GOLD CURRENCY

Otago Daily Times, Issue 21643, 13 May 1932, Page 8

GOLD CURRENCY

TO THE EDITOR.

g ll{j —]('or some considerable time I have ’followed with interest the letters of Mr W. Sivertsen and have always considered him as one possessing more than the average knowledge of economics and finai-.ee. His views on the value ot goli, however, as given in yesterday s Daily Times, prove him to be one of those people who cannot conceive a successful currency divorced from gold. With his opinion that, because “ Plato’s ” views on the gold, standard have not been disputed, they must necessarily be correct, I have no concern. “ Plato ” appears to be one of those far too numerous people who consider gold as the standard of money, whereas it is in reality a standard of value and constitutes the ratio by means of which goods and services arc exchangeable. , . . ~ To assist himself in arguing that gold is the right and proper form of money, Mr Sivertsen has palpably misquoted Gresham’s Law, which, as 1 remember it, is not that inferior money is driven out of circulation by superior money, but that “ bad money drives out good money, but good money cannot drive out bad money/' The point to decide is what constitutes superior or inferior money. In discussing this question, one fact must be clearly established, and that is the function of money Trade and commerce throughout the world to-day are as much carried out on a system ot barter and exchange as obtained in mediaeval times, but, owing to inequalities in exchange values and to the lack of divisibility of many commodities, a go-between lias been arrived at. This go-between we term money. As Macleod says' “ All nations hit upon this lan. They fixed upon a certain material substance which they agreed to make always exchangeable among themselves to represent the amount of debt.” We see, therefore, that commerce to-day is carried on by exchanging commodities for money, which in turn is exchangeable for other commodities. That is the true function of money—a means of expressing values between commodities and an aid to the

settlement of debt by effecting otherwise impossible exchanges. . . , To return to Gresham s Law, whioh, broadly speaking, is that cheap money drives out dear money, it must be understood that the utility of money depends on whether it successfully performs its functions, entirely irrespective of the material from which it is manufactured, Jt we so battor and deface a gold com as to make it quite unrecognisable, would it still possess its money value? Mould it still exchange or circulate freely? JNot at all! Its money value would have .gone, and until the coin had been. reshaped and reinscribed it would be merely a piece of metal. We see, then, that it is not the material out of which money is manufactured that gives it its value but rather the inscription or the promise inscribed upon it. Why, then, should so many economists strive to prove that gold is a better money than paper? It is not so. We recognise the economic law that man-, kind seeks to gratify its wants with the least expenditure of energy—a law which corresponds to the line of least resistance in mechanics. And we know that of two things equally well adapted to fulfil a certain function the cheaper one will ne selected. That is why, in time, Greshams Law will be universally adopted and that paper will be the universal forrn *>£ money. , . , , . When drawing Ins analogy between monev and an ocean liner Mr Sivertsen is indeed at sea. He asserts that any shape or size or metal will not suit the purpose of a currency. I have endeavoured to show that, within certain limits, the composition. shape, or size of money is _ immaterial. It is that exchange value given to it by the community which determines its usefulness. The law governing money is similar to that governing humanity, the law of the survival of the fittest, the fittest in this case being the most acceptabln his letter of April 22“ Plato" says, considering the history of the domestic gold standard: “As two articles are rarely of the same value, the difference is made up by the use of an article of a definite value—gold.” From that premise i differ. No article other than those essential to life has a definite value. The value of gold has been arrived at and given to it by a study of the ratios by winch commodities exchanged before gold was maae money with a relationship to the amount of gold available. That, is to say, the value of a sheep is so much fencing wire expressed in terms of gold. Gold is not of definite value. It expresses definite values No farmer selling sheep wants gold, but he knows that with the gold exchanged for so many sheep he has a title to so”much wire. Mr Sivertsen says of gold that of all commodities it is the only one that, holds its value by commanding the price in the open market when the prices of eyerv other commodity are falling and curtailing trade. That statement simply bristles with inaccuracies. If we accept as true the premise that gold is the standard ot values we can readily understand why its value appears to fluctuate as prices fall If we accept gold as a commodity, we are doing that which science says cannot be done. If tt is to be a successful exchange medium we must not allow eold to be recognised as a commodity and subject to the laws of supply and demand. In conclusion, I wqulcl draw an analogy between the issuing of money and the issuing of postage stamps. noth arc social instruments created by society lor its use. Would Mr Sivertsen or Plato place on postage stamps the same restrictions as are placed on currency.—l am. ctc E. Egberts. Shag Point, May U.