CYCLES OF DEPRESSION
WORLD AT PRÉSENT IN A TROUGH OF
ECONOMIC RECESSION.
ADDRESS AT ROTARY CLUB LUNCHEON BY PROFESSOR ROBERTSON.
How far the adoption of gold as a standard of money has been responsibia for the prosent trade depression was traced by Professor R. Robertson, M.A., at the Bctory Olub laucheen' at Lane, Crawford's yesterday when he gave an address on "Gold and Trade Depression. ****
After stating that the subject was highly controversial, the speaker went on to explain the complexity of the gold monetary system, in the course of which he traced briefly the history of monetary mechanism since the days of the Great War,
The present banking system was also dealt with by the speaker, who referred to the value of the central bank system. The full, report of his address is given below:-
MAINTAINING A MINIMUM RESERVE.
HONG KONG DAILY PRESS, WEDNESDAY, FEBRUARY 11, 1931.
with the demand for the money from trade If the banking mechanis is at all out of harmony with the views of producers and those who
Is Gold a Buitablo Bazia? ·
There is, of course, the larger
of gold available to the world for its monetary systein would not have sufficed to keep the wheels of trade revolving as they have done. Economics are generally represent dotermino future production, then the long run is likely to prove a
ed.to-day, by the fact that in most gold countries gold coins have ceas ed to circulate, thus being available! for bank reserves. Although that statement is subject to a few ex coptions, as, for example, I under stand that gold coins are still circulating in the Euited States, and also, that those, certificaton there are backed up by one hun dred per cent, gold reserve. Never theless the exceptions are on the whole, minor.
The other point which has cuabled a gold monetary supply of the world to serve its purpose in expanding trade has been the improvement. of banking practice, especially with the rise of the central bank system, and the clearing, houss system, whereby the reserves of a country's banks are more or less centred in one in-
question which Í can only just touch upon, and that is whether gold, in
suitable basis
for
the monetary system of the world, Gold, of course, has been economised vers much by various devices in the past, but we have to look forward to an expanding population in future and an expanding trade. That if coupled with expanding trade, calls for mere oil to run the machinery of trade-money. The question has also arianas to whether the future gold supply of the world is likely to meet the demand fully,
it is possible that monetary factors may produce industrial dislocation,
It is true that bankers can watch what is happening, but it also true that there may be a decided lag between the time when action should be taken by the banks and the time the banks actually do take action. It'all' dopende actually en the policy of the central banks, which are faced with the double problem of producing an equilibrium within their respective countries and also of ensuring that their reserves will not be depleted by inter national movement of gold. measures taken by the contral bank industrial use and the other half are generally of two forms, either is available for monetary purposes. by manipulations of bank rate or According to tables made by ox- what has been called the local mone-perts on the subject the world will tary policy.
in future need, an increase from The point is, is it possible for one and a half to two per cont.
The prosent production of gold is about £82,000,000 sterling, valuo. Of that, perhaps half is absorbed
Professor R. Robertson said:- Why it should be so is another stitution. Daring and after the war the banks to road correctly the in-yearly in the amount of gold avail- I must apologise for having chosen | matter.
The generally conceived most of the gold countries of the dustrial position of the present and able to it for- monetary purposes. such a depressing subject as this venson is that with gold as a basis world were off the gold standard. f'of the immediato future? If there At the same time estimates of the on which to talk to-day. It is un-of currency, you have not the same England, in fact, although not in is any lack of harmony between the production of the world indicate a fortunate that in Hong Kong at fluctuations which are likely to theory, discarded the gold standard, banks' action and the process of fall in production after a few years present we seem to be suffering Decur in any other commodity-gold though she placed obstacles in the trado, then it is possible that our time. Tho discovery of a new gold- way of the free movement of gold monotany mechanism is to a certain field may, of course, modify that from various phases of depressions, being extremely durable--the from her stocks. Other countries extent, possibly to a great extent, result, but it is unlikely that any not excluding clinate depression, cumulated deposits of gold being and it is possible that soine' mem-lurge in comparison with the annual of Europe had discarded the gold responsible for the cyclic depres-discovery, such as that of the Rand
bers have come here to-day rather production, in a good mood to be cheered than'
The Gold Standard.
sion of trade and for dislocation of industry
standard with the result that at the ead of the war all countries, with the exception of the United States, The question which has sometimes and Western Europe were off gold. been asked is whether the mainten During that period when the gold ance of a minimum proportion of standard was removed as the con- reserves to liabilities, is a good trolling factor, the creation of credit thing.
