THE WORLD’S GOLD

Sun (Auckland), Volume IV, Issue 953, 22 April 1930, Page 11

THE WORLD’S GOLD

AN ARRESTING THEORY “MOVE TO LOWER PRICES’’ An interesting yet arresting argument is advanced by Professor Cassel, jioted .European currency expert, in a recent article to the Monthly Review i*l Lloyd’s Bank. Professor Cassel fkates that ever since the war a growing scarcity of gold has threatened ihe world with the consequence of a continuous lowering of commodity j>rices. resulting in a general economic Repression. The amount of new gold required to |»e provided each year for the purchasing power of gold to be maintained *it a constant level increases in proportion to the rapid economic progress of the world, whereas an already insufficient production is expected to be jeduced very considerably during the jiext two decades. The effect of that, as Professor Cassel foresees it, might be a •‘calamity.’* To prevent it there must be a systematic reduction of the monetary demand for gold. This abandonment of gold coinage ?ihould now. ho suggests, bo extended o all countries. And, secondly, the central banks should agree to reduce their gold reserve requirements. Professor Cassel claims that under the leadership of the Bank of England this policy of permitting reserves to fall below the level formerly maintained has produced very valuable results. Without such deliberate efforts tho recent money stringency would have proved much more troublesome. A great question presents itself as soon as we have chosen the stability of the general level of commodity prices as the aim of monetary policy. What means has a central bank for regulating the purchasing power of its currency? The answer is that a central bank has so to regulate its rate of discount that it will at any moment correspond to the actual situation of the capital market of the country. If a central bank keeps its currency fit parity with gold, and if by cooperation of all central banks the value of gold is kept stable, all will have been done from the monetary side. Professor Cassel says, to avoid unnecessary fluctuations in the development of production.

During the past year the stability bf the world’s price level has also been threatened by the eagerness of Some central banks to increase their gold reserves. The Bank of Prance lias accumulated a gold reserve far beyond any sum for which it could under any conceivable circumstances have a practical need.

It is certain that a better insight into the duties of central banks and a fuller acknowledgement of their true responsibilty would have to a great extent prevented tho economic depression which we are now witnessing, and which we shall endeavour in vain to overcome until we secure for the world the fundamental conditions of stable money.