The Guardian And Evening Star, with which is incorporated the West Coast Times. WEDNESDAY, JANUARY 13th, 1926. THE GOLD STANDARD.

Hokitika Guardian, 13 January 1926, Page 2

The Guardian And Evening Star, with which is incorporated the West Coast Times. WEDNESDAY, JANUARY 13th, 1926. THE GOLD STANDARD.

In the course of an address at London to the meniher.s of the Political and Keouomic Circle of the National Liberal Club on “Monetary Policy. ’’ Mr Herbert Phillips (Director of the Liberal Research Department), discussing the restoration of the gold standard, stated that the question of what that restoration implied did not raise controversial issues in comparison with certain other related questions. The restoration jin the first place implied that we resumed as the monetary unit of purchasing power a certain fixed amount of gold and once again definitely related purchasing power to gold. There were four fairly obvious advantages in favour of a gold standard. They were:— (1) That it guarded against violent alterations in the value of money; (2) That it did not. require the conscious control of a Government or any other agency; (3) That is was easily understood. It would he more true, perhaos, to say that it was the simplest alternative to something which was not workable unless it was understood. For a partly civilised community' there was a good deal to be said for a gold standard; (!) Perhaps the strongest argument was the psychological adI vantage. Despite these obvious recommendations. the gold standard had had a chequered career. In the ninety years before the war during which the gold standard was in operation in this country prices had been sul>ject to very violent fluctuations, which ifell. fi nto four well-marked iperiods. But the story was not quite told. If it had not Icon for a couple of happy accidents the ease against gold would have been conclusive long before the Great War. The reputation of the gold standard was saved twice—hv the discovery of gold in the fifties' and hv the still far greater discoveries in South Africa in the beginning of. the nineties. Tt was unlikely that gold would go on turning up in sufficient quantities to meet growing requirements, and the time would come, and not in the remotely distant future, when a gold standard was likely to break clown because the world’s'supply of gold was inadequate to the world’s needs. It was very difficult to suggest an alternative to the gold standard, which was entrenched in such a strong position, principally because of the psychological factor. We all knew what we wanted. What we wanted was a monetary' unit which, with an expanding volume of transactions. would tend to keep prices reasonably steady. The case for any other sort of standard except a gold standard was exceptionally hard hit by the circumstances of the war. Inflation did not necessarily accompany a removal of the gold standard, hut was inevitable during war under modern conditions. Monetary policy was of supreme importance because it was in terms of money that the level of prices and nominal wages and rates of interest was determined. Deflation vins one of the factors in bringing about unemployment, and both theory and experience supported the contention. As betweqn the wage-earners and the rentier, and investing classes monetary deflation during the last five years had unduly favoured the latter class. Sanctity of contracts mnst bo

respected, but weighed in terms of ultimate social consequences he personally considered the policy adopted had been wrong. An important argument against the restoration of the gold standard—and one to which lie had not seen an answer—was that having committed ourselves to the gold standard wc weite likely to experience very great difficulty in bringing about such wage adjustments as might be necessary to put production again on a proper basis. Had we hung on for a bit, and even gone in for a policy of conscious inflation, while it would have cost very dearly in some respects, it would have enabled us to make industrial readjustments, the net- effect of which would probably be less harmful. The gold standard was not a final answer. That standard, he was certain, would become as obsolete as trial by ordeal. It was. however, something to go on with until our philosophy cut a little deeper, and he was prepared to admit that in the existing state of democracy wc could not do anything letter.