WILL GOLD DEPRECIATE ?
[To the Editor of THE SPECTATOR.] Sta,—I am glad to find that Dr. Einzig and I are at least in agreement that expansion is not always and inevitably the best policy for the world's monetary authorities to pursue. But I have always understood the superiority of the gold standard over any alternative device to reside in the fact that it is auto- matic, preventing—if adhered to—sectional and national currency manipulations with their distorting effects on trade and production. Its obvious and superficial disadvantage, as Dr. Einzig points ,out, lies in the fact that the annual increase in the supply of gold does not proportionately keeP pace with the expansion of population and trade. The result must logically be either a secular decline in prices (which, provided it is recognised as such and taken into account by both borrowers and lenders, need be no bid thing) or the world-wide growth of gold-economising devices such as bank "notes and bOok credits. Historically, of course, both havC resulted.
Dr. Einzig proposes to reverse the historical proCess and refrain from economising to anything like the degree which is possible and convenient. The result will be an enormous margin or slack which national currency and financial authorities will be able to take up whenever they feel like it. The gold standard will lose its regulatory effect on national price levels, and, with this, its raison d'etre. If we want freedom to manipu- late national price levels regardless of trade movements, why worry about, and pay for, gold ? And if, on the other hand, we want an automatically functioning gold standard, why purchase sb much gold as to destroy—in view of the possible economies—its automatic quality ?
On one condition I should be whole-heartedly in, favour of Dr. Einzig's policy ; that the new accumulations of gold should form not a series of national war-chests_ but an international reserve. Secular price-trends may get out of hand. But Dr. Einzig appears content to leave them as a reinforcement to the armoury of economic nationalism.—Yours, &c.,
HONOR CROOME.
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