GOLD AND PRICE LEVELS

Evening Star, Issue 20655, 1 December 1930, Page 11

GOLD AND PRICE LEVELS

ADDRESS BY MR M'KENNA INTERNATIONAL AGREEMENT ADVOCATED Press Association—By Telegraph—Copyright. LONDON, November 30. (Received December 1, at 11.5 a.m.) Tho effect of gold on world price levels was the subject of a broadcast address by Mr Reginald MTvenna. 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 meant a diminution of the profits of industrial trading and enterprise. The effect, if the fall came when the profits were not excessive, was to stifle trade. (On the other hand a rising price level imposed an invisible duty on all fixed money incomes and all relatively inelastic’incomes,, such as wages, with a reaction oh the standard of living. An increase in the quantity of money would not ! necessarily prevent a fall in price level, since the whole increase might be absorbed* by speculation. A monetary policy-could not govern the price level unless' tho use of the money as well as the quantity could, be controlled. The maintenance of a stabilised price was a world problem necessitating that the real value of gold— its purchasing power over goods and services—should remain constant wherever it was 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 a contributory cause is the diminution of the supply of monetary gold,” said Mr M‘Kenna. “ We find that, although newly-mined gold to,tho extent of probably £IOO,000,000 has heroine 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 tho money in active circulation. That gold is as barren as when it lay in the mine.”

Mr M'Kenna strongly advocated an international discussion and an agreement to prevent such an uneconomic decline in the active stock of gold. There should be frank recognition by the monetary authorities of the desirability of a stable world 1 level. Either more gold must be added to the quantity available as the basis of currency and credit or more effective use must be made of the existing stocks. Recourse must bo made to an international agreement.

[Mr M‘Kcnna was Chancellor of the Exchequer‘in 1915-16. He is at present chairman of the Midland Bank.]