WILL GOLD DEPRECIATE [To the Editor of THE SPECTATOR.] SIR, —In
her review of my book Will Gold Depreciate? appearing in your last issue, Mrs. Honor Croome reproaches me for having failed to answer a series of questions which she poses concerning the policy to be pursued after the surplus gold has been absorbed. But the main object of my book is exactly to advocate a policy which removes the likelihood of an absorption of the gold surplus and a return to the state of affairs in which it might, become necessary to build up " a credit structure as-top-heavy, or nearly, as that which crumbled during the years 1929-1931." The main reason for my criticism of orthodox economists—criticism for which Mrs. Croome takes me to task—is that they propose a solution of the immediate problem, without taking the trouble to consider what would happen after the gold surplus had been removed in accordance with their favourite scheme of a reduction in the price of gold. What is needed is the perpetuation of the existing state of superabundance, by maintaining, or even increasing, the present price of gold.
One of the reasons why. I am opposed to a reduction of the gold surplus through a cut in the price of gold is that the existence of a surplus enables the monetary authorities to build up gold reserves far in excess of their immediate require:. ments. I pointed out in the concluding chapter of my book that scientific monetary planning is inconceivable unless there is a large secondary reserve of gold in addition to the stock that is needed for the existing credit structure. In possession of such a secondary reserve, monetary authorities are in a position to regulate the volume of credit independently of the caprices of the current gold output. There would be no need to choose between inflating credit on an inadequate gold basis and abstaining from legitimate expansion.
I agree with Mrs. Croome that no solution could be found through the assumption that monetary and credit expansion must at all times be right and restriction at all times wrong. But surely there is something to be said for a state of affairs in which the decision whether to expand or restrict rests with the monetary authorities instead of depending upon the fortuitous circumstances affecting the supply of gold. A scarcity of gold supplies may compel the authorities to restrict at a time when there is no need whatsoever for restricting from the point of view 'of the stability of trade and prices. On the other hand, a Superabundance of gold does not compel the authorities to expand credit when expansion is inexpedient, a fact which has been amply proved by the experience of
Previous page
