WOULD PROSPERITY

Manawatu Standard, Volume LIV, Issue 88, 13 March 1934, Page 2

WOULD PROSPERITY

FREE GOLD NEEDED. SIR AVILLIAM HUNT’S VIEWS. Nearly 100 persons attended an address given in Palmerston North last evening by Sir AVilliam Hunt, K. 8., his subject being “The Present Economic Situation, Its Cause and the Probable Way Out.” The attendance was representative of all classes of professional and business men of the community of Palmerston North and included also a large number of farmers from many districts about the city. The gathering took the place of the usual midday iuncheon of the Palmerston North Rotary Club, the speaker visiting the city at the invitation of the club, which designated the gathering “Farmers’ Day.” At the conclusion of the address, on the motion of Mr J. C. Ahmug, those present passed a hearty vote of thanks to the speaker for what the mover said had been a clear and brilliant address. The chair was occupied by the president of the club. Mr AV. G. Black. He could not deal with the economic situation only as it affected Now Zealand, said Sir William., in opening his address. New Zealand was dependent upon . world conditions and her recovery was attendant upon these. It was probable that New Zealand was more affected by these than any other country. New Zealanders were, per head, the largest overseas traders in the world, he said, and what was worse, per bead carried the largest overseas debt in the world. The overseas debt was a much heavier burder when considered with internal debt. All men and women were affected by this man-made slum]}, even though our knowledge and the things we produced were, greater now than ever before. Millions were in want through their inability to buy. Many suggestions to cure the position had been advanced, and most of them were to do away with tlxe plenty, but would it not be better to do away with the poverty to allow those now not able to buy ? THE CHANGE IN 1928.

Ten years after the Great AA’ar industry had revived and knowledge and production had risen to new heights, continued the speaker. The whole world seemed to be advancing towards a prosperity never before dreamed of. Then had come the crash. Gold, explained the speaker, was the international standard of value, and had been accepted as such practically throughout the world. It was the only commodity that the whole world would accept on an equal basis, and the nations all had to meet their obligations in gold. So there had been a gold standard, which had been split into three again, the gold coin, the gold bullion and the gold exchange standards. Up to 1929 it had been a very simple matter to convert the currency of one nation into the currency of another. It had meant that the gold standard was the measure used tor all other commodities. At the end of 1929, however, gold rose in value in relation to commodities. It was thus able to buy very much more in commodities than had been the case before and that brought on a depression beyond all previous experience. The price of gold had never yet been standardised and in the last four years its changes in value had brought far more suffering than ever any tampering with any other standard of measurement by persons could have done.

For five centuries, to the beginning of the Napoleonic wars, gold and silver had circulated side by side and their relative values had remained practically unchanged, said Sir AVilliam. Then silver had gradually been dropped as a standard of measurement and gold had continued on its own. All through civilisation there had been slumps and periods of prosperity, large and small. Some had beep but small declines and rises but others had been lengthy in their duration. It was with those that he wished to deal. A long-term fall in prices had been followed by the slump of the 40’s and the next fall by the slump of the ’9o’s. The next slump again had been the present experience.

The rise and fall in commodity prices could be traced in all countries, said Sir AVilliam, and also the price of gold, which had been the cause of all the long-term slumps; and the cause of the present slump.

FLUCTUATING PRICE LEVELS. AVith the use of a graph Sir AVilliam showed that in 1820, taking a common basis for purposes of comparison, the price level had been about the same as that appertaining in 1927. He took the price level of 1927 as 100. From 1820 to 1850, he said, there had been a fall from 97 to 60, and that followed by a rise to 87 lasting until 1873. Another fall to 51 followed and in 1896 the tide turned to show a rise until 1914 when the level stood at 65. In 1820, said Sir William, there had been 45d of gold per head in the world. Britain’s banks had been on the gold standard then, and the first downward trend had set in with the all-round purchase of gold. The discovery of gold in California, in Australia and in New Zealand had brought about an increase in its quantity, with the result that in 1873 the amount per head of population had risen to 115 d, while there had been a rise in the world’s price level index figure; but there then came a decline in the commodity level, because although the stock of gold was increasing, it was not increasing in relation to other commodities. In 1896 it had reached 137 d per head of population in the world. But in successive years the whole of the rest of the world had gone on the gold standard and' the demand for gold grew with every nation’s banks wanting a reserve of gold. That made the demands for gold greater still, with the consequence that gold commanded the purchase of less commodities. The world’s stock of gold had not increased as rapidly as the demand. But in 1896 the next rise had come about with the discovery of the cyanide process, which greatly increased the output of gold from South Africa. The stock of gold in the world then rose from 137 d per head to 226 d per head in 1914. There were no more countries to go on the gold standard to absorb it and the stock of gold was then sufficient to carry on trade at a higher price level. From 1820 to 1914 the general price level, in the long run, was fixed by the relation that existed between tire world’s stock of monetary gold and the world’s trade financed on a gold basis. - In 1914 the price level could Ive taken as 65 and the whole world had abandoned the gold standard except the United States. The only thing that held the price level in relation to gold was the expectation that paper money would again return to gold. As that expectation became less and less, the price level soared higher. In 1920 it had reached 180, but that was on paper money, so that on gold it would be more like 130. The Cunliffe Report then advised the return to the gold standard as soon as it could be done. The British Government adopted that as its policy. Britain, the speaker added, returned to the gold standard in 1925 and that had now been regarded as a

