The Daily Alaska empire. [volume] (Juneau, Alaska) 1926-1964, 1934-01-08

wanted it, The workable proportion
seems to be somewhere between ten
and fifteen dollars of bank credit
plus currency to one dollar of gold.
If, therefore, a dollar of gold is
drawn out of the banks, and hoard
ed or taken out of the country,
somewhere between ten and fifteen
dollars of credit have to be can
celed. That is not an absolutely ac-
curate stat m ent but broadly
speaking it is true.
1t follows that if for any raa-
son there is heavy demand for
gold, credit must contract and
when credit contracts, gold buys
more goods, that is to say it ia-
creases in value. The effect of that
is to step up the demand for gold
since that is the one thing which
is becoming more valuable. The
greater the demand for gold, the
more credit contracts and the more
prices fall.
Now, between 1925 and 1892 or
thereabouts, gold enhanced in val
lie, credit contracted, and prices
fell. What hap pened in those
years? According to the monetary
heretics, number of things hap
pened, all of which combined pro-
duced an abnormal demand for
gold. In the first place, the gold
supply itself was short relative to
the growth of business owing to
several years diminished gold min
ing during the war In the Sec
ond place, as one country after
another, beginning in 1924, return
ed to the gold standard, it had to
bid for gold to build up gold
reserve. Thus there was an enor-
nous demand for somewhat short
supply. Yet prices in all countries
We're $50 per cent of pre-war, and
unless credit was stretched be-
yond anything in history and kept
stretched, there was not enough
gold to maintain those prices. The
position was made more difficult
by other abnormal demands for
gold, such as reparations and war
debts, tariffs raised by creditor
countries and our bull market. All
these things combined, relatively
short supply of gold, a high de-
mand for gold to establish the
gold standard, and the complica-
tons of post war politics and fl
nance, go long way to explain
why world credit contracted and
prices fell
1t is here that the silver people
enter the discussion with their
most telling argument. They ac-
cept all the reasons outlined above
for the rise in the value of gold,
and they add another one. They
argue that in the twenties Sc
ries of acts by governments in Eu-
rope and Asia destroyed the value
of silver, and that this put an adj
ditional strain upon the gold stan
dard.
In 1920 Britain debased its silver
coins and sold its surplus silver.
In 1928 and 1929 Indo-C China and
Belgium demonetized silver. Now,
the effect of all these things was
to reduce the demand for silver
and to increase the supply offered
for sale. The price of silver fell
from about 70 cents an ounce in
1925 to about 30 cents or worse
in 1892.
Now why did that matter so
much? Whom did it affect besides
the silver interests? The argument
is that the investments and wealth
of Asia have been kept in silver
values. When the value of silver
fell, there was a large flight of
Asiatic capital out of silver cur
rencies into gold. Thus there was
created another very great de-
mand for gold at the very moment
when there was already an abnor-
NAL demand for a relatively short
supply.
Any one who wishes to get rid of
the silver agitation must be pre-
pared to show that this basic an
alysis of the collapse of world
prices is incorrect. If he cannot
show that it is incorrect, then he
should be prepared to consider the
practical soundness of the silver
policy indicated in the Pittman
resolution. That policy is, first, to
raise the world price of silver in
order to induce Asia to stop bid
ding for gold, and, second, to use
silver as a substitute for part of
the gold reserve of the gold stan
dard countries in order to increase
their reese rves, and thus enable
them to expand credit without
stretching it. as it was stretched
in 1929, to the breaking point.
(Since the above article was
written the price of silver has been
raised by President Roosevelt)