Evening star., 1935-03-12
GOLD "WR|TE-UP"
. SETS PRECEDENT.
But Faith in U. S. Believed
Undiminished by Use OF
"Paper Profit"
BY DAVID LAWRENCE.

Strange things are happening IN
Government finance, strange not
merely because they are unprecedent-
cd but because they involve creating
value by stroke Of the pen and not
by thrift or the process Of earning.
The so-called gold profit" never
bothered anybody so long as it was
just bookkeeping profit. but, now
that the Government intends to spend
the profit, it will have to justify the
procedure to the many persons who
will want it explained.
If public utility holding company
buys a property and finds that the
plant has been carried on the books
for much less than it is worth, it
promptly writes up the value and
issues securities to the public.
New Dealers Initiate Utilities.
This practice Of write up" has been
severely condemned by the Roose-
welt administration. and particularly
by the Federal Trade Commission. 1t
has been as stoutly defended by the
utilities.
Now the Treasury decided one day
to acquire title to some property. 1t
happened to be yellow metal worth
previously $20.67 an ounce. The
Treasury suddenly decided to pay $35
an ounce in world markets for gold.
All the metal in its own vaults and
in the Federal Reserve banks was
therefore Immediately given the bene-
fit of write up" of an additional
Sl433 an ounce. This made hand
some profit of about $2,800.000, 900
for the Treasury just by the stroke Of
the governmental pen.
So far so good. But now the Gov
ernment is going to pay out some Of
that profit. Does it pay out gold? No,
because it is unlawful to circulate
gold. Does it issue notes backed by
gold? No. because the holder Of a
Government bond or a Government
currency certificate cannot demand
gold Is there any difference between
money paid out of the Treasury in the
form of bonds or in the form Of gold
certificates?
Gold Notes Not Legal.
It all depends upon what you mean
by gold certificates In the days be-
fore the United States departed from
the gold standard, a gold certificate
was a piece of currency redeemable
in gold. Today gold certificate
is piece of currency theoretically
backed by gold, but the Government
has the option of actually redeeming
it in gold or refusing to do so.
The gold certificates" are not law
full money in the sense that they can
be circulated freely. They may be
used under certain conditions to pay
balances abroad; that is, they may be-
come licenses to export gold provided
you can satisfy the Treasury that il
is really an export transaction you
are making. So externally they are
redeemable in gold under specific
conditions.
Within the United States, however
the Treasury has just printed piece
of currency and called it money be-
cause it uses the name gold certifi.
cate" There is nothing to prevent
the Treasury from saying that its
$4,000, 100000 of gold on the present
basis of S35 an ounce Is a reserve on
which can be erected an issue of cur
rency two and a half times the re-
serve.
Redemption Held Impractical.
For instance, 40 per cent gold
reserve has in normal times been con-
sidered ample. The theory has been
that in case of demand, everybody
wouldn't want gold at the same time
and that dollar of gold for every
two dollars and half of paper money
was a safe ratio to maintain. 1t
would be possible for the Treasury to
issue about ,0OO,00O,o0O in cur
-rency based on 40 per cent gold
reserve. This is far in excess of the
money now in circulation, which Is
about $5,50O,OO0,0O0.
But the present administration has
reiterated that there isn't enough gold
to redeem outstanding currencies and
bonds at any one time, so it feels
redemption in gold cannot be prac-
tical. This is equivalent to saying
that the gold reserve will not be
used. Hence the faith of the people
in the Governments capacity to repay
In dollars acceptable to the public is
really what's at issue. If Govern
ment can create nearly $4,000, 1000, 900
OF value by an executive order, why
cannot it create more If need be to
wipe out the bonded debt of nearly
$4,000 100000? And If the Govern
ment issues paper money out Of its
gold profit" once, why cannot it do
SO continuously?
Peril in Imitation.
Imitation has always been defended
as legitimate thing to do, provided
you don't do too much of it or let
1t get beyond control. The experience
OF the world with imitation or nat
money is that those who sponsor 1t
always sincerely believe they can keep
1t within control.
II no more gold profit" is utilized
than that which the Treasury has
issued to pay off the per cent bonds
outstanding, there is no danger to
the credit OF the United States. II
non-interest bearing pieces of paper
are issued to pay off bonds, then the
situation would become one of great
concern and would result in a soaring
OF prices. As the value of the pieces
OF paper meant less and less in goods
or food or necessities of life.
The financial markets have inter-
preted the Treasurys act as an tso-
lated step and not as a part of an
Imitation policy. Prices have not
risen. The faith of the people in
the Treasury's ability to keep from
extending the non-interest-be bearing
method of paving off debt Is still