1936-10-30 — Page 10

THE HONGKONG TELEGRAPH. FRIDAY, OCTOBER 30, 1936.

OFF GOLD-and ON to

PROSPERITY

IN the

by Francis Williams

French Chamber this

month the funeral service was hold of a great myth-myth which died in October, 1936, but which had rolved its first fatal wound five years earlier.

None need regret its death, only that it has been so uncon- aclonably long in dying,

For the myth of the Gold Stand- ned from which at long last we are free must go down into history as one of those great illusions which cost an intolerable amount in human suffering before the world finds the sense and courage to shake itself frea.

The old Gold Standard which has dominated financial conscious- Ress so long and taken in its time so large a toll of the world's wealth is ended.

£ £ £

It is unlikely that any attempt will now be made to revive it, for not only has the realisation of its defects soaked into the public con- sciousness, but-what is from the standpoint of practical affairs of importanco- new even moro technique of monetary control to replace has been ovolved by Treasuries and Central Banks,

That the Gold Standard has had to be abandoned in what was for- so long its necureat eltadel, Franco, is significant. But more significant

in that a new system, the system

of managed currency Internation- alty controlled by powerful · Ex- change Funds, in set up to replace

It.

The most important fact to-day is not that France has at long last decided to give up her defence or the old Gold Standard, and do- valua hor currency, but that alo accepts as Britain accepted bo- tore her the new technique of variable exchange rates kept under control by the deliberate action and management of the State.

What does this mean in terms of ordinary afalra? What is its im- portance to the ordinary man and woman of the world?

£ £ £

The Gold Standard was a 873- tem of obtaining stability in the exchange value of the currencies of the world by giving all those fixed value in terma currencies

of one intrinsically valueless com- modity-gold.

If

That there should be inter- national stability between eur- rencies_is_olearly destrablo. there is no stability, world trade becomes difficult and may be im- possible,

For example, unless the British exporter to Franco knows at what rale he will be able to exchange francs ho receives for his the goods into the pounds, he needs, to

THE BANK OF EAST ASIA, LIMITED.

Authorised Cephal

Tald-up Capil

Reserve and Undivided

Pruta

$10,000,000.00

5.508,000.00

2,686,295.62

HEAD OFFICE:-BONGKONG,

10. Des Voeux Road Central.

BOARD OF DIRECTORA :—

.

Hon. Bir houson Chow, Chairman.

Li Koon Chun, Faq., Li Lan Sang, Faq..

1. K. Kwok, Esq., Wong Chu tion, Fas..

Wong Yun Touя, F. Kan Ying Po, Fat

Chan Chinu Blek, Hot, '

Kan Tong Po, E., Chief Manager.

LT Fong. Ind. Manager.

DRANCHES AND AGENCIES:-

Amoy Batavia Bombay

Calculia

Canton

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ܢ Tranoluttu

Itobe

Kowloon

Londen

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CLOSED DOWN-Outsido brokors on the stops of the Paris Bourso

pay rent, wages, and so on, he can- not decide what price he should charge.

But the method of achieving international stablilty by declaring thas cach currency should have a fixed value in gold, and that the Central Bank of each country must agree on demand to sell gold at that agreed value-which was the method of the Gold Standard-was the wrong way of doing it.

It had two consequences. It meant that the amount of currency which could be issued by a country was governed by the amount of gold it held.

If for any reason the gold supply was reduced, the amount of money available for circulation must also be reduced, irrespective of whether economic conditions demanded, not a reduction but an increase, In the supply of money to expand the purchasing power.

Secondly, it divorced money from its real purpose, which is to. provide a reasonably stable meas- urement of value for goods and services.

£ £ £

What is important to you and to me is not that the currency notes we receive in wages and salary will buy so many Tractions of an ounce of gold, but how many of the things of ordinary life, the food and the clothes, it will buy.

We want reasonable atability of our money in terms of such things - stable price level, that 15- much more than we want stability

in terms of gold, for which we have

no usc.

The Gold Standard falied com- pletely throughout its existence to provide that stability of prices,

It required at times a raising of interest rates in order to main- tain the gold reserve by making it profitable for international non- clai interests to leave their money in London, although this increase mado badly needed industrial developments more costly.

It had to be abandoned on the outbreak of war, since no nation was ready to allow the free export of gold.

But there was no real conception of the possibility of an alternative system. All nations were deter-

mined when the war was over to return to the Gold Standard ns Roon as possible.

£ £ £

Britain returned in 1025. In so doing, it gave the pound a value In terms of other currencies which Immediately lost us a large part of our export trade, particularly of coal. This led directly to na ni- tack on miners' wages, to the coal lock-out, and to the General Strike.

France returned under Poin- caré's leadership in 1928, though not at the pre-war level. One after another the countries of the world followed suit.

