THE MOVEMENT OF GOLD.

Otago Daily Times, Issue 21146, 2 October 1930, Page 6

THE MOVEMENT OF GOLD.

TO THE EDITOR. Sin, The central point in the argument of those who, like myself, regard the present world economic depression as due, in considerable measure, to the failure to maintain a proper relation between the production of gold and the needs of expanding trade, is that just because, as Mr Sirex’tsen points out, the banks are unable to influence the supply of gold, they ought to take particular care not to increase their demands for it, but to economise as much as possible in its use. If the Bank of France and the other central banking institutions insist on accumulating large stocks of gold, the effect on the value of gold is of exactly the same kind as the effect of the hoarding of any other commodity upon its price. The value of gold rises, or, what is "the same' thing, commodity prices in general fall. It is certainly

difficult to maintain tie view that “goldi commercially considered, ia the most valutc e commodity that this world possesses.'' If all our stocks of gold were suddenly to disappear, there would no doubt be some temporary dislocation and inconvenience, but the world as a whole would not be any poorer. Nevertheless gold does perform with_ moderate efficiency the function of holding in check the disastrous tendencies towards price inflation which ln the last fifteen years caused so much su ffc rin K and loss. The essence of the gold standard is that the volume of paper money and the volume of credit are so regulated that the value of each unit ot paper or of credit is always equal to the value of a defined weight of gold. In England the value of a £5 note or of a cheque for £5. provided it is signed by a good name, is the same as the value of five sovereigns. By this means a relative degree of currency stability is ensured, unfortunately at the present time, the check imposed by gold upon inflationary tendencies has been too effective, and the result is movement in the opposite direction. It is largely on that account that it is urged that, countries which, like New Zealand, maintain gold reserves which are of little practical significance for either ..external trade or internal credit, would perform a useful service to the world, as well as ensure some profit for themselves, by allowing the gold to be transferred to a financial centre where its influence would be beneficial. We have now in Now Zealand a gold cover for our note issue considerably in excess of its aggregate face value, but the real unimportance of the maintenance of this relation may be readily seen from the fact that even now it is no longer true in New Zealand as it is in England- that the values of a £5 note and of a cheque for £5 are the same as the value of five sovereigns.—l am, etc., Allan Q. B. Fisher. Dunedin, October 1.