THE GOLD HABIT
.ONDON is full of rumours that drastic action A is about to be taken by the Bank of England and the Treasury in regard to the Gold Standard, the resumption of real instead of symbolical specie pay- ments, and the revocation, or at any rate the lapse of the embargo on'the export of gold. Such a change of policy involves, we must not forget, the possibility or rather probability before long of• the raising of the Bank Rate. If we go back to a metallic basis for sterling, to a yellow pound instead of a paper pound, we 'must keep up our gold reserve. But that must be done by raising the Bank Rate. We know, however, by bitter experience what a rise in the Bank Rate made for this purpose, i.e.; to inaugurate a further instalment of the policy of deflation, means. It will surely mean the nipping in the bud of the hoped-for revival of trade, the contraction' of- credit and the intensification of the old blunder, as far as 'internal debt repayment is con- cerned, of paying back in gold what we borrowed in paper.
And these are by no means the only' considerations which should make us deeply anxious 'as to the- policy to which the nation is perhaps being committed when we write. ' We publish this week a letter from Mr. Darling, the well-known banker, in which he deals with yet another facet of" the' problem .-that which- is concerned with the payment of the American Debt. Though 'the' matter is too technical for us to be dogmatic, we ai4 sure that Mr.- Darling is right in insisting upon this side of the subject' being. fully considered. If not; we may blunder into position of great' peril. -But though we desire that here Mr. Darling should speak for himself, there is one portion of his argument which appears to us not only to be of special .importance but Also to be a con- tention fully established by the facts: We have a huge debt to- repay to America, and so must be careful to pay wnder the *Lost favourable conditions. Speaking generally, our payments will be made in gold. But gold has its price like other commodities. Therefore, it is to our interest that gold should be cheap. The price of gold, however, varies with the demand for it, like the price of all other things. The more gold is in demand, the more we shall have to pay for it. Therefore it is not to our interest to encourage an increased demand for the yellow metal.
And now we must remember the cardinal fact about gold. The high price of gold rests solely upon the demand for it for currency purposes, for the Bank Reserves on which currency is based, and for those secret Bullion Reserves which are made by private persons.
When a Central Bank or a Treasury buries gold in the ground it is considered a most wise and respectable act, but when a peasant does a similar act in his orchard he is scouted as "a hoarding barbarian." The demand for gold to be used in the Arts is negligible. Gold is only in effective demand for currency and reserve hoards.
That being so the British people have no interest in coming into the market to buy gold or to put it into further demand by their potent example. On the contrary, our interest is to teach our neighbours by precept and example that to keep your credit good you can get on with very little gold—none in use and very little " spell-bound " in cellars. When these people want us to buy gold we should say "Nothing Doing." The result of such a refusal must be to cheapen gold. It is indeed cheapening it already, and the more we are seen to maintain this attitude, the more will gold lose its semi-superstitious attraction in the eyes of others, and so be less in demand. Then will be the time to buy gold. But we shall buy not to hoard it, but to pay off our debt to America.
American interests here are opposite to ours. The Americans are still intense believers in the potency of gold. They think that the yellow metal is essential and may give them the Empire of the Financial World. In obedience to this view, they have got together the biggest gold hoard in the history of civilization. It is so big indeed that their more far-seeing financiers want to hedge a little in respect of it—to unload to a certain extent.
They want, that is, to encourage the demand for gold.
Therefore, also, they want Britain to go back to a gold standard and a free market in gold. In other words, they want us to run up the price of gold against our- selves, and when we -have run it up to pay them their debt in the appreciated metal. That they propose this course of action unconscious of its effects on us, and without any guile or Machiavellian intent, we are sure. Hard necessity has not made them as clear-minded on the problems connected with the media of exchange as they might be. Still, the fact remains that it is to their imniediate interest to enlarge the market for gold, while it is to our interest to contract 'it.
And now comes what we regard as the crux of the whole 'natter. What is wanted is more and better con- sideration of this intricate but vital subject. Before we rush into action let the whole problem of the Gold Standard, of the Embargo, of the use of the Bank Rate to deflate, and of the problems of debt repayment be considered by the strongest, fairest and most represen- tative committee or commission that can be got together.
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