GOLD AND TRADE

Wanganui Chronicle, Volume 73, Issue 438, 2 December 1930, Page 7

GOLD AND TRADE

WORLD PRICE LEVELS A BROADCAST ADDRESS LONDON, Nov. 30. The effect of gold on world price levels was the subject of a broadcast address by Mr Reginald McKenna. Great interest was taken ,in the address in view of the increasing attention to the monetary policy. Mr McKenna explained that a falling price level means diminution of profits of industrial trading and enterprise. The effect if a fall comes when profits are not excessive is to stifle trade. On the other hand, a rising price level imposes an invisible duty on all fixed money incomes, such as wages, with a re-action on the standard of living. An increase in the quantity of money will not necessarily prevent a fall in the price level, since the whole , increase may be absorbed by speculation. The monetary policy cannot govern the price level unless the use of money as well as quantity can be controlled. Maintenance of a stabilised pi ice is a world problem necessitating that the real value of gold, namely, its purchasing power over goods and services, shall remain constant whcrcever it is used as a standard.

There was an unprecedented drop last year of .17 per cent in the wholesale price level. V,’e. naturally seek

to discover whether the contributory cause is a diminu’i.-n of the supply of gold. We find that although newly mined gold to the extent of probably £100,000,000 has become available during that period for monetary ami credit purposes, more than twice that amount has been absorbed by two countries without a corresponding addition to the money in active circulation. That gold is as barren as when it lay in the mine.

Mr McKenna strongly advocated an international discussion and agreement to prevent such an uneconomic decline in active stock of gold. There should be frank recognition by the monetary authorities of the desirability of a stable world level. Either more gold must be added to the quantity available as a basis of currency credit, or more effective use must be made of the existing stock. Recourse must be had in an international agreement.