THE GOLD STANDARD

Poverty Bay Herald, Volume LV, Issue 17608, 26 October 1931, Page 9

THE GOLD STANDARD

/ SUSPENSION OR ABOLITION ? By F. W. Riach. Since the Great War it has been quite evident that the gold standard which served us so well for about 100 years while Britain became the greatest trading nation in the world, has been much in dispute. A great army of clever economists has arisen who are determined to scrap the system as being no longer workable in a world of altered conditions. Np man would bo bold enough to state that the gold standard was absolutely watertight or that a better would never be found, but with all the cunning ingenuity of these economists they have failed to convince us that the gold standard was wrong. During the war and long after Britain was rationed severely with fpod commodities, but that did not prove that they were eating too many potatoes, butter and sugar in tidies of peace or that the conditions then obtaining should prevent them from a return to full and

plenty at the first possible opportunity. There is nothing wrong with the gold standard; the present crisis has arisen from a set of circumstances unforeseen and undreamed of by our financial highbrows who as yet have offered no solution of the difficulty. As the editor of the New Zealand Herald briefly puts it, the international demands for payment are greater than our store of gold cax meet and the only method of adjustment to normal conditions is by export and import restrictions. From the tone of one inquirer after knowledge on this, subject I take it that lie and others would greatly appreciate the A.B.C. of it in language distinctive from bankers’ reports or the high flown effusions of economists and he is to be commended for his honesty, for business men are not much concerned about the gold standard beyond the fluctuations of the bank rate of interest The subject, however, is too wide and too far-reaching to dispose of in a short article like, this, which merely outlines one phase of its functions, hut in the vernacular ho asks for ho must understand that onr currency is based and issued proportionately yy a iittlsi heap of

gold in the vaults in Threadneedle street. If this heap has the luck to increase so does our currency in the shape jf “Bradburys” or Treasury notes, should the heap diminish these notes are side-tracked and withheld from circulation, with the obvious result that money becomes scarce and in all probability the bank rate advances. The strange feature shout this is that we have no control over this heap of gold for we are (or were some years ago) an open market to the whole world and any cute nation which bad an industrial axe to grind could force a trade depression upon us by quietly buying up our gold. The little heap could also be much lessened by international indebtedness when liquidation thereof was demanded in bullion, and this aspect was clearly seen by Me. McKenna and other banking experts in relation to America after the war, when they demanded an investigation as to the functions of the Bank of England in this respect in the event of the restoration of the gold standard. Up to the present as a' standard of value and a store of value gold has been universally adopted by all civilised notions in the settlement of international balances by the shipment of bullion from the debtor to the creditor country on account of its attributes possessed by no other metal.

' We nre quite aware that a perfectly stable standard of value does not exist, but gold which is easily the most saleable and highly prized commodity in the world has been an excellent substitute for a more perfect material down to the present moment, when it is imminent that we must revise or abolish it. llow can we hope for a restoration of the gold standard currency when America holds more than half the world’s gold and keeps insisting on her payments in gold for war munitions and supplies sold to us at preposterous prices when she could cancel a large portion of the debt by reciprocity in goods? There is nothing wrong with tho gold standard in normal times, but whether at is applicable to the present state of flux in which the commercial world is, or whether our great system of credit money can be successfully conducted without it is a problem for our financial experts to solve. The unexpected has happened, gold is much dearer than when wo began to re•jjujS ifiHK -mw bb£ -aim-Km tett to

what limits it may go. Financially wo have come to the Red Sea place in our business lives. There is no way out and no ' way back and no other way but through It is not possible in this advanced civilisation for us to resort to Homer’s time, when cattle were the standard of value ahd a suit of golden armor was worth 100 oxen, nor is it possible for us to foist upon an intelligent public unconvertible state paper money that is liable to depreciation, for a currency note without a gold standard is a different holding to a currency note with a gold standard behind it. On this matter I think Goethe’s immortal statement holds good still, that the devil himself was the inventor of paper money, and in the “Garden of Pleasure” ho describes corrupt society stimulated by paper money not to the accomplishment of brave deeds but to idleness, self-indulgence, strife, crime, and rebellion, in which the Emperor is made to say: My people take it for true gold they say, In camp, at court, it passes for full pay Much as I wonder—it I must allow — Ilis satelites and courtiers are then called in and admit that they spend this easy money on wine, women, and oilier amusements of the day because of its instability.

Someone has wisely said that indebtedness is tho indispensible tool of modern production and exchange and that it was a discovery of tremendous importance “that promises to pay” wero equally efficient in 'production and exchange ns metallic money, and this is essentially true for according to bank reports 518 per cent, of all commercial indebtedness is cancelled with these immaterial promises to pay. This is the base of our huge superstructure of credit money system, but we older men hitve only have implied faith in if because of the substantial gold reserve behind it,, which, however, does not. prove that it was necessary for that particular purpose. The Cunliffc commission of 1918 set up to consider the currency problem at that time reported, inter alia: — “We have found nothing m the expertcnees of tho war to justify the lessons of previous experience—that the adoption of a currency convertible at will into gold is likely to lead to over-issue and so destroy the measure of exchangeable value and cause <l. general rise.of prices and adverse) perditions in foreigfr- exchange,”

Their fixation of the maximum fiduciary issuo at £320,000,000, undoubtedly saved the Empire from tho ruin which overtook those countries who had no limit fixed. Progress is the law of life and we are again at a parting of tho ways . whore things obsolete must-pass into oblivion and so wo await with expectation the opening of tho now era of commercialism!