The Auckland Star: WITH WHICH ARE INCORPORATED The evening News, Morning News and The Echo. WEDNESDAY, MAY 28, 1919. UNPROFITABLE GOLD.

Auckland Star, Volume L, Issue 126, 28 May 1919, Page 4

The Auckland Star: WITH WHICH ARE INCORPORATED The evening News, Morning News and The Echo.

WEDNESDAY, MAY 28, 1919. UNPROFITABLE GOLD.

For the cause that lacks assistance, For the wrong that needs resistance, For the fufaire in the distance, And the good that we can do.

Knowing the history, and particularly j the profits, of Transvaal mining, one may ' reasonably doubt whether the warning that has been addressed by one of the Rand magnates to the Premier of South' Africa as to "the critical position in tho golel mining industry" is thoroughly justilicd, but this message from Capetown in our news will serve to draw attention to moot important economic problems, the relation of cost of production to the output of gold, the effect of reduced output on prices, and the question whether the gold-winner should 'be assisted by the .State, either by an increase in the price of gold, or by payment of sub-tidies. The whoie problem of the supply of gold anel its eiTeet on price.., an.l of the maintenance oi the gold standard in currency, is complicated and dillicult to understand, and for that reason has never received from the average man the attention :t deserves. The question of the guhl supply j interests -New Zealanders, not only because they are subject, like other peoples, to the operation of currency laws, but because this is a gold-producing country, an.l there have already been suggestions here that, in view of the increaseel cost of production, the State should come to the gold-getters' assistance. Tito position hcr<- is similar to that in South Africa, in that in both countries the cost of winning gold lias risen, while the price of goltl is fixed by law. Gold mining companies are not permitted to pass on the additional cost of production to the consumer, and it is complained that this is unfair. The State, it is argued, should cither subsidise the companies or increase the price of gold. The demand may at first sight seem justifiable, anil appears to be supported •by the fact that the Imperial Government regarded the maintenance of the gold output during the war as very important, and, in consequence, gold miners were held to be workers in an essential industry. But neither the Imperial Government nor any other Government is likely to entertain seriously the idea of raising the price of gold, or even of subsidising its prodaction. The reason is that tho effect on currency and prices might be disturbing and even disastrous. It is a leading fact in the history of prices that the enormous increase in the world's output of pold that tho end of the nineteenth century witnessed raised prices all over the world. Gold was the national and international standard of currency and exchange. In Britain, which was the world's market I for gold, the issue of paper currency was regulated on the basis of a gold reserve. i The war came, and seemed to upset pre- | viotis ideas of the relation of gold reserve to currency. Gold was withelrawn from circulation, anel there whs an enormous increase in paper money. This inflation of paper money was one ! of the principal causes of the unprecei dented rise in prices. Money increased much faster than goods, so tbe purchasing power of money went down, and prices went up. One of the needs of the hour is to reduce this inflation and bring prices bade" to a normal level. A very able currency committee was appointed last year in Britain, with the then Governor of the Bank of England at its "head, to report upon currency and exchange questions which would arise during the period of reconstruction. committee recommended the cautious reduction of the Trensury notes in circulation, and that ultimately every note issued above a certain level —to be arrived at by experiment—shoulel be backed by gold. It was essential, it said, that Government borrowings should j cease at the earliest possible moment, and that the State should not only live within its income, but should begin to reduce its indebtedness. This committee strongly recommended the maintenance of the gold standard. But if the State raised the price of gold or subsidised gold-mining, it would be assisting to raise the price of commodities with one hand, while with the other it would be lowering them by reducing inflation. A Treasury committee, which sat under the chairmanship of Lord Inchcape, was emphatic on this point. "A subsidy for the production of gold appears to us to be fundamentally unsound,'' the committee said. "Gold has been adopted as the standard of value because, by reason of the operation of natural causes, it is available in such quantities and at such a cost of production in terms of other commodities as to give it a more or less stable value. Its value in terms of commodities is directly influenced by the laws of supply and demand. Periods of increased gold production, follpwing on the discovery of further deposits of gold capable of extraction at a low cost, have been marked by an increase in tbe price of commodities. The exhaustion of these sources of supply has been accompanied by a decline in the price ot commodities. The intention of the subsidy suggested by the gold producers is to enable gold to be produced which otherwise would not, conformably with the economic laws of supply and demand, he produced at all. Other things being equal, the result would be that the purchasing power of the whole of the world's gold would be diminished * i

I pro tanto. The value, in terms of gold, of the commodities for which it is exchanged would rise.*' The rise in the cost of gold production will probably result in a number of mines closing down in different parts of the world. But this would only be in keeping with the speculative nature of gold mining. The Rand mineowners j have enjoyed large profits, and naturally desire to eliminate the risk element in | the industry. Money will be lost in this ' closing of mines, but when has money not been lost in gold-mining? Certainly the hardship involved in such loss would i be infinitesimal compared with the risks that would be taken in raising the Mint j price of gold or artificiall}- encouraging output. Moreover, the position will to some extent adjust itself, working in | this way. The high cost of production I I leads to a smaller output Of gold; there I being less gold, prices of commodities] 'fall; in time this fall stimulates mining! by making it profitable to work mines that previously were not profitable owing I to the high cost of working; the supply j of gold begins to increase again. This interesting example of the balancing ope- , ration of economic forces may give small , i consolation to sorrowing shareholders, ' I but it will serve the world better than I State interference.