The Guardian And Evening Star, with which is incorporated the West Coast Times. SATURDAY, AUGUST 27, 1927. THE COLD PROBLEM.

Hokitika Guardian, 27 August 1927, Page 2

The Guardian And Evening Star, with which is incorporated the West Coast Times. SATURDAY, AUGUST 27, 1927. THE COLD PROBLEM.

Intkim'.st iu t lie international e o |d <1 nest ion, says a J/;nilon financial journ:;l. lias hern revived by a statement made iiv Sir Jusiali Stamp .just after his isn mu flrom Xav York, lie described the conference trine held in

P.at city ■between representatives id tlie central banks of America. Frame. Gieat Britain ainl Germany, as one ol the most important in the history of iiulustrv. Great. Britain, he said, is

on tlie eve of an era of greater prosperity in every branch of industry, except, perhaps, coal-mining. Unit she is held up by the continued fall in the gold price level. This is iiillnouoed by the American policy, which i.s continually to take gold otf the market. The New York conference, according to

him. is going deoi>or tlum any ivam' conference could, because it is striking at the root of the- trouble, the fluctua tion. in tlie gold .stamlanl. It is the belief of Sir Josinh Stamp that the four expert hankers are going to take such concerted fiction as will prevent the present .automatic suction of "old into tho United States. The importance of the prospect, thus opened np by an authority who is admitted to ho one of our loading economists can he scarcely exaggerated. A writer in the Jnl.v Midland Bank 'Review makes a critical examination of two schemes for dealing with the generally-accepted dictum that the purchasing power of gold is determined bv fhe demand for and supply of the metal. After discussing the matter at great length, lie crimes to tho conclusion that both the schemes examined are impracticable, if only because they proceed on tho theory that the value of gold is in part determined by the supply of metal whereas, in his opinion, The inim cause of changes in its value, on this side of the price equation, is to he found in variations in the quantity of money, “which hear no necessarily rigid, automatically-working: ratio to tho size of tho gold reserve.” Incidentally, ho asserts that the got ' standard is not the automatic system it is often assumed to be. If the “Big Four” in New York evolve a scheme that will, in the first place, check the inflow of gold into America and afterwards enable that country to dispose of .part of her vast accumulation of the metal, there may to no need to consider proposals of the kind indicated by tho writer in this hank review, and it may be that the prospective serious shortage of gold recently discussed in a Scandinavian quarterly by Professor Gustav C’assel may not -become so serious as lie appears to think it will. Professor Cassel admits that the demand for gold for monetary purposes is to a. large extent conventional. If the world believes, lie says, that a. central bank ought to have gold cover of GO per cent., it is scarcely desirable that such bank should have a much smaller cover: but if the public view is modified, and a gold covering of, sav 10 or 30 per cent comes to he regarded is quite sufficient, each individual central hank will manage quite as well with

that gold covering. It is essential now to gain acceptance for the view that the central banks can very well manage with a lower percentage of gold covering than has hitherto been usual, and that most central banks will iii fact find it to their advantage largely to adopt the practice of bolding reserves in London and New York, instead of accumulating gold stocks of the r own He considers, therefore, that practical men of affairs should devote attention to the question as to how- far a general reduction of the hitherto accepted conventional standard for the gold basis of the monetary system is practicable, and what importance such policy has for the stabilisation of prices. America may find that while it has been very easy to accumulate gold, with the result that in May last the holding reached £946,500,000, or fully half the world's stock, it may not be nearly so easy to get rid of a large proportion of the accumulation. The operation could he effected in two ways. America might lend still more freely to foreign countries. with the stipulation that th<?

money should he taken in the form of gold. Stic has. of course, already lent very largely abroad, hut, .so far, only Germany has elected to take a large portion of the proceeds of such loans in the form mentioned. They would probably take as much as America cared to lend, hut the probability i.s that they would prefer to keep the proceeds in America in the form of dollar balances to he used in the purclia.se of tilings that Europe must buy from the United States, or in making dent interest payments. An alternative is for ine United States to liny on a much larger settle from Europe. An important obstacle lo this is Hie height of tin* tariff wall which America lias erected against, imports from outside, and a study of American political con ditinn.s suggests that no statesman there would have the courage lo .suggest a reduction.