The Indianapolis times. [volume] (Indianapolis [Ind.]) 1922-1965, 1934-02-01
Liberal Viewpoint
Bv DR.. HARRY ELMER BARNES

NNE of the most confusing aspects OF the
~ administrations gold-buying policy to the
man in the street is the assumption that raising
the price of gold will raise prices IN general.
He has always heard that any rise in the value
of gold means lowering the general level OF
prices. because valuable gold will exchange for
more of other commodities than will cheap gold.
But he also knows that price is supposed to be
a direct measure of value. Why will not higher
prices for gold mean the greater value of gold
and, hence, lower prices of commodities.
The explanation lies in the fact that in gold
standard countries which fix the amount of gold
in the dollar, franc, pound or mark, there is
often a very arbitrary and unnatural discrepancy
between the commodity value OF gold and It's
legal price in the coinage. The price of gold is
fixed in the coinage laws which indicate how
much fine gold by weight goes into a dollar. But
the commodity value of gold fuctuates from
time to time like that of any other commodity,
because of variations in the demand for 1t and
in the supply available to meet the demand.
Hence, our measure of value, the gold dollar,
is fixed as to weight, but variable as to commod-
ity value For example, the commodity value OF
gold has fuctuated enormously since 1914, haV-
ing sumped after 1914 and then moved upward
sharply since 1925. But in the whole twenty
years from 1914 to 1888, the legal price OF gold,
as measured by the dollar, remained unchanged
at S2O67 an ounce Indeed, ever since 1897 the
legal price of an ounce of gold in the United
States has been $20.67.
Whenever the fixed legal dollar price OF an
ounce of gold is far below its commodity value,
the gold dollar will buy disproportionate vol
ume of commodities and will lower prices IN
terms of the dollar. Suppose, for example, gold
has a commodity value of $35 an ounce While
its fixed legal price is only $2067 1t will take
S35 worth of commodities to buy an ounce OF
gold while it will require only $2067 in gold
dollars to buy the ounce. One can then buy
Just so much more gold or anything else with
gold dollar than he can with commodities under
such an artificial arrangement.
TINE way to end this artificial advantage of
l. the gold dollar and to bring it down to
reality is a deliberate depreciation OF the gold
dollar.
This can be done by cutting the price of
gold loose from the gold dollar anchor and end
ing the arbitrary fixed legal price of gold. Gold
will then have to seek its own natural price
level in the market and will buy no more when
put into dollars than when matched openly In
the market against other commodities.
When this happens, it will take say S35 worth
of gold to buy what it formerly required only
S2067 in gold dollars TO purchase This means
that prices will rise when measured in dollars
which is the aim OF both inhationists and re-
flationists
In short, raising the price of gold in terms
of dollars means that it will require SO many
more dollars to buy both gold and the other
commodities whose value is measured by gold
Boosting the dollar price OF gold is only another
way of stating that the dollar is being cheap
ened in terms of both gold and other COM
moGities-it will take so many more dollars to
buy an ounce Of gold or a bushel of wheat
that means in turn, the elevation Of the price
level in terms of dollars.
Raising the price of gold in dollars, then
has little or nothing to do with its commodity
value which is determined by the interplay Of
the demand for and the supply of gold. What
happens is that when we end the fixed legal
price of gold in terms of dollars, the price of
gold as measured by dollars will rise to its
natural level.
The purchasing power of the dollar is les
sened, whether we are buying gold or other
commodities with it. This is only another way
OF saying that prices-dollar Values-are raised.