THE GOLD STANDARD

Evening Post, Volume CIX, Issue 114, 18 May 1925, Page 5

THE GOLD STANDARD

SOME POSSIBLE DANGERS

FLUCTUATION AND HOW. TO

MEET IT

(FROM ODE OWN CORRESPONDENT.)

LONDON, 7th April.

Sir Josiah Stamp, the well-known political economist and statistician, contributes an article to "The Observer," in which he points out some of the dangers if a return were made to the gold standard of currency. "Most people," ho writes, "seem so keen 'to get back to gold' that they are impatient of any admission that their idol has any weaknesses. My own view is, however, that its behaviour during the last hundred years, and especially in the twenty years from 1874 to 1894, showed it to be the most wayward of all our social servants and regulators. From 1784 to 1894 it was the cause of widespread stagnation in industry, while a repetition of its influence from 1894 to 1914 would, in these days, complicate'our already over-involved industrial relations in a marked degree. Steadily-rising prices lead to business activity, but profit-taking becomes too 'easy,' and divorced from real skill and management, and business men gain excessively at the expense of other classes of the community. Business becomes liable to unstable development, and as we have no automatic and regular means of adjusting wages readily to altered levels of prices and altering aggregates oJ production, serious industrial strife may develop and many social inequalities, result. The happy huuting-ground of that kind of promoter or speculator who really battens on economic society and leaves a trail of misfortune is the period of fluctuating, and especially of risin" prices.

"If many of the countries now using paper currencies do not desire to get them based upon a gold standard, or if, when they get 'back fo gold,' they do not require more gold in reserve than they already possess; if the United States steadily redigs and circulates her buried gold, or if she gradually gives way to the pressure on the credit functions of the banking Eystem; if the goldmining output and facilities remain undiminished—then we are in for a very substantial rise, indeed,"over a period of years. ;

SELF-ADJUSTING PRINCIPLE. "It would be absurd to suppose, however, with many factors making for the lower value of gold measured in commodities, that the supply from the mines would continue unabated. A rise of prices up to 20 per cent, would probably have a serious effect upon the marginal mines and much reduce the supply. (As we assume all prices are gold prices, the recent solution of giving a premium—in the existing currency—upon gold would nofc be available). The tendency of gold to govern or correct the evils set up by its own abundance is only the same ten. dency as exists-with all other commodities. If rubber becomes so. abundant as ,to purchase—per lb—fevi-er and fewer other commodities, a point is reached where a pound does not 'pay' to produce; i.e., does not give a wags to labour sufficient to keep labour attracted and remuneration to capital sufficient to maintain the supply. A loss then results, with contraction in supply. "I have said that the chief problem in_th» future use of gold as a standard is its 'management,' by the concerted action of the central banks.- When gold i.<= becoming too abundant, more must be taken out of use and stored up idle in central bank reserves. But when prices tend to fall, the stocks will be released, and so maintain the requisite rate of supply. No. one bank, in isolation, can do it." ' ■ ■