho countries from whence it has been shipped, for the support of their monetary and banking systems and the maintenance of tho trade equilibrium. The present distribution of gold, the National City Bank considers, is something for which nobody can be said to be responsible, except as somebody may be responsible for the war. It is a situation which the bank believes cannot be changed rapidly, for gold distribution is not a Governmental function or one -controlled by the banks, but is dependent on1 the currents ,of trade and finance.

Millions of" Dollars. United States UTS jSrBcntliiiL -NO Australia !H Itolglum ■ ](!7 "Brazil .... 8!i Canada 8>!l Knglaml" TILS .Fnuire '•. J7i7 Crrniiinr ''-"I Judla i:iS Itjily -71 .Inpan -1"! Ketherlanrts I7I Itussiii ■ !!0:i Spain '177 Switzerland 1U 2S other countries ... 702 I'.C. of Total. 30.17 ■1.12 n.sn I.-17 II.8S ii.7r> 7.20 IH.20 .'i.S"i l.::n ■I.(Mi i.e.;! i.iin 1.47 l.ur> 15.58 10,008 100.00