PRICE LEVELS

Evening Post, Volume CX, Issue 131, 1 December 1930, Page 10

PRICE LEVELS

EFFECT OF GOLD

A BANKER'S ADDRESS

MONEY ECONOMICS

Uuitecl Press Association—By Electric Tel*> graph—Copyright. (Received Ist December, 2.30 p.m.) 'LONDON, 30th November. The effect of gold on world prict levels was t-lie subject of a broadcast address by the Eight Hon. Reginald M'Kenna, M.P., chairman of the Midland B.'ink. Great interest was taken in the address, in view of the increasing attention being given to monetary; policy. Mr. M''Kenna explained^ that a falling price level means a diminution iv profits of industrial trading and enterprise. The effect if the fall comes when profits are not excessive is to stifle trade. On the other hand; v. rising price level imposes an invisibleduty on all fixed money incomes and all relatively inelastic incomes, such as Wages, with a reaction on the standard of living. An increase in th<» quantity of money will not necessarily prevent a fall jn price level, since the whole increase may be absorbed by; speculation. Monetary policy cannot govern price level unless the uso of money as well as quantity can bo controlled. The maintenance of a stable price is a world problem, necessitating that 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. "Wo naturally seek to'discover whether the contributory cause is a diminution in the supply of monetary gold," said Mr. M'Kenna. "We find that although, newly-mined gold to the extent of probably £100,000,000 becomes available during that period for monetary and credit purposes, more than twice that amount has" beeii absorbed by two countries without a corresponding addition to money in active circulation. That gold is as barren as when it lay ia the mine." Mr. M'Kenna strongly advocated an international discussion and agreement to prevent such an uneconomic decline in the active stock of gold. There should be a frank recognition by monetary authorities of the desirability of a stable world level. Either more gold must be added to the quantity available as the basis of currency of & creditor, or a more effective use must be made of the existing stock. Re* course must be had to an international agreement.