THE WAIPA POST. Printed on Tuesdays, Thursdays, and Saturdays. THURSDAY, SEPTEMBER 29, 1931. GOLD AS A MEASURE.

Waipa Post, Volume 43, Issue 3354, 29 September 1931, Page 4

THE WAIPA POST. Printed on Tuesdays, Thursdays, and Saturdays. THURSDAY, SEPTEMBER 29, 1931. GOLD AS A MEASURE.

Dealing with stability of value and the standard of value, a leading authority says the positive effect of a rise in prices, which is a fall in the value of money, is to enrich the businessman, to impoverish the investor, and to leave those in receipt of a salary but a little better circumstanced than the investor. The explanation of this is found in the contractual basis of the present economic system. The money income of one whose fortune is invested in Consols remains the same whether there is a rise in prices his income will purchase rise in prices his nicome will purchase less than it would before. If an employee is bound by contract to a certain salary, then until the contract expires he is in the same position as the investor. But the businessman finds his money income increasing, and more than in proportion to the general rise in prices. If the amount ' of money is increased, then the diminished purchasing power of the first two classes is bound to react in favour of the third class. This position would be reversed if a fall in prices took place. The transactions of modern business are so large that the payment of all debts in coin is an impossibility but the growth of trade has been accompanied by the development of the cheque system, which enables claims to be set off against each other. Now the set-off of claims is possible as soon as the conception of a measure of value arises, and the need for a concrete form of the means of payment, which arose in more primitive times, steadily recedes. But it remains necessary for retail transactions, for the payment of wages, etc. The banker has always to face the possibility of cash demands for these purposes. Were it not for the existence of these demands, the supply of credit would only be restricted by the demand for it, and the supply of credit is in the hands of the bankers, while that of money is in the hands of the State. Consequently the function of metallic money to-day is to control, proportionately to the demand for it in the uses indicated, the inherent instability of credit.

Under the gold standard, gold, either in specie or bullion, hardly varies in price. It is measured in terms of itself—an ounce of gold is worth an ounce of gold. Off the gold standard the price may vary because gold itself ceases to be a measure of value, and takes its place as a commodity along with wheat and wool, and is subject to fluctuations arising from shortage or over-supply. Between nations, however, gold hitherto has remained the measure of value. Its rarity and indestructibility are qualities that make its possession appear desirable to any individual or group of persons. During the war nearly all the countries of Europe went off the gold standard. Britain returned to the gold standard in 1925—n0t to the gold specie standard which existed before the war, but to a gold bullion standard. For the successful operation of this modern standard three conditions are necessary there should be a free movement of i gold into and out of the country; (2) that the bank of issue should be under an obligation to buy and sell gold bullion for legal tender money at the mint price of gold; and (3) that the bank of issue should be the sole agent for the mint. The effect of the .first condition named is that the exchange cannot long fall below the cost of exporting export gold. But in order that the gold bullion standard

may have the same effect as the gold specie standard, the second and third conditions are required to replace the condition that within the country there should be a free movement of gold into and out of the monetary issue, necessary for the operation of the gold specie standard. If an overissue of paper money is made, the market price of gold will rise above the mint price; notes will thereupon be returned to the bank and exchanged for gold at the fixed price. The supply of gold being increased, and the amount of money decreased, an adjustment will take place in the market price of gold until that price falls to the mint price. Theoretically an under-issue of notes will cause the market price of gold to fall, and it will immediately become profitable for gold to be bought and exchanged at the bank for legal tender money at the higher mint price. In making the issues, the bank would have regard to the market price of bullion, increasing them if it showed a tendency to fall, and decreasing them if it showed a tendency to rise.