FOR AND AGAINST GOLD.

Press, Volume LVII, Issue 17295, 5 November 1921, Page 13

FOR AND AGAINST GOLD.

AN INTERNATIONAL BANK PLAN. WOELD MSB IN PRICES. (7*oll OVR OWH CORR.BSFONDENT.) LONDON. September '2O. Tho question of currency deflation occupied the attention of economists at the Edinburgh meeting of the British Association, when a proposal for the establishment of an international note issuing bank and the gradual institution of an international stable standard of valuo was submitted by Mr A. 11. Gibson, Fellow of tho institute of Bankers and of the Royal Statistical Society. The immediate functions wero to provide -financial machinery to controf the rate of deflation, to afford financial asistance to the impoverished States, and to accelerate the economic and financial recovery of thy world, but its ultimate function being the gradual creation and maintenance of an international stable standard oi value. Reviewing briefly the advantages and disadvantages of the gold standard in pro-war timer, Mr Gibson said: —"The gold standard collayiscd during tho recent war in European belligerent nations, and other notions were flooded with unwanted gold. In the event of great new discoveries of gold at low cost of extraction, or of tho progress of science effecting the transmutation of one or more of the baser metals into gold at a low cost, of which admittedly, m both cas»>s, there docs not appear to be any likelihood, tho immediate effects of such discoveries on industry and finance are too terrible to contemplate-. For the past twenty years or more there has been a growing recognition of tlie defects of the gold standard of value, but banKers and economists have naturally been loth to suggest a change in case any new adopted standard should prove in practice to have greater defects than the old standard tested by long experience. This hesitation to make a change) however, appears to have been largely due to insufficient recognition of the truth that it is the interest factor that in realiy ulimately controls tho aggregate amount of available units of purchasing powor. Gold as a standard of value, js antiquated nnder modem conditions of banking and credit. It is surely untenable that the economic progress of the world and degree of labour contentment should be largely dependent on the uncertainty of the rate of production of a metal. If any permanent departure is ever to be made-from tho old gold standard tho present timo appears to be. particularly opportune for the change to be effected, for the public in countries accustomed to a gold j currency in pre-war times have now become accustomed to a paper currency, commodity values are in tho melting pot and there has taken place, as a consequence of the war and ' unprecedented inflation, widespread _ unjustifiable changes in the distribution of the national income." Mr Gibson proceeded to explain tho constitution of the proposed bank. At the commencement, ho said, an international commission should bo constituted,'with representatives of ' Groat Britain, France, and the United States of. America, representatives of other nations being admissible to the commission in tho future, subject to- tho acceptance of certain conditions, it being recognised that the greater number of nations eventually represented by the commission the greater would be the success of the scheme. Amongst the other conditions, he suTgested.that the not*fl, in whatever currencies they be issued, should be a first charge on the combined assets and.re venue severally and jointly of thd'-'States represented by the commission. Tho notes should primarily be intended for tise as a constituent of home bank,reserves for covering issues r of internal currency by transfer for settlement of international floating differences, in the same manner as gold functioned in pre-war times. The notes should only*bo issued to the State or pivot bank, such as j the Bank of England, and the rate : of interest by the banks to which they were fiitet issued should be uniform'in the case of the larger States, ' but should normally vary, with an .-agreed compound index number based upon commodity prices ruling in the larger ; countries. Alternately, the commission could vary the rate according to the general tendency of world-widb prices of a few basic commodities. The proposed Bcheme would afford material relief to the present economic and financial disorganisation of the world, would lead to greater economic progress and social contentment, would lessen industrial strife, and would probably have some influenco in preserving international peace.. The Question of Deflation. Contrary to Mr Gibson, Professor J. S. Nicholson (dealing with deflation) did not not agree that the present was an opportune time for international action, and was more in favour of the retention of. .the gold standard currency. The chief cause of inflation was the increase of Governmental borrowing and a stoppuge of the growth of nidation involved a stoppage of fresh Governmental borrowing. Next to Governmental borrowing, the chief source and the chief scourge of inflation had been over-epeculation and over-trading, associated with a growth of .monopolies and of now issues ot companies promising extravagant rates of interest? But,>the aspect of inflation that had attracted most public attention was tho rise in potatoes. Both at home and atnoad prices-Jiad got beyond the range of effective demand, und, allhou:;n tncro had been a spectacular fall in the index numbers for wholesale prices, retail prices had only responded* imperfectly and slowly. T.ie paradox aros<! that there ivns an apparent glut of commoditi'-. Mid tho greatest proportion of unemployment on record at the very' time_ wneu the effects of the under-production of tho war period ought to be made good. The fall m wholesale prices was due to the re-actiou against over-speculation. and the great task of deflation was to reduce the inflated currency and credit so as to prevent a recurrency of inflation and iti evils. If that policy were foilur.ed, retail prices would be adiusted to wholesale prices and a lower level established. Wages must be adapted to the new level, and so also must profits. A popular argument against inflation was founded on tho burden of the National Debt, but the debt charge «,".» oniy one part of the public erumditure. and in time tho fato of interest on state loans ought to fall and, by prudent conversions from time to time,.the State could lessen the money burden of the internal debt. Professor W. R. Scott (Glasgow) contended that t'-'f restoration of an effective gold standard was the most reasonable" obiect at which to aim in tho ner.r future. The maintenance of the stability of the foreign exchanges was an object of prime importance, and while the restoration of an effective gold standard might not be regarded as the royal road to economic prosperity,

it waa at any rate a respectable interim measure.

Professor E. Cannan (Oxford) said that people had been bo easily contented with the paper currency that it was difficult to imagine that paper would •jot continue in circulation, oven although it was no longer the standard of value. Professor A. W. Kirkaldy thought the present position was most remarkable. The raw materials which the world was crying out for existed in large .quantities; the equipment for manufacturing the goods required was greater than ever, and abundant labour has waiting to be employed. All that was wanted was some' medium of exchange to get the' thing working. Why should they, in the race of that world demand and the large amount of unemployment stand idly by, advocating a return to the restoration of the goto ■ standard, afraid to aitetnpt an experiment which, while.it might be a failure and cause, a certain amount of inconvenience and distress, might on the other hand, if it were successful, lead to a new era of prosperity? Britain's Financial Birthright. Commenting on Mr Gibson's suggestion, "The Financial Times" describes the plan as ingenious, but it cannot conceive London surrendering # its financial independence (based as it is equally on command of resources and ability to direct them) to an international enclave in its midst. "Such a surrender might be thought of if the new plan promised immunity from any of the troubles the war brought with it. But Mr Gibson frankly admits that under his scheme in the event of future wars, 'in case Groat Britain was one of tho belligerent Powers, wo thould simply bo driven back on our own State credit to support our bank cash reserves and currency note issue,. as is the position at tho present time.' For what earthy purpose, then, .should we. give uj> our financial birthright?"