GOLD STANDARD

Rotorua Morning Post, Volume 2, Issue 370, 3 November 1932, Page 3

GOLD STANDARD

AN EXLANATION LUCID REVIEW BY WELLKNOWN ENGLISH AUTHORITY. SIR JOSIAH STAMP. (Published by Arrangement with the N.Z. Farmers' Union, Auckland Province.; Sir Josiah Stamp, some time ago, gave five lectures to students on the economic situation, and they have now been published in "The Financial Aftermath of War." The1 lectures were not addressed to people with a knowledge of economics, but were framed to give in the simplest possible words an explanation of the financial position and its cause. Coming from a great authority on 'economics afid a practical business man who is the head of the L.M.S. Railway, who is also a master of lucid explanation, these lectures will be easily understood by thosel whose knowledge of international finance is elementary, and it is all to the good that th'ey should be made available to the general public. Here is a typical passage in which Sir Josiah Stamp deals with the gold standard, and while it should be made clear the lecture was given before Great Britain went off the gold standard yet this does not lessen the, value of what Sir Josiah haS to say. "Generally speaking,, when n6w gold has been easy to get, through new mines, it has be'en less valuable, and more of it has had to be givon for, other things, so that their price has risen, although nothing has happened to the production of those other things. For the price of a thing it its equivalent in gold,' and that is the first essential of a gold standard," says Sir Josiah Stamp. o Sun as an, Illustration. "People think, naturally, when the price of a thing rises or falls that' it is due to something changing in the demand for, or supply of, that thing, So it may be, but equally it may be that the tKing has not changed at all, but that something has happened to' gold, for which it is, in effect, being exchanged. But people find it very hard to think of price in this way. "We know that the sun does not go round the world daily, but that the world spins on its axis, yet instinetively for ordinary purposes we regard tlm earth' as still, and the sun as 'rising' or 'setting' and moving across the sky. Now you will see that price being the equivalent value in gold, it is very dependent upon the quantity of gold compared with the quantity of other things. And this rel&tionship by quantity is* all'-important in the working of the gold standard. • . . . "As we have no gold mines in England, we can only obtain that gold by seliing to gold-mining countries our goods and services to earn it. Gold is a commodity, in international trade, but it differs from all other commodities, for it is agreed upon as the universally accepted commodity for balances. If we had a tea standard, all our prices would be quantities of tea, and whenever a trade balance had to he met between two countries a quantity of tea would have to he sent.

"First, if the total production and the ^ total gold available as the basis of money remain reasonably matehed, then world prices will remain fairly stable, and prices in individual countries will fluctuate closely round world prices, controlled in th'e scope of the fluctuation. "But if any large part of the gold gets into a position where it is no longer used as a basis of money, th'e effective world stock of gold becomes less, no longer matches production, and world prices must fall. So, if a flow of gold takes place to particular spots, and is lost so far as its influence on money and prices is concerned, then prices do not rise there, and the gold standard mechanism does not act.

"One Way Traffic" of Dehts. "Now, such a flow of extra gold has taken place to France and America and it has not been allowed, for reasons no doubt good in those countries, to have its natural effect on prices, which could have increased their imports and diminished their exports. But the drain of gold from other countries has lowered also the world level. The corrective motions of the gold standard have been jammed. Features antagonistic to the smooth working of the standard are: the heavy 'one-way traffic' of debts due to America, which tend to be receivable mainly in gold because imports of goods are impeded hy tariffs, and th'e desire to prevent a national rise in prices because of the risk of speculation and inilation. Similarly, the standard pre-sup-poses a fluid, orvat any rate supple, response of money wages and costs to changes in price (th'ough it does not presuppose any marked change in real wages), and if money wage payments do not readily move up> and d°wn and the wage structure is rigid, as it is in this country, then the standard is jammed again. "When gold prices fall, if costs in the export trades do not go down, the export trades cannot expand to correct the adverse trade balance. At the same time, individual' purchasing power to obtain imports is not sufficiently reduced, and so the foreign trade exchange remains unbalanced and gets worse. The standard does not work. "There is no moral question necessarily involved by these obstructions. That it would be better on balance economically to give up particular national practices and desires that obstruct, for the general advantage of a smooth-working international money standard, I have no doubt or h'esitation about. We cannot have both our separate national dfesires and also the iadvantages' of the gold standard. Something has to be given up, and the world has to decide which is better on balance. Not a "Bankers' Ramp." "The way it works is not a moral question, and it is no more use preach'ing sermons to it than to a locomotive. You may blame a locomotive for not doing more than it was designed to do or ever mechanieally able to do. That is ridiculous morally. You may blame it for not doing what it is thepretieally cap«able of doing, when

you have really messed about with the works. That is absurd morally too. The more you know about ths gold standard mechanism the, less sense is there in using th'e term 'bankers' ramp' about recent events. When a car refuses to climb a wall or go one hundred and fifty miles an hour, or let you go to sleep, you might as well talk of a 'drivers' ramp.' "The nations togetb'er are giving the gold standard an impossible job to do. Devise a better machine or improve the machine, but it can still only work according to the limits set by its own constitution, and not how you would like it. "The gold standard is not worbsd merely by bankers; everybody, politicians, workers, employers, all un- ' consciously take a hand, and a special j attitude of any sisction or nation may make it unworkable. There is nothing political in this — it is bare economics. Our object must be to maintain a standard, internationally, which will go on working and producing price stability, despite folly and ignorance and sectional disadvnatage, for the . general good." ;