As I stated before, banks money in the countries affected was are, by law or customs, compelled to not controlled by the same limiting adopt a certain minimum propor- factor and many countries returned tion of this kind. In England, so
19
will take place in the conceivable future.
production of the world may not, It is possible that the gold
under present conditions, be suf ficient to oil the wheels of industry. In that case, our only hope must rest upon international netion and the setting up some form of international conference, whereby
4
...
to the gold standard after the war far as we can gather, in the absence such stocks of gold existing for when the eliminating factor was of any law on the subject, the pro-monetary purposes may be so die- being re-introduced. During the portion seems to me somewhere be-tributed and so used na to offer period when the gold standard was tween nine and ten per cent, that the least, dislocation and least of not in operation inflation took place is to say that the bank system looks stacle to the smooth conduct of. of varying degrees and prices rose, upon a reserve in cash of nine to industry. thus showing, that, at any rate, ten per cent of the total demand there was some relationship between liabilities as a good working figure.
level.
American System,
In America, the reserve is limit ed by law and differs according to Return to Gold Standard.
whether the deposits are demand When the return to the gold deposits or are time deposits. That standard. took place in England is fateresting because whercas prices started to fall. The limiting England we have no means of factor had again been introduced determining how much of the total and the amount of purchasing medin deposits of the banks are time or available for industry was. being limited. I need not go into of the legal reserves makes com- now demand, in American the difference a discussion of that period. Many pulsory the publication on separate persons, believed firmly that Great forms of time deposits and demand Britain was making a mistake in deposits. returning to the pre-war gold stand- ard.
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The International Bank, There has already appeared an institution which might at least form the nucleus for such an inter- national body-the International Bank-which was set up under the Young Plan.
to be depressed. However, I have A gold standard, however, may avoided entangling my subject with ( mean different things. Before the certain matters which are all of war we were accustomed to regard very close interest to us in Hong the gold standard as necessitating Kong to day. I have carefully re- the circulation of gold coins. Since frained from calling my subject the war, we have ceased to regard "Monetary System and Trade De that as essential, and to-day, in pression, lest I should be asked Great Britain, for example, we have at the end of my address soine ques another form of gold standard tious concerning the dollar. I have which might be called a gold bullion limited my address to the matter standard. In each of these, how of the relation between gold mone-
ever, the essence of the matter is tary system and trade depression.
the same, namely that tire attempt This matter is a highly controis maile to get a value of the money versial one and economists, bankers, unit on a par with the value of the industrialists and financiers all specife weight of the yellow metal. I the amount of money available for hold very different opinions on the There is also the gold exchange the needs of trade and the price Thatter. When I express any views standard which, I might mention, they should be taken merely as at this time, essentially comes to offered to you, not thrown at you. the same thing, namely, that the I have given a certain amount of unit of the currency in kept more attention to the subject in the last or less related to a certain fixed
duction of gold is not so preasing in The question of the future pro- few months and I have been very weight of gold. In other words, puch impressed with the vast diver-all these three gold standards come
existing trough of depression, and as the immediats question of the sity of opinion on the subject. in their essentials to mean the The qusetion centres round the same, but, in practice, the last two,
the monetary factor in that depres with regard to he part played by instability of industry, and our that is the gold bullion standard
sion we can only so that futuro complex monetary mechanism. We and the gold exchange standard,
examination may prove that a have been experiencing in the past are, perhaps, favourable owing to year and a half a very decided in the fact that it economises the
better, banking - mechanism might dustrial depression. That is not amount of gold which is available
Demand deposits are a really im have served to modify the factors unprecedented. There have been for money.
portant thing and it is upon the of that depression. In any case I There was, however, no doubt, control of demand deposits that the do not believe, myself, that the many such depressions in the past What is the amount of money that some standard must be adopt bank mechanism must ultimately, monetary factor is the sole factor and economists have become accus- which is available for the needs of ed and the only question that was rest. If, as in England, the re-in the industrial cycle, although I zamed to regarding the industrial trade? It is a fairly common de- really important,
was whether serve egeles, as they call them, as an kuasion that money is cash, especial Great Britain should go back
of nine to ten per cent, is am of the opinion it is probably the inovitable accompaniment of our ty bank notes or currency notes, pre-war value of the pound or adopt no attention is paid to whether the In answer to a question put by
the calculated upon the whole, then chief-one. (Applause.) present system.
