New-York tribune., 1907-11-29
THE GOLD DRAIN.
Oldtime Theories and Ne1o None
tdry Situations.
London, November 20.

London November 90
The gold drain from America subjects estab-
Hshed methods of English banking and Euro
mean finance to unprecedented strain. 1t has
reen- met in the traditional way by successive
advances OF the bank rate, but there has been
+ wider area Of monetary disturbance than has
been known during the present generation The
oldtirne theory OF the operation of Sir Robert
Y,eel's banking act Was simple application OF
.he general law of demand and supply. The Is
sue of paper money was regulated automatically
- that the banknote circulation shrank when
the bullion was drawn out This process IN
,.oIved 2 decrease in the money current in the
kingdom, and consequently an augmentation
IF its value The inevitable effects were a tenn
r,orary rise IN the rate of interest and remit
4ances of money from the Continent and all parts
- the world 70 London, where il became more
valuable than any merchandise. 1t was the
theory Of Lord Overstone, the ablest detenoer
If the banking act, that the rectihcation OF IN
1ernatonal exchanges would be erected more
speedily by the reduction Of current money and
IN increase OF its value in relation TO commodi-
ties than by an expansion Of paper issues This
has been the accepted practice in previous none
fairy crises AND il has been repeated In the pres
ent instance. The cautionary measures have
been promptly taken and there have been ABRUPT
advances Of the bank rate. Instead OF waiting
for dear money TO produce the natural erect Oh
attracting gold and rectifying exchanges the
bank directors have brought pressure 70 pear
,,non Continental capitals for increasing the
3rnports of bullion. They were so success1ul last
week that the reserve was enlarged to I2l'-
$4,000 in spite of the exports OF gold to Amer
sea Vet international exchanges have been COM
..1etelv upset and the financial tension through
out the world is so great that continuance OF
these drastic gold hunting operations may meet
with widespread resistance.
Conservative inanciers are constrained TO ad-
NIT that the stock OF gold in the Bank OF Ing
land is not large enough for supreme emergen-
Cies While the banking act offers adequate
protection against overissues Of paper money
end s,,npIies a stable currency system, it has
not opersted either to increase the reserves or
gold in the issue department or to enlarge the
1.anknote circulation available for the require
.1lentsT Of commerce. an ordinary coholuohs
these disadvantages are inconsiderable III COM
harrison with the benefits Of sound currency
which regulates itself mechanically IN accord
ance with demand and supply, but when a
monetary crisis arises abroad and LONDON as
the free market for gold, is subjected TO an eX-
haustive drain the necessity for larger reserve
a. spparent 1t may be an open question
whether the kingdom would would not be IN
q better condition for competing with foreign
industries and handling the business or the
empire II the note issues OF the banK were
doubled or trebled. 1t cannot be doubted now
ever that London the monetary centre OF
The world would have largely increased re-
sources for steadying exchanges and minimizing
disturbances like the American crisis II there
we're in the issue department Of the bank a
stock Of bullion two three times as great as
* has been The gold reserves Of the bank
available for the conversion of the note circu-
Iation have remained virtually stationary during
the last thirty forty years. This result has
satisfied bankers and theorists alike because
they accepted the dlctum Of Sir Robert Peel
that as much currency as business interests
would require could invariably be supplied auto
raaticaIIy under the banking act without inter-
terence from the board Of directors or from
treasury officials II is not until q foreign crisis
comes on that the truth is appreciated that the
risks Of gold exports, OF violent fluctuations OF
interest and of high tension in all international
Exchanges are materially increased by a gold re-
serve much smaller than it ought 10 be-
When this emergency arose the gold stock
available in the Bank Of England was t1769o,-
0Co. The bullion reserves Of the Bank OF
france were over six times great; those of
the Imperial Bank Of ST. Petersburg over
rye and a half times large. and those Of the
rational banks OF Berlin and Austria Hungary
combined were nearly five times as great OF
'he total gold stocks carried by the chief ma
tional treasures and banks about one-fortieth
vas in the Bank OF England. While foreign
countries had adopted practical measures for
charging their gold reserves it had not been
considered either expedient or necessary to fos-
Ter q more general use Of paper money and TO
provide an increased stock Of gold for its re-
demption. The bank act Of 1874 had been ac-
copted as sacrosanct and unalterable. and the
free market for gold exports and imports was
even more of a fetch than free trade itself
Whenever there was gold drain the bank rate
could go up by leaps and bounds. and the bull
lion merchants could be depended upon TO
write to their correspondents abroad and TO
say, in Lord Overstones phrase: Money. in re-
lation TO all other things. has become more val
uable in this country than ii was: therefore. In