Evening star., 1937-07-18
The International
Gold Problem
BY FREDERIC J. H4SKIN.

Hdtloflal importance is the renewed res
tlveness Of gold. The French govern
ment recently was faced with crisis Of
major proportions because of a fresh
hight OF gold from that nation. An OUT
standing conclusion which has been
forced upon the attention of all nations
Is that gold remains the controlling
factor in international trade and none
tary relations.
Ever since the World War gold has
been subject to strange viciSSitudf..
One by one and in entire groups the
nations Of the world have suspended tha
gold standard, and not few economists
have declared their belief that gold has
been dethroned from its ancient position
as arbiter Of world economic affairs.
Various types Of managed currencles
have been devised and all manner Of
expedents calculated to ignore gold have
been attempted. The world has been
without a free gold market anywhere
for considerable period,
The strictest regulatory measures have
been imposed by governments to govern
gold holdings and gold movements d.
rect barter has been reSOrted to by manY
nations in an effort TO Ignore gold. The
eXpedlents have failed and it has come
to be realized that gold will not be
ignored.
OF the major nations. France has
made the most determined effort TO hold
to gold standard even though she has
resorted to devauation to do So France
has long held the reputation of being
especially skilled in the manipulation of
international finance. but all the skiE
OF her flnanClerS has not availed againt
determined movements on the part #
private owners Of gold or obligations re.
deemable in gold.
Before the World War, ii was the ger,
eral rule OF international finance TIT
gold Inflow and outflow could be mare
aged by manipulation of bank rates. II
illustrate If the Bank of England founi
itself short OF gold it would raise tht
bank rate. There is always IN the world,
even in the most disturbed periods A
fluid supply Of gold or capital controlling
gold. Much capital is invested on A
short-term basis. practically on call
Thus. in the past, the experience was
that if the Bank Of England raised lt5
rate. GOLD would speedily flow there in
order to earn an extra fraction of re-
turn. If other countries felt thev were
losing gold too rapidly. they could re-
taliate by increasing their rates and tha.
gold would flow back again, restoring an
equilibrium.
1t has been learned BY recent expert
ence that such a method no longer
works. France for instance, has dIscov-
cred that she has, on occasion, even has
tened the flight of gold by increasing
her bank rate the former effect thereby
being precisely reversed The reason for
this has been that such measures have
had the psychological effect OF further
reducing confidence Owners of capital
nave taken alarm at extraordinary pro-
te1lVe measures and have assumed that
affairs must be in preCarlous state. So
the higher rate offered has been looked
al askance. and the owners of capital
have sent their assets fleeing away from
offered higher profit in order to obtain
what they feel Will be greater security.
1t is notable fact that, in spite of the
most rigorous precautions. nations have
not been able effectually to control such
movements. Such countries as Germany j..
have actually sentenced people TO prison
for dlsobeylng regulations and effectirg
or al least attempting a flight of Their
wealth. Even such drastic measures
have failed to stop the movements Over
and over again the fudity of capital has
been proved and where there is fuidity
there always is leakage.
The United States has invented the
only absolutely potent method of holo-
ing gold. That has been the offering of
an artlfcially inflated price for It, So
long as the United States Government Is
willing TO pay s35 an ounce for eoli
which is worth but s20s7 an ounce IN
other parts of the world. there is htts
likelihood of leakage. Even the unba-
anced budget which. in some other
countries would produce apprehension.
has failed to tempt people to remove
gold from the United States. OF course,
1t Is against the law for a private ind.
Vldual to hold gold in this country bI
1t has been shown that where profit 4
concerned many evaSions of law ari
regulation are managed
The United States Government which
forbids its citizens to hoard gold has
become the greatest gold hoarder In al
history. The wisdom of the policy has
been questioned by many economists and
flnanciers. Too much gold in one place
has, in the past, been considered a dan
gerous position. There is tendency 10
cause price rises and speculative move
ments deleterious to a sound basis OF
prosperity.
There is little doubt that were the
United States not probably the most
self-reliant country in the world and
curiously immune from many ouside ef-
fects, serious arrangements might re-
suit from the fact that half the worlds
gold is in American ownership.
Indeed. the administration has in re-
cent months displayed some apprehen-
sion on the score of its gold hoard There
have been repeated warnings that infa-
ton is threatened. Steps have been
taken to prevent credit imitation by in
creasing legal bank reserves and thus
making the dammed-up wealth unavall-
able for speculative use. Almost a year
ago the Board Of Governors Of the Fed
eral Reserve System ordered an increase
of reserves-the amount which may not
be lent-of so per cent and again at the
first Of this year a second increase of 30
per cent was ordered, effective progress
sively, the last part of the increase hav-
ing gone into effect only about a month
ago.
European nations have attempted 70
hold their gold reserves and have been
maa SIRE SlloresSfnl Tho Vast