THE WAIPA POST. Printed on Tuesdays, Thursdays, and Saturdays. SATURDAY, 28th MAY, 1932. HOW THE GOLD STANDARD WORKS.

Waipa Post, Volume 44, Issue 3183, 28 May 1932, Page 4

THE WAIPA POST. Printed on Tuesdays, Thursdays, and Saturdays. SATURDAY, 28th MAY, 1932. HOW THE GOLD STANDARD WORKS.

NOTWITHSTANDING the publicity given in this and other papers, and addresses from public platforms, it is evident that many people do not yet grasp the basic principles of economics. Certain farmers argue on the merits and demerits of inflation and deflation, and the Douglas credit theory, bankers and financiers argue with economists as to which method of procedure will best serve the country’s needs —and perhaps their own; local body members advocate the suspension of their programmes of work until such time as money becomes more plentiful; and the workers’ organisations complain bitterly that “ the men at the top ” ar© the root cause of all the troubles, national and industrial. But “ the man in the street ” pl'ods wearily along, carrying his load, and perhaps wondering why all the pother, realising dimly that if he carries on as usual the position will right itself sooner or later. As everyone no doubt realises, gold was, before the war, the currency of international trade. To put this fact into different words, it was gold which caused the trade of the world to ciiculate or flow. Take a simple illustration: If A, an Englishman, bought wine from 8,, a Frenchman, in 1912, his debt to B was reckoned not in English pounds and shillings but 'in French francs. Suppose that at the same time B bought tweed from A-, then B’s debt to A was reckoned in English money. If the wine cost 250 francs and the tweed £lO the account between the merchants was square, for in those days £1 was equivalent to 25 francs. Both the French franc and the English £1 were “ linked or harnessed to gold.” In England the price of gold was £3 17s lOd per ounce troy—that is, one ounce troy of gold was coined into 3.89 sovereigns, and the same quantity of gold was represented in francs by 25 x 3.89. If the cost of the wine had been 350 francs and the cost of. the tweed had remained at £lO, then the Englishman would have owed the Frenchman 100 francs. Had it beeen necessary to settle the transaction between the two individual merchants, the English merchant would have taken four sovereigns or their equivalent in bullion gold, and sent- them to his French debtor. He in turn would have gone to his bank in Paris and exchanged the coined gold sovereigns or the bullion into francs which he could use in France.

In the days when there was a free gold market in the world, only on rare occasions was gold actually shipped from one country to another, for in each country there were merchants who were both buying and selling. Take, again, France and England. In England some merchants bought goods from France, while others sold goods to France, Similarly, in France some merchants were buying from, while others were selling to, England. AH the transactions were carried on by means of bills 'of exchange. It was only when the English-buying merchants had bought far more fiom the French sellers than the Englishselling merchants had sold to the French buyers that it was necessary to export gold from England to France. It is obvious that if the trade of the world is to be carried on by means of gold, then each country requires to have a certain quantity of gold. There must be some division of the world’s supply of gold according to the trading necessities of the various nations. Up till the Great War there was a fairly equitable dis- » tribution of the supply of gold. Smce [ then from a variety of causes the gold equilibrium of the Avorld has been most seriously disturbed. Commenting on the situation, a well-informed visitor from the Homeland said a few days ago that from Britain’s point of view there is another aspect of the Avorldng of the gold standard Avhich is worth considering. That country, during the nineteenth century, took the lead in industrial development, and became the foremost industrial nation. She first adopted the gold standard in 1816, and before the end of the century all the European nations had followed her example. British citizens enjoyed great prosperity, and large reserves of gold and credit Avere accumulated. Temperamentally Ave British are a trading people. We do not hoard our Avealth, Avhatever form it may take. We use it. Consequently when our grandfathers accumulated riches they did not allow their gold to lie useless in British banks. They lent all over the globe. Thus we helped to keep the Avorld’s gold maa\ket free, and hoarding has been prac- / tically unknoAvn in Britain. Inci - entally our credit was good-and our national reputation for honesty was high. As a result Britain became the banker of the Avorld. For- the purposes of their international trade foreign nations deposited large sum. in gold with the Bank of England m London. There the financial transac-

tions of all the trading nations of the world were settled. London, in short, became the money market of the world. In return for these banking services rendered to foreign nations London charged a commission. In adjusting the balance-sheet between Great Britain and the rest of the world this commission charge for banking services went on the credit side of the account, and in consequence we could demand goods fiom the rest of the world in exchange for these services in addition to the goods which we imjported in payment of the goods exported by us. The international banking services performed by London have, in the past, helped to keep up our standard of living in Great Britain.