GOLD DETHRONED

Manawatu Standard, Volume LVIII, Issue 227, 24 August 1938, Page 16

GOLD DETHRONED

POSSIBILITY OF DEMONETISATION MODERN PAPER 'REGIME. “The modern regime is national paper standards, related vaguely by understandings among the financial authorities of friendly countries, such as tlie tripartite agreement of lJ3t>, and managed by money market manipulation and gold sales and purchases. Gold is now an external adjunct in the management of "paper currencies. Tiiis was a statement made by 1 ro- | lessor B. E. Murphy, of Victoria University College, in an address to the Palmerston North brancli of the New Zealand Society of Accountants m Messrs Coilinson and Cunninghame s tearooms, last evening, when the Mayor (Mr A. E. Mansord) presided. “The pre-war-gold standard, * Professor Murphy said, “was really a sterling standard managed by London, which is not now as powerful as it was then financially. Central banking technique lias eviscerated the gold standard by learning to manage it out ol existence. This has been achieved byvarying reserve ratios to the credit superstructure by offsetting gold imports and exports by contraction and expansion of credit, by sterilising go ill open and secret reserves, and by the creation of exchange equalisation funds outside the money system, but ready to play on it with sudden and devastating effect. The United Kingdom Ims managed a paper money with success since 1931. Could it do so under a lndical Government ? If this success umtinues gold will cease to be the dominant money of the world, and give way for good to managed papei standards. UTILITY NOT EXPLOITED.

Gold had been a very romantic commodity, having been highly prized and greatly esteemed in every place, y every person, in every age, said rofessor Murphy. Its metallic utility had never been realised .or exp oited Should gold be demonetised—and the next generation might see that mechanical and chemical properties wouid find very great acceptance the utility field. It did not corrode and did not leave a nasty taste m the mouth, though it did in some people s pockets. Gold would assert its v *Jut in the. metallic sphere it even • • demonetised. Excavations at Lr of the Chaldees revealed the value even _ very early times set on gold by nier • It was very easily worked as a l - ‘ Gold certainly was a metal th l historic man could manipulate ease, being neither too hard nor too malleable. Even then its value was not so much of a utility purpose as for display and a store ot wealth It was a metal which, however divisible, retained its value. Metals vveie liono geneous and did not- require .a . range emmles Pure gold was as good as auy“st£« ‘pure gold, but in the"rurM industry. f there were hoggets—and the threshold of commodity value, gold appeared to attain ite value as money in about the “con millennium B.C. Because.ot _ 1 1 erties, it had facilitated baiter and had a universal acceptability, w hile counterfeits were difficult to detect Gold had a peculiar ring oi feel Lt was easily transferable and a balance of value could be maintained by mov ing it from one country to a«other. Though a certain amount ot gold was lost bv wear or tear, or was hoarded, it entered the human reservoir for good, flowing in like “ k 1 s» '** ™i“ .it *~sjssr-

ORIGIN OF COINAGE. Gold had survived as being the nttest among many things that ha served as money, the speaker continued. Gold was much more valuable than silver now than it was in the seventies The value of gold depended upon its weight and its fineness. Levantine merchants of the highest probity used to place their stamp on gold as a guarantee of its quality, and that uas the origin of coinage. Gold coins were mismanaged for centuries and d - based bv the sovereigns who issued them. Gold reached its pinnacle as a money on what was the gold standard in the nineteenth century. The essence of 1 the gold standard was a State enactment of the weight and fineness of coinage, but that did not determine its value. Free coinage- was the holdin„ of the State Mint free to stamp to the ratio of standard, coinage any go d brought along, tender the free gold system the face value of the soicm was always the same as the bullion value. As long as the Mint ratio stood, the value of gold must be invariable. Like most human institutions, continued Professor Murphy, gold had its drawbacks. It was subject to wear and tear and was awkward to carry round in large quantities. Prices would have stalled themselves if the terrific volume of trading had continued to increase while the gold standard remained inflexible. Though it was the Gieat War which actually caused the riftm the lute, the gold standard was. due to crash under its own weight. Dolilsmiths had earlier become warehousemen for gold and had issued receipts for its safe custody. They found that these receipts had become a circulating medium, and that on the average onfy ono-fifth of the gold held was ever uplifted. They decided that they only needed a 25 per. cent d and that was the beginning of the bank note system, and the effective gold simply was quadrupled in tins manner Tliis was the basis of a mechanical reserve behind gold, and the system was really insecure, becauscitwoiked only by conversion and all tbo paper was not convertible into gold at once. depending on democracy. Price levels, it had been said, depended upon the accidents of geology, according to expansion or shrinkage nold Suction, but that was preferpaper drafts could be met, a parity was-maintained with gold. No cop* l " to-day was on wliat. was definitely a gold standard. Departure from tins produced a multiplicity, of currencies but these were linked in a .defi d ratio. Silly because civilisation collectively was silly, the gold standard w.. applied when it was not wanted, and not applied when Gt was wanted. Immediately it had run up against an inflationary policy it had been siispended. There could not be both stable exchanges and stable internal price levels, es and stable internal price levels, some people said. Tlie difference was not as great as bad been suggested, but there was a difference, and people had to make a choice. Gold had been dethroned in every country except, doubtfully, the United States. Whe.ther it would ever get hack on its throne as a constitutional monarch de-, pended upon whether a democracy could be educated to understand its own essential interest in money. Gold had ceased to become the effective determinant of the credit superstructure of a country, and had become an auxiliary to paper money.