The Wallace miner. [volume] (Wallace, Idaho) 1907-current, 1918-08-08
Relation of Gold to War Finance

the habit of purchasing gold in tn
open market at variable range o
prices. This necessity affected. from
day to day, and from purchase I,
purchase the very basis of exchange
Hence the necessity for establishing ,
fixed price.
1t is generally conceded that tn,
price as fixed was taken from the las
purchase of gold made by the Bank o
England in the open market. This, il
our money, as stated above, happen.
to have been $2067 Shortly after thi.
the other leading nations accepted tina,
gold standard, and likewise the pric,
tnat had been fixed arbitrarily by the
Bank of England and sustained Will
the approval of the British govern.
ment. The important fact regardins
this, so far as the present discussion
is concerned. is that the price as ked
was purely arbitrary. Even If meas
ured in the currency of the time al
which this occurred, when gold was
estimated to be worth $2O.67 pei
ounce it is evident that the great in
crease in the demand for this product
and the increased cost in producing it
makes the valuation now incorrect and
decidedly too low. Accepting gold as
basis of all credits, there has never
been a period in the history of the
world when the demand has been so
great as now, in order to sustain a
reasonable reserve against the gov
eminent issues of bonds, certificates
and other forms of obligation.
e. M. Patterson of the University of
Pennsylvania, discussing our national
financial situation, points out that al
though the amount of gold held by the
federal reserve banks has almost
doubled, THE ratio of gold to net de-
posits and federal reserve notes COM
bined, has fallen in the past year from
SO to 81 per cent" The quantity of
gold coming into the United States,
and now held by the United States,
was doubled because of the tremend-
Gus quantities of war materials and
supplies sold to foreign governments
that had to be paid in gold in conse-
quence, this gold, heretofore held in
reserve by England, France, and other
countries, found it's way to this coun-
try.
1t is unlikely that this condition will
continue, now that we have entered
the war, for our large armies in
France require huge expenditures and
purchases made in foreign countries
that must be settled in gold, and, as
Mr.. McAdoo has pointed out in his let
ter to Mr.. Suffer- we are, at least for
the time being, compelled to pay for
because we require all of our own sup
plies and therefore have no balance of
trade with them. Considering this
fact and that the productive gold mines
Of the country will be compelled to
operations unless assist
ance is given, it can be seen that the
gold reserve held by the United States,
because of the necessity of additional
issues of new bonds, certificates, and
other paper, in order to finance the
war, will suffer a further and material
decrease in the immediate future. AS
a matter of fact the United States is
paying out today gold to neutrals for
purchases at a fixed value consider
ably less than the cost of producing it..
The international phase of this
question apparently has been over
looked; it has direct and important
bearing on the war itself AS pointed
out by Mr.. Hennen Jennings, consult
ing engineer to the u. S. bureau of
mines, 81 per cent of the gold and the
chief gold mining districts of the world
are owned or controlled by the allies
France, England, and the United
States. Approximately 1 per cent only
is owned or controlled by the central
powers, and per cent is in the hands
of neutrals. This is not alone an in
teresting fact but one that, If properly
utilized as a war measure, can yield
a great advantage to the allies in af-
fecting the credit structure of the
central powers.
1t isr well known that the issue of
paper credits by the central powers to
their own people and to the adjacent
neutrals has been necessarily in far
greater proportion to their gold re-
serve than in the case of the allies. So
long as these countries are dealing in
business, and just so long
as their governments remain strong
enough to compel the peoples Of the
central powers to accept such paper on
it's face value, their actual gold re-
serve is not important; but the instant
the war is ended and the central pow
ers are again compelled to enter for
eign trade in order to replenish their
exhausted supplies of material, their
paper credit will have to be maintain
ed by gold reserve, else 1t will fall to
pieces, causing a tremendous financial
disaster. The German financiers are
aware of this, but expect to build up
their gold reserve through their ability
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