GOLD AND PRICES

Dominion, Volume 24, Issue 58, 2 December 1930, Page 11

GOLD AND PRICES

World Levels Discussed NEED FOR AGREEMENT London, November 30. The effect of gold on world price levels was the subject of a broadcast address by the Right Hon. Reginald McKenna, M.P., chairman of the Midland Bank. Great interest was taken in the address, in view Of the increasing attention being given to monetary policy. Mr. McKenna explained that a falling price level means n diminution in profits of industrial trading and enterprise. The effect if the fall comes when profits are hot excessive is to stifle trade. “Invisible Duty.”

On the other hand, he said, a rising price level imposes an invisible duty on all fixed money incomes and all relatively inelastic incomes, such as wages, with a reaction on the standard of living. An increase in the quantity of money will not necessarily prevent a fall in price level, since the whole increase may be absorbed by speculation. Monetary policy cannot, govern price level unless the use of money as well as quantity can be Controlled. The maintenance of a stable price is a world problem, necessitating thot the real value of gold, namely, its purchasing power over goods and services, shall remain constant wherever it is used as a standard. There was an unprecedented drop last year of 17 per cent, in the wholesale price level. Diminution of Supply. “We naturally seek to discover whether the contributory cause is a diminution in the supply of monetary gold,” said Mr. McKenna. “We find that although newly-mined gold to the extent oi probably £10,000.000 becomes available during that period for monetary and credit purposes, more than twice that amount has been absorbed by two countries without a corresponding addition to money m active circulation. That gold is as barren as when it lay in the mine,” Mr. McKenna strongly advocated an liiterniitiomil discussion and agreement to prevent such an uneconomic decline in the active stock of gold. There should be n frank recognition by monetary authorities of the desirability ol ti slnble world level Either more gold must bo efl’ed to Hie minntity available ns the ' --is of currency of n cr-rl’tor. or a more oC-cptivc use must be made of the exist ing stock. 'Recourse must be had io an intermitieiml agreement.