GOLD STANDARD

Evening Post, Volume CXII, Issue 80, 1 October 1931, Page 14

GOLD STANDARD

BRITAIN'S MOVE

ASPECTS OF SITUATION

SOME POSSIBILITIES

By "The Layman." Two factors are necessary for permanent universal economic stabilityrational organisation and a standard of value controlling all the world's pecuniary engagements which shall be stable in purchasing power over time and space. It may be argued that these two factors are ono and the , same thing—in fact, many monetary students do—but it should be sufficient to point out that an ideal credit system could be broken down by irrational or rashly speculative production, or by trade barriers Buch as tariffs, while rational production could**bo frustrated by an inadequate financial structure. Until the two factors are co-ordinated the world will continue to pass through economic vicissitudes which will disturb finance and trade dud what is more important.the welfare of nations. Before the War, when England's preeminence as a commercial nation was unchallenged, and London was the undisputed clearing house of the world, the inter-dependenco of nations was an apparent, but not a distressing reality. Trade slumps there wer i, but they had more or less the happy knack of responding to treatment, and the mechanism of exchange had little more than an academic interest. The war brought repercussions from. which the world is still reeling. Huge debts were piled up and the currency and credit structures of some of the most important nations could not bear the strain. As Professor Gustav Cassel has put it, "The present generation has been guilty of a whole series of the most appalling faults, mistakes, and violations of fundamental economic principles. The greatest of those was the war itself. s Having finished the war, they proceeded to claim war debts and reparations without being willing to accept payment, to cut the world's market into watertight compartments, to prohibit the international migration of men, to hinder the free movement of capital, and to prevent by aid of great valorisation schemes a natural adjustment of the prices of certain commodities. Within their, different countries they have developed monopolies both of enterprise and labour, and in this way have done all.they could to restrict, internal freedom of movement. Not content ■with that, they have created systems'of unemployment doles calculated to decrease the immobility of labour,- in a. very dangerous way, and, in addition, to ruin public finances. Some people' have, started so-called radical movements aiming at the revolution of the whole economic system, but the only thing they have attained thereby, and conceivably ever can attain, has been, to destroy confidence and that spirit of enterprise on wh.ieh their whole economic life is founded." NEED FOB PERSPECTIVE. If Professor Cassel's indictment is true, and even the most guarded will admit the majority of his statements, it is evident that the world will not right itself in one fell swoop. A monetary ideal may be quickly achieved, but it will be frustrated unless obstacles, just as formidable, are overcome. Perhaps it is unfortunate that the monetary element has protrudod itself to such an extent that to many a panorama of the whole position has been lost. Thus, when England abandoned the gold exchange standard a few days ago there were shouts of joy from many who should have V.nown better. They should.certainly know better now, because their millenium has been only a mirage. In pointing out tho fallacy of relying on a solution of the monetary problem alone,, one must be careful at the same time not to minimise its importance. Its eminence cannot be disputed, but at the same time it should be placed in its proper perspective. The breakdown 6£ the gold standard has not been due so much to the defects inherent in the system itself, as to an irrational attitude as to its use. Both the Genoa Conference and the Gold Delegation of the Finance Committee of the League of Nations in 1920 have shown authoritatively that the annual output1 of gold has been and is likely to fall short of comfortable monetary requirements, and both urged that in order1 to economise the available supplies'the nations should agree that the minima reserves should be reduced. Instead of adopting this proposal, ,two nations at least have gono to tho other extreme. !. FLOW OF GOLD. America by her high tariffs has made it impossible for other nations td trado with her in a normal way, imports paying ,for exports on a commodity basis. Her customers, being refused the right to send back their products in payment for their purchases, have either had to pay in gold or accept American credits. There is naturally a limit to credits, and the result has been that America has been reluctantly forced to accept a large amount of gold. Debt payments to her-have also been, made in gold, and the result has been that her reserves are wastefully. high and' she can obtain practically no benefit from them. Had {America been on a Free Trade, as well as a gold standard basis, the phenomenal flow of gold1 into her coffers could have been.prevented. The "second, country, which seems to have adopted an irrational attitude is Prance. At the beginning of 1929 France held £263,000,000 in gold reserves, although her legal requirement was only £232,000,000, and at that date she also held £257,000,000 in liquid reserves in London or New York. In London alone she held more than £100,000,000. Her tendency to build up her gold chest may bo scon from the fact that twelve months later her reserves had risen to £335.460,000. .The distribution of gold in July last, according to the "Economist," was as follows:— '. ; Total gold Legal Reserves. Reserves Millions sterling. United States 945 304 Franco ........... 466 232 Great Britain ..... 132 109 Germany '66 66 At the time these figures were published it was also' noted that Britain was losing £20,000,000 in gold per week, and in vain did she raise tho bank rate in order to stem the tide. Her' position rapidly became untenable, and in brder to protect her legal reserves she was forced to abandon the gold exchange standard which she adopted in 1025. BRITAIN'S ATTITUDE. It is obviously too early to judge the effects of Great Britain's move. Her mr.i efforts now appear to be directed towards, keeping the exchange rate as near to the normal rate as possible. As Mr. Philip Snowden has stated, "The essential steps already taken are to balance the Budget, to set our faces against any sort of inflationary measures, and to control exchange purchases by x persons resident in this country. ... As regards speculations, persons who sell sterling at figures well below its intrinsic value are incurring serious liskg, and the remedy will come quickly enough when they begin to mako losses/ There is ao fear of Brit-

am following tho example of some of the Continental countries after the war and indulge in an orgy of inflation. WORLD'S CLEARING HOUSE. Britain has a financial responsibility to the world that no other country has. In spite of the fact that America has made enormous strides as a trading nation, she cannot hope to become the world's clearing house while she retains her present fiscal policy. This role can be ulequately filled only by a Free Trade country, and America is suffering from an additional disadvantage in that she has not tho clearing house technique which has been built up in London. As gold plays an important part, in clearing house transactions,-the seriousness of Britain's position will be readily grasped. Until some iuterhat. inal understanding is reached on the gold question, Britain will not be able to play her traditional part as successfully as she would be if gold were allowed to flow freelj through her hands, and consequently there will be additional obstacles in the way of the smoothly running international trade. The obstacles in existence prior to the latest development were big enough to cause consternation, and the new position from this aspect alone should be sufficient to disupate any cock-o-whoop attitude in regard to Britain's action in moving off the gold standard. The positior is fraught with both dangers' and possibilities. There if the danger of several nations moving off the gold standard and each adopting a different standard according to their lights, thus throwing the foreign exchanges out of gear and stultifying international trade, and there is the possibility of the nations coming to some agreement whereby the whole position may be stabilised. It is essential in the interests of world trade that a stable system of exchange should bo evolved, and until this is achieved any optimism must be severely discounted. •'".'. *