Evening star., 1936-02-10

obout " bC oLoCl 1buOCu W tAlC - Gu
eral Reserve banks. is held in trust for
the operation of a sound monetary
system.
''Economizing Gold"
The new gold certificates differ
from those gold certificates which
used to be in general circulation
prior to April, 1893. The latter were
really demand notes on the Treasury,
redeemable at any time in gold coin.
1t is interesting to quote in this con-
nection the recommendation of the
League of Nations Gold Committee in
1882 on the subject of methods of
economizing gold:
That in all countries where gold
is in active circulation or kept in the
vaults of commercial banks. it could
be withdrawn into the reserves of the
central banks and replaced by notes. A."
Also, it is interesting to quote from
another document issued by the
League of Nations giving the views of
a member of the gold delegation, DR..
Felix's Mlynarski of Poland, who wrote:
"a similar anachronism is the cir
culation of gold certificates fully COW
cred by gold, form of currency greatly
employed in the United States of
America. Any further postponement
of the gradual extinction of this form
of gold circulation is indefensible.
THE circulation Of gold certificates
is tantamount in practice to that Of
gold coin, and the concentration of
gold at the central bank is, therefore.
incomplete to the extent to which
there are gold certificates in circu-
laxion. If America were an isolated
island. she could afford to continue
to maintain this costly form of none
tary circulation. But as she Is not,
she should, in her own interest. with
draw these certificates as rapidly as
possible, in order to coordinate her
bullion policy with that of the rest
Of the world"
New Type Of Certificate.
What has happened is exactly in
line with the foregoing recommends
ton. America called in her old form
Of gold certificates in 1888 and issued
a new type which is not allowed in
general circulation at all. The new
certificates are being deposited and
held in the IL Federal Reserve banks.
These Reserve banks. together with the
Government controlled Federal Re-
serve Board, now constitute Americas
central banking system, analogous to
the central banks abroad.
The new gold certificates are the
basis for currency issued through the
Federal Reserve banks. The Federal
Reserve banks could issue, if there
were sound demand, nearly s8,OO0.-
100000 worth of currency against a
gold backing Of 100 per cent gold GER
tificates, or they could issue two and a
half times their $4,000, ,000. .000--
namely, about $4,000, 900 900 in cur
rency-n all the gold certificates were
to be regarded as 40 per cent basic
reserve. Against the remaining 60
per cent, however, Government bonds
or eligible commercial paper would
have to be set up as collateral in
order to justify any such currency
expansion.
There is actually about SIS, TOO, ,0O0,-
600 of currency outstanding today,
which Is more than was in circulation
in 1929, when we had better business
conditions than we have today. The
persons who are welded to the So
called quantity theory of money, al
ways contending that there is not
enough currency in circulation, are
forgetful of the fact that purchasing
power and prosperity cone out of
the velocity of money-its rate of
turnover.
Turnover Is Slow.
Today money Is turning over slowly,
1t would turn over more rapidly IL
confidence in the future of govern
mental policy permitted longtime
commitments and a better CAPITAL
market. The inflationist refuses to
recognize this argument and insists
that mere expansion of the quantity
of currency will do the trick. That
device runs headlong. however, into
the confidence problem. For, If a
government issues more currency or
floats more bonds than the people
think can be redeemed or paid out
Of future taxes. they lose faith in all
paper or securities issued by a Gov
ernment, prices begin to rise in terms
of paper money and finally there is
hardship among the great masses of
the people whose weekly pay envelope
Is insufficient to meet the bare neces-
stiles Of life.
The Congress has pledged the
Treasury gold to maintain a monetary
system whereby the Secretary of the
Treasury is required to sell gold when-
ever 1t is necessary to maintain the
equal purchasing power Of the dollar
In domestic or foreign exchange.
TO devalue further by any material