WELLINGTON NEWS

Hokitika Guardian, 15 November 1927, Page 4

WELLINGTON NEWS

MONEY EXIT STABILISATION

(Special to 11 Guardian”.)

WELLINGTON, Xov. 10. .Most of tho countries of the world, of any importance, have restored tlxe gold standard, tlic latest to effect tliis change being the Argentine, but this restoration is partial, and is not the same definite gold standard as was in existence in 1913. Except in the I'nited States and in Holland gold coins are not in circulation. In Great llritain. Hank of England notes cannot he converted into gold at will as was the ease prior to the war; still, Great Britain is on the gold standard. I uder the new system the Bank will not part with less than -100 ounces of gold bullion on any one occasion. Thus gold is available only for the settlement ol international balances. This course has been adopted because it is necessary to economise in tho use ol gold to prevent its appreciation and to maintain stable prices. If gold appreciates then commodity prices decline; and Professor Gustav C'assel holds that

*■ we arc face to face with the certainty of a continuous fall in prices and appreciation of the value ol gold."

The I'nited States lias a vital interest in maintaining the value ol gold. 'lhe British and other European debts have been funded on a gold basis, and consequently America is interested in preventing the depreciation in the value of the yellow metal. The policy of the British Government on the other hand, seems to he directed towards the depreciation ol gold values—that is to see an appreciation of commodity values, for a 1 per cent rise in the* value of gold increases the burden of the national debt by about L< i ,000.000. Thus it will be seen that tho appreciation or depreciation of gold affects the price level. Most ol the countries that have reverted to the gold standard have their Central Banks, and these institutions have become traps lor the yellow metal. .Most ol the world s visible supply of gold for currency purposes is in the possession of the f nited Stales, and the new supplies of the metal are not equal to world’s requirements and so the* tendency is lor gold to appreciate.

’lire value nr purchasing powered the gold coin is variable, and Professor Irving Fisher, ol ) ale l tiiversity, recently directed attention to this lluetuation 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 ol what the Professor terms “ money illusion.” He points out that we take it for granted that "a pound is a pound.” “ a dollar is' a dollar.” and we are not concerned with the stabilisation ol the units yet gedd is not constant in purchasing power over other commodities. The price of gold in gold standard countries never varies. Gold is constant in gold hut varies in relation to other connnnditics, and the* Professor states that taking the* dollar ol 1013 as worth 100 cents, in 1920 its value was equal to only *lO pre-war cents, and in August 1927 it was equal to 70 cents, and Proiessor Kishor asks; " Wlial would we say if our yard stick, pound avoirdupois, bushel basket, or kilowatt were to swing like this?” Mby does money thus change in purchasing power? The answer is Inflation and Deflation. Scarify and abundance ol goods will, as distinct from money, go far towards exploiting changes in the general level ol prices. T lie Professor maintains that gold was chosen as our standard because it was stable as a myth.

The only grain of truth that gold was consciously selected from among several possibilities is that, by a slow process of the survival of the fittest, it came into general use as a medium i;t exchange, being superior to its rivals in being more precious, durable and divisible. Pnlike 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. M hen there is inflation and prices rise, the creditor loses and the debtor gains. 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.