The Guardian And Evening Star, with which is incorporated the West Coast Times. SATURDAY, AUGUST 20, 1927. A PHASE OF BANKING.

Hokitika Guardian, 20 August 1927, Page 2

The Guardian And Evening Star, with which is incorporated the West Coast Times. SATURDAY, AUGUST 20, 1927. A PHASE OF BANKING.

In regard to the relative merits ol dili'eront hanking systems, a subject referred to in this column oil Thursday. an exceptionally informative article appears in the last monthly review of the Midland Bank oil “The •Course of Gold Values. ’ In this story of the ioniieetie.il between gold product inn and price levels is U'accil hack for about one hundred years, and it is shown that, broadly speaking, an Microti so in the production ol gold lias been usually accompanied by a rise in commodity prices. Consei|iiently. as it mav he assumed that a regular expansion of trade and of the 'World s 1 > 'pnla.tioii is taking place over long periods, it is true to say that, in order to maintain commodity prices in general at a steady level, a regular proportionate addition must be made year by year to existing stocks o! monetary gold. After the violent fluctuations which were brought about by the war, prices now .seem to have settled down at a level about half as high again as obtained before 191 I. yet the gold production has actually been on a somewhat lower level. ’I here are various explanations of this appment contradict i. n. One is the almost universal abandonment ol gold coin in active circulation. Ibis has not been common to (Inal Britain, hut lias taken place in various other countries, with th" i-rsuU that, whereas the "old circulating in the. hands of the public i" 1913 probably amounted to £51X1.03(1.000. the world figure to-day may lie put at not more than £100.00(1 Oil ’. a largo part of the difference having gone into Government arid cod nil hank holdings, 'liras a distinct "(•")- nc-iny in the use of gold was atlained. Th" second movement was similar. Before the war individual Btiti.-h hanks held their own gold n -mYew. nearly all th" gold in the ("innl.i'i is in th" vaults of the Bank of England. This pro..ess of concentration has led to a reduction in proportion ate cash reserves, for the strength of a single central stock of gold far exceeds that of scattered resources. Consequently. a much larger volume of credit. has been built up on the basis of the "rowing stocks of gold in cent it banks. The third point is a matter ol geographical distribution. In order to balance in part the heavy excess of the eastward flow of goods (luring and after the war, the Old AYorlil supplied the New with large additionid stocks of gold. The monetary gold held in the United States more than doubled between 1913 and 1923, and whereas before the ‘War the United States held a quarter of the world’s monetary stock, it now possesses nearly a half. The fourth explanation is that the centra,l hanks of many countries like Germany and Austria, in the process of currency restoration, have been farced into the position of holding substantial quantities of hills on free gold centres and balances with hanks in those centres as hacking for their note and deposit liabilities. To summarise these four changes, it may he said that on balance the use of gold has been materially economised as a result of the war. thus enabling the world to restore sound monetary eondilions without reverting to the prewar level of prices. To this .Midland Dink Review the question of the future demand for gold and the future production of tile metal is discussed with some fullness. The conclusion readied is that- a large element of doubt, must overhung any attempt to prophesy in ibis matter. The most that call, he said is that, failing any discoveries of new sources or of new processes for a more economical extraction, there may he a. shortage of monetary gold in the future, unless further economies are effected in its use. or unless a far higher degree of management than is now practised becomes operative. The difficulty of forming any dependable estimate of the probable course <:f gold values in the future is not lessened by the fact that the views of the various experts on this matter show a wide divergence cf opinion, while the same authorities are also in conflict in regard to the measures that should he adopted in order to obtain the muchneeded measure of stability in commodity prices. And the lesson from it all is that artificial means of credit are in the end illusionarv. AA’e come hack to the basic need, more production., more created wealth. The virtue of real work is production, a fact which makes plain a fallacy of restricted effort such as going slow, hours of work reduced ridiculously, and so on. There is the need for a free labor market. and a return to the old conditions of all nulling an equal strength in the desire to do their best, and the host for themselves. The soundest and most satisfied results to the producer came from that- system. Tt is the one sure way “tn pull through.”