GOLD STANDARD

Rotorua Morning Post, Volume 2, Issue 374, 8 November 1932, Page 7

GOLD STANDARD

A STABLE VALUE

EFFECTS OF DEFEATION AND CURRENCY CONTROL. INFLUENCE ON PRICES (Published by Arrangement with The Farmers' Union, Auckland j Province.) The gold standard is fairly easy I to understand if you will take the trouble to think it out. Its mairfi object is to keep the national currencies of different countries at a fixed relative value. It means that a unit of eacfy currency — a pound, or a franc, or a dol- j lar — can at any time be exchanged for a fixed quantity of gold. The gold standard does not keep stable the relativq values of the monies of different countries. Of course, this stability of relative values is a great advantage in international trade, as it does away with the fluctuation in exchange, which is' a v'ery disturbing factor to merchants z nd adds ' materially to the normal risks of trade. The seco.nd purpose for which gold is used, by uiost countries adhering to the "standard," is as a backing against the issue of notes. The amount of paper money that can be used | against gold varies in different countries, but in all countries the effect is ' '.to limit the currency to the gold held, in varying ratios'. j Thus there is no just balance be- j I tween currency and production, since 1 the currency varies1 with the amount • of gold held by the banks and not j with the amount of real wealth, the j production of th'Ci people. ' Issue of Notes. , \ j If the banks were to issue paper money irrespective of any increase in i the supply of things to be bought and | sold, prices would be bound to rise. j Inflation 'is simply an increase in the I supply of money without a corresponding increase in commodities for sale. Production and currency should balance as nearly as possible. After the war most countries came back to the gold standard. They did not, however, come back in the same way. Britain deflated; France, Italy, Germany and Belgium devaluated. Deflation means a diminuation in the quantity of money without a corresponding diminution of the volume of goods to be bought and sold. The effect is to increase the volume of money and deerease the volume of commodities. As an illustration of the effect, take the war loans. Most of the war loans were raised when the £ sterling was at a value below 12s. The return to gold made these 12s loans worth 20s. The French returnefl to gold, but they devaluated the franc to roughly one-fifth its pre-war value. The prewar value of the franc was lOd; they ! made it worth 2£d. The 'effect of this j was to keep up internal prices and to keep down the interest on the national debt. Of course, there were ! other effects, both good and bad, but generally speaking the effects of dei flation were much more h'armful than devaluation.