These recurring but, of course, the preponderating a value of the pound which was whole consists of a large or smaller Sir Robert Ho Tung as to what rcles are probably connected with element in the purchasing media of less than the pre-war value. That proportion of time or demand de other factors there were in the trade the monetary system although it a country is bank money; that is meant the question of whether posits In America, when demand to over production and under con- might be rash to say that the whole to say deposits upon which cheques England should keep her round in deposits decrease in relation
cycles, Professor Robertson pointed underlying force is to be found in may be drawn by depositors, de-relation to the existing weight of time deposits, then, owing to the more or less within the no other to numption. Both these factors were posits as constituting the liabilities the gold metal, or should reduce smaller reserve required for time factors like the political situation of the bank. The amount of cash that weight. If the latter alter deposits, the banks monetary in various parts of the world which system but there were also other in actual circulation and in the re-native had been adopted Great
disturbed the equilibrium of markets servoirs of the banks themselves, Britain would still have been on a
previously existent. The disturb la very small, compared with the gold standard but, perhaps, the
ances in South America, in India actual amount of money, if we in-shock to price and industry in
and in China were entirely outside the monetary factor. "The matter bank either by law or by custom that alternative had been adopted. is a good thing," Some economista eil, but to a certain extent is not this,, also, may be explained brilly must keep a certain proportion be. However, the choice was made and have held that it would be wise monetary to gold standard countries of silver," added the speaker, "is
at least, by defects of our monetary system. The question at least is
tween its deposits and its cash re- Great Britain returned to the gold to allow greater elasticity in this and a fall in silver reduces the pur- an interesting one-as to how far Boryes. When it lends, when it dis- value of the pound which was the respect, Other: Ljeppuomists have
chasing power of a vast merket.” mountary system is, to be held counts, it is really increasing its pre-war standard,
liabilities and the proportion be
assailed the whole: system Pro to the speaker Rotarian Archbutt In proposing, a vote of thanks responsible for the changes both of ;*****
The decline in commodity prices fesser J. M. King, in his latest book, said that he hoped that Professor the short period and the long period weens reserves and liabilities de- which followed in Great Britain, finds, as far as I can understand, Robertson could be prevailed upon in price levels, and the concurring lines unless reserves are added to
was also accompanied by a decline that the chief factor in the indus like to hear something more from to speak again. He certainly would changes in industry.
With the gold standard in opera that period, 1925, the decline as of the banking system owing to mis gold basis and also as to what in different prices elsewhere. Sinde trial cycle is due to mismanagement the speaker especially on the quen- The connection between money tion the amount of monetary gold continued, and since the end of 1023 understanding by the banks of the would happen if an unlimited supply tion of silver, on the question of and price levels is a complex one, available for the bank for reserve the decline has taken a very doop proper funations they should per- of gold was discovered. and it is very commonly stated that purposes is the controlling factor. and steep curve downwards, wild form in tire country's industries. the more money
there is, the Ingler That is how gold comes into the the result that we have been, for the price levels will be I mean question of the monetary mecha- the last year or so, thrown in the
That is a matter into which-I by price levels the general level nism. So long as the gold standard trough of what i called an scono cannot enter in detail. I may only of prices taken on a list of standard exists the amount of money avail-arlees, is the gold standard suf- should be a certain equilibrium be DIVIDEND OF 8 PER CENT.
mia recession. The question then state that, according to Keen, there commodities. That is merely ex-Labl
able for the needs of trade must ficiently elastic to provides suit tween the actual savings and the pressing a truism and when one have some relation to tro commutable medium for the conduct of like rate of lovestment, and if the bank comes to examine the manner of of gold aynilable to the banks for dustry in our modern conditions!
money.
Recurring Cycles.
At the same time, in addition to these cycles, there is the longer period movements. There are long poriod changes in the value of
واديه
operations are not so much affected as they would otherwise be
whether the maintenance of
The question has arisen as to
A
money reflected in price levels and cludo bank credit as we must do general might have been softened if minimum proportion of liabilities monetary so far as we are concern
Bur
In some way,
Gold Reserves.
the relationship between money their reserves. and prices and how it in worked out, one sees considerable com plerity which is not apparent at Dyst sight.
.
HUMPHREYS ESTATE CO.
The Directors of Humphreys ing aystem does not maintain that A Complex System,
equilibrium, then industrial orelos Estate & Finance Co., Ltd., will are bound to appear. This is bound recommend the following allocation We inust, of course, realise the up also with the difference between of profits for the year ended Decem existing complexity of the system the market rate of interest and ber 31, 1930, at the forthcoming an I do not say that that relation is The monetary system has been the natural rate of interest The nual meeting of shareholders;-- necessarily direct, but the relation built up in successive stages with former may rise but not sufficiently Dividend 8 per cent, itself does exist. How it is worked out deliberate forethought and it rapidly to meet the latter. At any alisorbing 8120,000,00 Gold has come to be a generally out in practice is n vomplicated lo possible to regard it as a system rate, although the question is a Transfer to special roRNA adopted standard
matter. Economies in the use of which occasionally and perhaps the countries
complicated
cúfed one, it seems that pairs-and-ben gold andhraproventuts te ule Dark Tidre, often than 18 necessary, pels Dosibly, closer attention to the of the world. It is not of great ng system allow a gold reserve of out of our control. The unchecked banking mechanism of a country Transfer to Building antiquity as a monetary standard any dimension to support a large inflation of the war and post-war might produce an improvement in Improvement account.. but it has favourably established structure of credit, and had these periods was bad, but does our the manner in which harmony is Carry forward itself as the standard of all coun- and these economies not taken of bank money available for indus hand and the ends of trade on the improvements in banking mechanism present avatam permit of the amount obtained between money on the one tries of drauged industrial type.place, in recent times, the amount try being kept in its proper relation |other.
Account
10,780.18
-15,000,00 47,775.50,
8193,581,05:
For The Races
Josephine.
(Registered.)
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