great mistake, as Britain attempted to return to the old full standard whereas Franco, Italy and Belgium returned to it only fractionally. In 1931 the price level reached 65, with the gold wealth standing at 238 d. The. price level continued to fall and then the whole system cracked and Britain was driven off the gold standard. GOLD CORNERED. The price level had been kept fairly steady all the time since, said the speaker. There had been enormous increases in the gold stock of the world, but the price level remained about the same in Britain. In 1929 India stopped hoarding gold, people commenced selling their old gold later and the mines produced more. The result was that the world’s stock of gold had increased enormously, but even so the price level was 66 in February, 1934. It had been cornered, perhaps not intentionally, through the operations of the world debts with the co-operation of the Central Banks. It had been only since the war that there had been largo inter-govern-mental debts, and the Central Banks, which had to have a reserve of gold had commenced with far too big a reserve. England forgave the European nations their debts except in so far as she was debtor to America, so. that England became nothing more than a pipe pouring gold to America as fast as it came to her. France and America found that receiving larg'sums of gold was quite different to receiving goods in payment of debts, and .from 1926 to 1931, the date of the Hoover Moratorium, 2,250,000,000 American gold dollars had been received by America. Over 750,000,000 dollars of that amount had been received in goods and the rest in gold. In starting with too high a minimum gold reserve, the Central Banks had tied up two-thirds of the monetary gold of the world. Again, said the speaker, once the gold had gone to America or to France, it could not be brought back because they both refused to trade and would not send the gold out again. They would not undertake borrowing, so the gold stayed in those countries. The position had arisen in six and alialf years, while the payments ivere scheduled to go on for 60 years. The result was that the whole world had gone off gold as a standard. Gold might be cornered, and it took 40 years for the current holding of gold to be produced, so that if a corner did result it would be 40 years before there would be that amount of gold produced again. The nations had to have some common standard by which they could link their economic systems together, said Sir AVilliam, and at the present time gold was the only standard that would be accepted.

GOLD’S INTERNATIONALISM. Further, gold was a necessary automatic link m international trade, said the speaker. Under the gold system the trade balances were settled in gold. Every now and again an outrun of gold from a country took place. Credit was then restricted and the rate of interest raised. All traders then reduced their stocks and also reduced prices, so that exports increased and imports fell off. That created the payment of gold to the country to a certain extent, but further than that other countries’ money flowed in to take advantage of the higher rates of interest. That system had now broken down completely because we were off the gold standard. Money was prevented from flowing from one country to another to take advantage of the higher rate of interest. The agencies which owned the money were now more concerned with placing their money in a country where the currency did not depreciate. France, Belgium, Holland and Switzerland were, until recently, the only countries on the gold standard. No man could now tell what would be the relative value of two currencies in a month’s time. International trade was thus made very difficult, if not almost impossible. It had fallen and all countries had tried to limit their imports and increase their exports, but while all were limiting at the same time the latter could not be carried out. Then they had tried to advance their own internal price level. In trying to advance tlieir own internal creditor and debtor position they had been confronted with the problem of international trade. Great Britain now wanted to maintain her internal price level and she was inclined to let her foreign exchange position look after itself. Since 1922 the Exchange Equalisation Fund had been in operation, but he thought that it had been used rather in maintaining the internal price level, which had only fluctuated between 60 a.nd 66.

AVHAT ENGLAND DESIRES. The return to an international set of values was the first means of restoration, said Sir AVilliam. Until that could be obtained it was impossible to get back to world prosperity. The only accepted international standard of value was gold. Up to a few weeks ago there had been only the four countries which had been successfully working gold, but now the United States of America had come back to a bullion basis. Britain was still on paper and it was of the utmost importance to those other countries on the gold standard that Britain should return to it as well. He thought that Britain was working towards a return of the gold standard, and lie thoughl also that the other countries would make very great concessions to.enable Britain to reach that end. Britain wanted to know before she returned to the gold standard that it would be free to act as it did' in the pre-war days. Three things were necessary to that end. The war debts had to he settled, either written off or elso the United States and France had to so alter their tariffs that goods could move freely in international trade. Another thing necessary was that the big minimum reserves of gold held b T the Central Banks would be reduced. Also a very great reduction in the high tariffs and embargoes would have to come about.

England would not go back to the gold standard until she saw that those things would be agreed to, said Si 1 William. When the necessary action had been taken by the other countries and England had returned to the gold standard finance and international trade would flow again and the world would get back to prosperity within a very short time. But it was of ■ very great importance to England to know what her price level would be if she went back to gold. As it looked now it seemed that she was working towards a parity of 12s 6d to the £. America had returned at 11s 9d and it was significant that the Exchange Equalisation Fund now in operation was retaining the parity at about 12s 6d in England, or about 38 per cent below parity. Then we had to consider at what price New Zealand would go back to the gold standard. The problem would be solved in the near future he thought. Taking the price level at 62 now, and 100 as the common figure, he thought that the ultimate price level would be in the vicinitv of 80. At the conclusion of Ins address bir AVilliam answered a number of questions relating to economics. During the evening supper was provided.