THE GOLD STANDARD

Hauraki Plains Gazette, Volume XXXXII, Issue 2803, 20 November 1931, Page 2 (Supplement)

THE GOLD STANDARD

On every Bank of England note are th© words, " I promise to pay the Bearer on Demand the Sum of . . . . . . Signed . . . .” And the bearer is entitled to demand to be paid in gold, Bearers do not in practice queue up in Thrcadnecdle Street demanding gold; partly because a bank note is a convenient form <>f currency, and partly because the Bank of England is entitled to pay out gold in bars containing 400 ounces of fine gold at a price equivalent to the price of £3 1.7 s IOJd per standard ounce, the standard being 11/12 pure gold and 1/12 alloy. Paper money which is backed by gold is thus secured on the actual value of the gold in the vaults; and gold being universally recognised as a precious metal, the value is the same all over the world. Paper money of one country backed by gold is, therefore, exchangeable in another country at virtually its face value; whereas paper money of another country unbacked by gold is simply paper. In the one case there is tangible, and if necessary, visible evidence that the promise to pay cun be executed; in tho other tho value of tho 1.0. U. depends on the known character of tho debtor as testified by his past, plus or minus the chances and changes of circumstance in the future. Tho gold standard being now suspended, the paper pound is of less value than the golden sovereign, and it will require more paper pounds to buy the same amount of goods. In other words, prices tend to rise in conformity with (a) common report of the debtor’s ability to pay at the present moment, and (b) common judgment ns to the impact of future events on that ability to pay. Since these two factors arc both present even when the debtor is of the highest character, the suspension of the gold standard inevitably involves a slight rise in prices (though the rise may, of course, be controlled by a fall caused by excess of supply over demand In any particular commodity). This may be termed natural inflation, which must be sharply distinguished from artificial inflation caused by. reckless multiplication of paper money, sfleh as occurred in Germany in .1923, which leads, when unchecked, to astronomical increases of price and to ultimate disaster.—Tho Saturday Review.