MONETARY FETISHES
DAVENPORT By NICHOLAS ONE of the fetishes in Western capitalism, which we seem keen to preserve, is the worshiprof the Gold Reserve—the golden calf of the capitalist system. Some gov- ernments will throw people out of work in order to enlarge their gold reserves. The proportion of gold relative to.clollars and ster- ling held in international reserves has, indeed, actually gone up: For 'iN'een sovereign trading nations the transfer of told bars is still the accepted practice. The fact that it does not seem odd to the average business- t41;411,_10 dig up gold at enormous cost in one part 'pr the World only to bury it again in the vaults of c:isit's.in time, engage the attention of the psychia- ',Rile central bank in another part of the world War, which shattered so many illusions, did not Mei gold except that it caused most governments 'ut not the American) to see through the preten- °usness of having a gold backing for their inter- al currencies. For international payments the °1d system has remained sacrosanct—in spite of to grave inconvenience caused to the sterling area nd others by the maldistribution of the world (3vi, ks of gold; the bulk_of them still lying at Fort USA. Any suggestion that the price of gold %Id be doubled or quadrupled in order to 'enlarge international liquidity has been hotly calf. (There by the American guardians of the golden tail (There is a lot of humbug in this American renetimoniousness, for everyone knows that the 0.1 reason for their opposition is that raising the .4 of gold would help Russia, the second largest fbZucer after South Africa. As if a few extra I qt,,1"5' of dollars would upset the balance of 1,i liar power!) International liquidity has cer- byTi?' been improved in the last eighteen months ft06"e UK and other European countries gaining bliC; at the expense of the American stock-pile. tb,,,'n view of the stubborn refusal of American ",!tarY authorities to discuss any modification its:1e gold mystique, it is good to have one Dr:nsible American professor at last making a wh,est. This is Professor Robert Tritlin of Yale, evic.i has now written many articles and given corience before the joint economic committee of thte4ress advocating the turning over to the tkior4ational Monetary Fund of all the world's stilling reserves held in foreign currency and to the ein.extent also in gold. Against these balances Venri."11P would issue deposit notes fully con- ktplule with a fixed exchange rate guarantee. The ttrorideottld then, if necessary, take the current suPPly of new gold and arrange to increase I trzicjeeclits to needy countries year by year as world ol it it expanded. This is not an ideal solution, but dad etia vast improvement on the limited and in- atlorte mechanism of the IMF today and its ekisroo would provide the opportunity for the gut Ni:tt, lg gold exchange parities to be revised. fetish-worship in the monetary world is not meat d lo gold and external international pay- Canitian It IS in vogue in both the American and eaer internal monetary systems. The US ''hod al Reserve authorities are adopting e t out- bet' N Monetary methods in combating what they 'ev of, 'he!, ° be inflationary trends in the economy. oillagr.e trying to stop the rise in internal costs l mng money dearer and credit tighter. If they c tei.a i 1-1 56-, oar, slowing down production they will, of 0eitri-' Make industrial costs higher. They are aided and abetted by the President, who claims not only that the financial year ending in June will have a small surplus of $200 million, but that the 1960-61 financial year will produce the colossal surplus of $4,200 million. Believe it or not, he proposes to use this surplus not for the relief of taxation, but fof the retirement of debt. Yet the public services of America are crying out for more schools, more hospitals, more houses. I will leave it to Lord Montgomery to say. that his old chief needs to have his head examined. If the combined Federal Reserve-Eisenhower deflation eventually carries the day, the United States will be heading for a recession next year. Sound money worship internally can be as dangerous a fetish as the external gold reserve.
Over the border the Bank of Canada is main- taining such crazy fetishes that an investigating committee on the Ratcliffe model would have apoplexy. The Governor there has reduced the money supply of the chartered banks oblivious of the factor called velocity of circulation and re- gardless of the fact that credit can be obtained— at a price—outside the banks, as the Radcliffe Committee discovered over here. Making a fetish of the free money market mechanism, Canada has a Bank rate which, to everyone's annoyance, varies every week, floating at per cent. above the market rate for three-month Treasury bills. (Yet the Governor of the Bank prohibits the chartered banks from charging more than 6 per cent. on their loahs—even if they have to borrow from the Bank at over 6 per cent.) The crowning folly of Canadian monetary fetish-worship is to have a floating exchange rate which, because of the heavy influx of American capital encouraged by the authorities, is now at a premium of 5 per cent.
above the American dollar. This gives an un- wanted boost to imports (especially from the US which supplies over 65 per cent. of them) and dis- courages exports, and so is highly detrimental to the Canadian economy. With a deficit on her inter- national accoun: running at about $1,400 million a year, it might be thought that Canada's dollar would stand at a discount in the exchange market —to help right her balance—but her dear money regime attracts more foreign capital, and Ameri- can money pours in to develop the many raw materials which belong no longer to Canadians. Presumably Canada now has to borrow abroad to pay the interest on foreign loans bOrrowed in the past. British investors who find themsels es minority shareholders in depressed Canadian enterprises would do well to take advantage of the dollar premium and bring their money home, for sooner or later the sensible thing must be done—Canada must go back to a fixed exchange rate at par or at a discount on the American dollar.
What is the lesson of all this monetary fetish- worship? Surely that such superstitions are dangerous in the realiStic world of the cold war, that the economic challenge of the Communist States will not he met if the monetary mystique of the West is not rationalised, and that money can be a good servant but a bad master—when it is made a god.
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