2 MARCH 1934, Page 41

On Returning to Gold

THE return to " the," or perhaps we should now say " a," gold standard, at a proper moment, and under proper conditions, is the declared official policy of this country. The desire so to return is as strongly and widely held as an inopportune or unqualified return is dreaded. Some think most of the " proper moment," by which they mean the time when there is a proper parity of sterling with gold; or with other currencies also linked to gold, and this proper parity is thought of as a level which will not put us at a "disadvantage in our export trade, or give others an advantage in importing into this country. It must be " proper ' in the sense that it has stability, and is not merely a chance and passing equivalence. It must, therefore, be a parity as between two countries for their two currency values, each of which truly represents a " comfortable " level of prices, which does justice to their internal costs, and as between wages and interest, be- tween debtor and creditor. When the dollar price level and the sterling price level are each such as to yield the fullest encouragement to business and employment, the quantity of dollar currency and of sterling currency that can be bought, not merely by a given quantity of gold, but by a given quantity of commodities in international exchange, will give the true parity of exchange. It is this parity, easily and stably sustained, occurring at a time when there are no special capital movements in either direction, and no speculations on the exchanges, that will be the " proper moment." Then the gold equivalent of the currency unit will be known, and a return to the gold standard can be made, free from such risks of strain as arose when we. returned to the gold standard in 1925.

No GAPS TO BRIDGE THIS TIME.

It is now generally recognized that the prospect of a return to the gold standard in 1925 strengthened sterling for some time before that, by speculation beyond the true value of sterling in its comparative purchasing power, and deceived many people into thinking that the gap to be bridged in taking the old parity of $4.86 was insignifi- cant. In the actual event, it made a constant strain in our industrial structure, and showed itself soon in our coal exports, which became extremely uncomfortable. A given competitive price in a foreign country, when sterling was " at a discount " or cheap, produced enough sterling to enable the current British wages to be paid, and a profit to be made. But when sterling became more valuable, that same price abroad in a foreign cur- rency produced less sterling, and not enough to cover wages and profits on the same lines as before. The wage rates being rigid, the exports could not then be made without loss.

The industry was in great difficulties, and I was the first to point out the most active cause (in July, 1925, in my memorandum at the Court of Inquiry into the dispute) amid a chorus of disapproval in the Press. The fears of many are, therefore, that we shall misjudge the " proper moment " or if it never seems to be exactly determinable, make a guess which will prove to be wrong, and which will either incommode us, or goad others into discontent with us. The French resumption of the gold standard almost certainly overshot the mark in the opposite direction. Pessimists fear that in order to seize a moment politically opportune we might resume our obligations in gold at a price per ounce which would not stand the test of time or practice.

NEW AIDS TO STABILITY.

There is one factor now present that was formerly non-existent, and that is the feeling that the device of an Exchange equalization account, properly and co- operatively used on both sides of an exchange market, could prevent purely artificial and speculative values upsetting the actual price level parities.

Unfortunately so far such a Government fund is not regarded abroad as a part of an international device to stabilize currency parities, but as -a " fighting fund " of " blue chips " to enable rival exporters to outdo each other. This psychology is not helpful to a real return. Professor J. H. Jones of Leeds, in a paper read last week to the Royal Statistical Society, made a powerful plea for trusting gold once again, and securing that stability of exchanges in which alone foreign trade can prosper. He held at the same time that any rival Means of management designed- -to secure internal stability of prices was unlikely to do its job any better than the gold standard itself. He said, " I assume willingness on the part of Governments to co-operate in the attempt to maintain industrial stability and to accept the assumptions of such co-operation. Given such conditions (which include control of speculation by appropriate central bank policy) and the existence of an international exchange control fund, the conditions prevailing in the United States in 1928 and their effects upon our own country would not be repeated. In short, the failure of the post-War gold standard was due not to new and permanent features in the world economic system but to abnormal and temporary circumstances that were the outcome of political difficulties and economic disorganization. Those new features that are likely to be permanent arc by no means inconsistent with the gold standard. The abnormal circumstances of recent yearfi would have prevented the efficient working of any system; national or international."

TILE PRICE OF RETURNING.

Now, while most people think the problem of returning to gold is precisely this " proper moment " enigma, others treat this as the minor, and not the major, question. The really important question to them is not getting back but staying back. For this they postulate " proper conditions." What precisely do proper con- ditions mean ? They speak of drawing proper " rules of the game," and having confidence that every country will stick to them—a more general recognition that the whole system not merely gives advantages, but also entails responsibilities, some of which arc not very compatible with cherished national economic ideals. If any large creditor countries refuse to allow the debts due to them to be paid in goods imported by them, but turn themselves into syphons for gold, they will accumulate large gold reserves. If these reserves arc tucked away and do not raise prices so that imports are finally attracted, then the rest of the world, the debtors, will be depleted of gold, and the gold standard must begin to get shaky. If, in the countries where prices fall through the consequent deflation, wages and costs are not adjusted, the standard goes shakier still. If confidence begins to waver, and there arc financial drains on particular centres, the beginnings of a crisis are present once again. The " proper conditions " have to be defined, understood, accepted and then adhered to with courage and inter- national intelligence, and then the gold standard becomes the finest foolproof managed currency that man can devise. It is only the love of gold that can be its undoing.

J. C. STAMP,