THE TRUTH ABOUT THE GOLD SHORTAGE

Hokitika Guardian, 19 January 1931, Page 3

THE TRUTH ABOUT THE GOLD SHORTAGE

GOLD STANDARD THE BEST

CHECK ON VALUES

(Business News.)

The recent aimuang fall in the price of commodities, of, in other words, the sharp rise in the price of gold, creates anxieties in which we must all share as none can tell how the movement will elitl. The fall may be only tbe beginning of a landslide, at the end of which we shall buy a loaf of bread at three ha'pence and a good suit of clothes, at a guinea; or it may be followed by a reaction almost as sharp and surprising as the rise.

As happens when the money market is disturbed we hear the usual assaults iiijon the gold standard ; and unkindly whisperings about “plots” and “con--spiracies” of bankers, while some nonexistent entity described as tin* “money trust” is execrated with unction.

Yet what is happening is natnnrnl enough, and simply, points the moral that the gold standard is a very real check upon values, and though artificial restraints may hinder its operation, there comes the time when it sweeps into full [lower again. In such cases il lias little to say if other values have been behaving themselves but the reaction is-, rather awkward, if they have not. When the master of the hous - comesdiack and finds the servants in the kitchen, all is peace, but if they are holding a banquet in the diningroom there mav bo a riot.

We need to grip the real truth a lion t the gold in order to master the facts of the case. There is an impression among many that it is ;m entirely artificial standard, “ndnntod” b.v the will of governments and bankers just as the length of King John’s foot has been adopted as the unit for linear measurements.

BANKERS HAVE NO SAY. Governments and bankers have certainly endorsed the gold standard during most recent periods of history, and have accommodated banking laws to its service. But this is the beginning and thy end of all they have had to say it the matter. It is the man with goods to sell who fixes the gold standard because In* will not part with liis goods for anything but goods. We spe. kof the old days of barter, as if barter were dead, bur barter is still tin* only method of transacting a business deal.

As it would lie in .'onvenient to exchange a bushel of wheat for a cow, or a piano for four sacks of flour, man looks for a central commodity that always has a market and, in which the difference between buying and selling prices- is microscopic.

Gold supplies such a medium. Con.sequently man buys and sells for gold. In this sense the gold standard exists not because government declare it shall be so, but because the sugar merchant declares “1 will exchange my sugar for other goods, and unless 1 leave them 1 won’t let it go. 1 don’t want to buy butter, beef-steak, or blacking-brushes at the moment, so it is no use offering them. In fact, T don’t know what I want or wlmt you offer, so I will take gold.” “But,” retorts the reader, “we haven’t handled gold for sixteen vents.”

It makes no difference. Practically all through those sixteen years the sugar importer and the tape-weaver could get a piece of paper called a banknote, a cheque, a treasury note or a bill of exchange, which could be New York a man could walk into a New York a man corn! walk into a bank and get ten dollars’ worth of gold for a ten-dollar bill.

In every case, what the man sold his goods if or was a commodity locked up in a bank cellar. It was there and it was his. He might never ask his agent to draw it out ,but he had the right to it, and as soon as lie bought goods or invested money lie sold the right to that gold.

THE GOLD THAT SMASHED

INFLATION

There came the time when governments inflated their currency, and thousands thought that a piece of paper was worth a sovereign because the British Government printed “Cl” on if. The man with goods to sell knew better. All the time he was looking across the seas at the New York bank. If the American bankers would only give dollars worth thirteen shillings for that note, the merchant would only give thirteen shillings’ worth of goods for it; but of course the people who supplied him were working on the same scale.

Some government thought that they could make money by printing tons of paper notes. The man with goods to sell kept to the simple law of barter. He was not exchanging goods for paper: he was out to exchange them for goods in a bank cellar, and as be wanted a substantial margin in order to make sure lie would get it. be bad to raise his prices a little faster than the government brought the values down.

Thus the gold standard smashed inflated currencies.

THE MARGIN FOR. GUESSING But now we come to the second and most dramatic part of the story. The gold standard was strong enough to make Europe returns to financial sanity r.nd the use of sound currency, but it

has taken some years to do this, and all that time changes have been taking place inside tbe gold standard itselt, changes that cannot be measured but onlv estimated.

The value of ail ounce or pound oT gold is determined by the quantity of flour or coal or fruit that the merchant will give for it. When the War broke out there was no good in the open market constantly meeting these commodities, and proving its daily va.ac in relation to them. It was locked away in bank cellars and hedged around with rules and restrictions, which prevented private persons from dealing with it or moving it from one country to another. But in spite o'f this it still controlled the price of other articles.

Gold is always slightly changing in value, anti when it is all locked away no one can tell what that change may be. At lirst this did not matter, as a very small margin would cover any possible variation ; but during sixteen years the difference in the value of old as measured in other goods may have become far greater than uhy margin allowed for it.

If fbe world’s business has greatly iiicrea.se:! and the world’s stock of gold scarcely increased at all. gold must have gained in value and all other commodities should be cheaper than they were before the War.

THE CANNOT HEALEY BE A “GOLD SHORTAGE.

And now quite suddenly things are beginning to happen. All the nations rtf the world are discovering that they cannot do foreign business unless they have a sound currency, and also that they cannot produce a sound currency unless there is gold in the bank cellars to hack it. In addition to this we have great nations like Russia and China, once largely cut off from the rest of humanity by internal difficulties, obliged to 'fall in line with other nations.

Probably inside of twelve months the whole world will he upon a gold standard basis. The demand for gold may consequently increase to a kind of fever. This need not result in a gold famine or a gold shortage, because those terms have no real meaning. Gold is the measure and the measure is always right. “Shortage” is one of fhe virtues of gold. It is chiefly valuable because it is “short.” There is always enough gold for the purposes’ of all the world.

But if gold is more valuable than we thought it. then nations will pay as much for a smaller quantity as they did for a larger, arid make the smaller quantify do their work. Merchants will do the same thing and give more sacks of flour and more rolls of broadcloth. In other words, prices of goods will fall till the real value of gold is established.

This may already have happened. The spectacular falls of the last few months may have anticipated all future needs for gold. On the other hand, it may only have begun to happen.

One fact emerges. No restrictions or interference will do much good, for all the world is now competing for gold and all its merchants are forced to come hack to this best of all standards of value. Albert E. Hull.