THE GOLD STANDARD

Huntly Press and District Gazette, Volume XVIII, 6 October 1931, Page 3

THE GOLD STANDARD

GIVES A FIXED MEASURE. [ Many people seeing that the world • is at sixes and sevens owing to mone- . tary troubles, ask why the gold . standard is not discarded for some ; other measures of value. The gold standard has for ages been the recognised measure of value from the fact that as the supply of and demand for gold from year to year remain nearly constant so the value of gold is not subject to those variations which would make other standards unsuitable. A wheat standard has been suggested; it would vary with the succession of favourable and unfavourable seasons; a goods standard would be almost impossible to fix in the first instance; and then would be subject to all kinds of variations. After searching the whole field of natural standards, only gold is found suitable. Of course, as has been suggested lately, a number of nations might for the purposes of international trade deal with one another by means of some artificial standard unit of value; but this would work only if their trade balances were equal. If one country owed another a million of these units, it would have to pay either by a straight out delivery of goods to that value—which the creditor nation might not want—or by transferring some debt owing to it from one of the nations in the group to its creditor. These transactions would be slow and complicated compared to a shipment of gold, and trading on such a basis would be very unsatisfactory. The following excerpt from an article in a contemporary states the position as described by an economic authority. Under the gold standard, gold, either in specie or bullion, hardly varies in price. It is measured in terms of itself—an ounce of gold is worth an ounce of gold. Off the gold standard the price may vary because gold itself ceases to be a measure of value, and takes its place as a commodity along with wheat and wool, and is subject to fluctuations arising from shortage or over-supply. Between nations, however, gold hitherto has remained the measure of value. Its rarity and indestructibility are qualities that make its possession appear desirable to any individual or group of persons.

During the war nearly all the countries of Europe went off the gold

standard. Britain returned to the gold standard in 1925—n0t to the gold specie standard which existed before the war; but to a gold bullion standard. For the successful operation of this modern standard three conditions are necessary there should be a free movement of gold into and out of the country; (2) that the bank of issue should be under an obligation to buy and sell gold bullion for legal tender money at the mint price of gold; and (3) that the bank of issue should be the sole agent for the mint. The effect of the first condition named is that the exchange cannot long fall below the cost of exporting gold. But in order that the gold bullion standard may have the same effect as the gold

specie standard, the second and third conditions are required to replace the condition that within the country there should be a free movement of gold into and out of the monetary issue, necessary for the operation of the gold specie standard. If an overissue of paper money is made, the market price of gold will rise above the mint price, notes will thereupon be returned to the bank and exchanged for gold at the fixed price. The supply of gold being increased, and the amount of money decreased, an adjustment will take place in the market price of gold until that price falls to the mint price. Theoretically an under-issue of notes will cause the market price of gold to fall, and it "ill immediately become profitable for gold to be bought and exchanged at the bank for legal tender money at the higher mint price. In making the issues, the bank would have regard to the market price of bullion, increasing them if it showed a tendency to fall, and decreasing them if it showed a tendency to rise.