GOLD VALUES

Hawke's Bay Tribune, Volume XVII, 7 December 1927, Page 4

GOLD VALUES

of the countries of the world, of any importance, have restored the gold standard. The latest to effect this change is Argentine, but this restoration is partial, and is not the same . definite gold standard as was in existence in 1913. Except in the United States and in Holland gold coins are not in circulation. In Great Britain, Bank of England notes cannot be converted into gold at will as was the case prior to the war; still, Great Britain is on the gold standard. Under the new system the bank will not part with less than 400 ounces of gold bullion on any one occasion. Thus gold is available only tor the settlement of international balances. This course has been adopted because it is necessary to economise in the use oi gold to prevent its going up in vaiue and to maintain siable juices. If gold appreciates then comuiouity prices decline, and i'lolessor Gustav CasiCl, of the Stockholm University, iHulas mat "we are lace to lace with the certainty of a continuous fall oi prices and an appreciation of the value of gold.”

The United States has a vital interest in maintaining the value of gold. The British and other European debts to the American Government have been funded on a gold basis, and consequently America is concerned in preventing the depreciation in the value of the yellow metal. The policy of the British Government, on the other hafid, seems tn be directed towards the depreciation ol gold values, that is to see an appreciation of commodity values, for a one per cent, rise in the value of gold increases the burden of the National debt by about 77 million sterling. Thus it will be seen that the appreciation or depreciation of gold affects the price level. Most of the countries that have reverted to the gold standard have their central banks and these institutions have become traps for the yellow metal. Most of the world’s visible supply of gold for current purposes is in the possession of the United States, and the new supplies of the metal are not equal to world requirements and so the tendency is for gold to appreciate. The Value or purchasing power of the gold coin is variable, and Professor Irving Fisher, of Yale University, recently directed attention to this fluctuation of the unit, the unit by which we measure the value of everything, and yet no effort has been made for the fixation of that unit because of what the Professor tertns "money illusion.” He points out that wo take it for granted that “a pound is a pound,” “a dollar is n dollar.” and we are not concerned with the stabilisation of the units, yet gold is not constant in purchasing power over other commodities.

The price of gold in gold standard countries never varies. Gold is constant in gold, but varies in relation to other commodities, and the American Professor states that taking the dollar of 1913 as worth 100 cents, its value in 1920 was equal to 75 cents, and Professor Fisher asks, “What would we say if our yard stick, pound avoirdupois, bushel basket, or kilowatt were to swing like this?” Why does money thus change in purchasing power? The answer is: Inflation and deflation. Scarcity and abundance of goods will, as distinct from money, go far towards explaining changes in the general level oi prices. The pro-

fessor also maintains that the doctrine of gold haring been chosen as our standard because it was stable is a myth. The only grain of truth that gold was consciously selected froth among several possibilities is that by a slow process?, of the survival of the fittest it came into general use as a medium of exchange, being superior to its rivals in that it was more precious, durable and invisible. Unlike the physical yard stick, and other commercial units, which we are at such pains to standardise and stabilise, the monetary unit is used for long term contracts in which sovereigns of to-day are exchanged for sovereigns of the future. When there is inflation and prices rise the creditor loses and the debtor grains. When there is deflation and prices fall, the debtor loses and the creditor gains. Booms, recessions, liquidation and recovery are at bottom chiefly changes in the purchasing power of the pound sterling.