New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1918-04-12
The Superstition of Gold

The Superstition of Gold
There is something wrong with the
economic thought of the country when a
member of the Federal Reserve Board
can make the argument against the eX-
istence of an inflated state of the cur
rency which Mr.. Charles S. Hamln
made before the National Chamber of
Commerce, at Chicago, on Wednesday,.
Mr.. Hamlin is one of seven men TO
whom is now practically committed the
maintenance of a sound financial condl-
ton in this country, and this is Mr..
Hamlin's idea of what initiation means:
"Out of our cash reserves to-day we
can set aside 40 per cent in gold against
the Federal Reserve notes, billion four
hundred million now outstanding. We
can take 40 per cent of that from our
cash reserves and there would be lett
cash reserve of over so per cent against
our net liability. That is rot imitation,
in my opinion. 1t is sound, conservative
banking"
Mr.. Hamlin went on to say that the
twelve Federal banks hold to-day in their
vaults ST 800 100000 in gold:
"If you took all the gold in the vaults
in the Bank of England and added to it
all the gold in the vaults of the Bank of
France and to that all the gold in the
vaults of the banks of Italy and Spain, 1t
would not nearly amount to $1,000 0O0,-
OOO''
Mr.. Hamlin appears to believe that
because there is this huge gold reserve
against the outstanding notes and liabil-
tiles and deposits of the Federal Reserve
Bank there can be no such thing as in
nation in the United States
This idea is very widely shared, first
by some other members of the Federal
Reserve Board, and more especially by
the financial chiefs of the Administra-
ton, and by many of our ablest bankers
1t seems a relic of the historic Sound
money campaign" of '96, when Mr..
Bryan nearly swept the nation with his
crusade for free silver. The idea got
planted then seemingly that all that
glisters like gold is ''sound money" ana
that gold can do no wrong.
We are still living under the tyranny
of this superstition.
Now, the amazing part of the whole
matter is that the very foundation Of our
present inflated state Of prices and
wages and currency was the import Of
net billion of new gold, beginning at the
end of 1915 and continuing up to little
less than a year ago.
It was this golden flood which made
possible the present store Of gold in the
Federal banks.
Il was this same gold which laid the
foundations for so per cent expansion
of bank credits within space of two
years.
And it was this terrific expansion of
bank credits, on top Of a rising tendency
Of prices, which sent the cost Of living
and the cost of war and the cost of every
thing soaring to the skies.
1t is literally gold imitation from
which we arc suffering now. And Mr..
Hamlin appeals to this very gold as
proof that no imitation exists
We wonder from what primer OF econ
omy or finance the cdifce Of Mr. Ham
Inns economic thought was reared. It
could not have been from any standard
or accepted authority upon the relation
of prices and money, from John Stuart
Mill, or, for that matter, Adam Smith
himself, to Fisher, Kemmercr or others
of the present day, J. Laurence Laugh
lin, Of Chicago excepted.
In it's modern form the orthodox doc
fyip ~
age Of all prices-mercly register the re-
iation existing between the outstanding
volume of currency or credit and the
amount of business to be done
Increase the quantity of currency or
credit too rapidly and prices will in
evitably rise.
This is imitation. And this is what we
have got now.
You can have initiation just as easily
with an oversupply Of gold, or Of credits
based upon gold reserves, as though you
had started the printing press running
10 supply fiat money
The amount or proportion Of this gold
held az reserves against bank liabilities
or notes has only one thing to do with
the question Of imitation. The higher the
percentage Of reserve, naturally, the
greater the tendency 10 expand ban'<
credits.
bank prospcrs by tho largest pos
siblc credits. d good MANAGEMENT aims
al"ays To maintain It's credits at some.
where near the l'mit5pf safety.
In other words, the larger the reserves