GOLD & PROSPERITY

Hokitika Guardian, 2 August 1930, Page 8

GOLD & PROSPERITY

GOLD AND PROSPERITY. Everybody who is interested, in the maintenance of a stable price-level—-and in the' long run there are few oj its who do not belong to that group—should observe with interest the answer given by Mr Snowden in the House of Commons last week to an inquiry concerning the steps to be taken to arrive at an international agreement for rationing and econo•mising the use of gpld. For, as Sir Josiah S amp, the eminent English economist and business man, is nerer weary of pointing out, there iis scarcely a single economic problem of to-day the solution of which would not oe made much easier by a rational control of movements in the price level.

'me problem, stated in its simplest form, is that of persuading the banks; of the world to be content with rather smaller gold reserves than they have, been. accustomed to hold in the past, thereby relaxing their competition for the new .supplies of gold that are coming into the market, and checking the tendency which exists at present towards the appreciation of ,gold, and consequent tail of prices which - are measured with reference to a, gold unit. Progress in this direction is hampered by a common ...misunderstanding which, finds. ’.i,te, mp.st. obvious expression, in the,.puzzlement of people, wno .cannot up.ders.tapfi .why, scarcity of gold is such t a pressing problem as is ..alleged, the countries which have uminually large pfcocks of gold should not be muc.li more prospei'ous than, the rest pf the world. It is now a commonplace that the American stocks of gold ~ have sometimes been , a positive embarrassment to that country and have not sufficed to previous serious unemployment crises. The large stocks held by the Bank of France are not effective in raisinei the average French standard of living anywhere, approaching the average standard ol Great Britain. Spain also has considerable, gold reserves, but nobody in New Zealand would look with favour on ,a proposal to ...reduce our standards of consumption to .those, of Spain. Evidently the maintenance ,of large stocks oi gold is no guarantee either of stability or of a high average level oi productivity.., But this puzzlemen; rests on a misunderstanding of the real significance of the term scarcity as applied to gold. When we say tlia . rubber is scarce, w.e mean that it is difficult to get enough of it at reasonable prices to make our motor. tyre c or hot water bottles, and it may then be , a reasonable, though somewhat selfish, ,policy for a. country faced with this situation jealously .to conserve its supplies of rubber and to refuse to share them with the outside world. ...

But when we say that gold is scarce, it is no important part of our meaning that we cannot get adequate supplies of gold to fill our teeth or make our gold watches. Gold scarcity is. significant because the prices of everything elne; are measured in terms of a gold unit, and if the value of the gold unit rises because of its scarcity the prices of everything else fall, and we tend to have world-wide depression. Under these circumstances, so far , from it' being even a temporary advantage to any country jealously to conserve its supplies oi gold, any such policy inevitably intensifies the existing difficulties. For it means that the demand for gold is further increased, its value rises still higher, and other prices continue to fall. The only policy which is both sensible and effective is, one which involves a relaxation of the demand oi gold, a willingness to be content with smaller supplies.

It ip not surprising that individual bankers are reluctant to initiate, any such policy without the assurance o. co-operation from bankers in other countries, find Mr Snowden is therefore quite right in declaring that the question is an international, one. Nevertheless, there would he real, il limited, advantages in placing the problem before the Imperial Conference, for, while a radical solution of the problem is not possible for the British Empire acting in isolation from the rest of the world, a definite agreement between the units of the Empire would be a valuable contribution. Hire is some danger that'excessive emphasis on Australia’s internal difficulties may obscure the eal significance of , the transfers .of g.;i'd from Australia to London which have recently taken place. Current comment has tended to regal’d these as merely temporary measures to ease Australia’s immediate difficulties, but their significance goes a good deal further than this. Australia’s difficulties, like our own, arise partly from, the appreciation of gold, and the mobilisation in London of the gold resources of the Empire would make it easier for the Bank of England to play an effective part in checking ';hiis movement and keeping the value •of gold steady. The export of Australia’s gold, that is . to; flay, does not merely help her to satisfy the .immediate demands of her creditors; to some extent, also, it checks the downward movement of world prices, and therefore to the same extent removes one of the root causes of the whole trouble. Unfortunately, the effect of Australian gold exports is not likely to, lie great enough to stabilise gold values, but it is all to the good that the urgency of the problem is now being more and more realised by those who are closely and practically connected with the control of currency. Bankers have often been charged with undue conservation in this respect, and. it is therefore all the more significant that