The bankers of that time could They conceive of no other move. Ignored the warnings of some of the more intelligent economists and-of-the-Labour-Party-m.

Britain.

They alone, they con- sidered, were the practical men of finance.

But their dream of a return to perpetual stability on gold was soon to be broken. In 1931, under circumstances too fresh to need

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Nov. 6th. .Nov. 19th.

UPS & DOWNS of the

FRANC

Prunica

to the £

worth upprove.

1914

At the outbreak of war

25.22

9jd.

1926

French financial crisis

244

ld.

1928

Rate fixed by Poincare

124

2d.

1031

Britain off gold standard

96

220.

1936

Now

Before Franc came off gold Proposed new rate about

762

3d.

100

recalling, Britain abandoned the Gold Standard for the second time. The Scandinavian countries fol- lowed; then the United States: Now France at last does likewise.

And this time we may hope the divorce is final. Since 1931 a new conception of the scope of mono- tary policy has impinged upon the minds even of bankers.

The passing of the Gold Stand- ard does not leave a monetary vold behind it as it did in 1014. A suc- cessor steps into its shoes.

£ £ £

That successor is the system of managed currency. under which internal price levels, and not the supply of gold, determine the -volume of monetary supply, while the international stablity neces- sary for world trade is maintained by exchange operations.

This means that monetary polley can be decided solely on questions of public interest-whether, for In the example, un expansion supply of money and cheap bor- rowing rates will make possible an Increase in production.

Moreover, an production rises, so can effective consumption be in creased by an increase in the supply of money.

Formerly, it was argued that, db- sirable ny such treedom of mone- tary polley might be internally, it would be disastrous Internatlonnily -unless currencies had a fixed value in gold, they would fluctuate violently and make the exchange of goods and. services between nations impossible.

We must choose, it was said, be- tween internal price stability and international exchange stability-. We could not have both.

The new technique of the Ex- change Fund has shown that view- to be wrong, although within

PRESIDENT LINER

220.

reasonable limits both are possible. Under it, while a certain flexi- bulty of exchange rates is allowed thus the franc exchango rate is to be permitted to move between 90 and 103 franca to the pound.. violent day to day movements are prevented by the operations of Stato owned and controlled ex- change funds.

These can buy and sell cur- rencies to counter speculative and artificial movements without inter- fering with the genuine exchange trend, and without demanding rigidity such as that which existed under the Gold Standard.

Britain has such a fund; so has the United States. France is now to have one.

It is a system infinitely more sulted to modern economic needs than was the Gold Standard, and it is one which places control of monetary exchange policy in- creasingly in the hands of Gov- ernments through the State-con- trolled exchange funds.

And it takes it out of the hands of the bankers, to whom money is not so much a medium of exchange to be used for the general advan- tage, as an instrument of profit.

It is unlikely that Governments Conservative ones will -CVC ever now agree to relinquish that control.

£ £ £

We may hope, therefore, now that France

Bocini- (under a

has broken Ist Government) through the monetary myth, a rapid advance, both to greater economic prosperity within her own boundaries, and to improved trade throughout the world, will be possible. -

The Gold Standard is dead. Wo need not mourn it--for off gold should mean on to prosperity.

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TO SEATTLE, VICTORIA

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DOLLAR STEAMSHIP. LINES

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6 Nov.

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2 Dec.

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15 Dec.

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Freight 20042.

AUSTRALIAN-ORIENTAL LINE, LIMITED.

Bafiings subject to alteration without notice...

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P & O-BRITISH INDIA-APCAR AND EASTERN & AUSTRALIAN LINES MAIL AND PASSENGER STEAMERS

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From

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About

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4,000

0,000

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3,000 5th Dec. Bombay, Marsellies, Havre, London, Hull, Eburg, R'dam & Antwerp. Dec. Bombay, Karachi and Persian Gulf.

Culla Tangier. † Calls Casablanca.

JEYPORE

7th ⚫0,000

*

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BRITISH INDIA—APCAR SAILINGS

SIRDHANA TALMA SHIRALA TILAWA SANTHIA

8,000 Bth Nov.

10.000

12th Nov. 0,000 21st Nov. 5th Dec. 10,000

0,000 19th Dec.

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EASTERN & AUSTRALIAN SAILINGS

7,000 31st Oct. 3 p.m. Manila, Rabaul, Brisbane, Sydney,

4th Dec. 7,000

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7,000

2nd Jan.

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PILAWA

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*SOMALI

SANTHIA

6,000 31st Oct. 8 a.m. Shanghal & Japan. 6th Nov. Shanghai & Japan.

• Cargo only.

7,000

10,000 12th Nov. Amoy, Shanghai & Japan. 17,000 13th Nov. Shanghai & Japan.

6,000 25th Nov. Shanghai & Japan.

8,000 26th Nov. Amoy, Shanghal & Japan.

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MACKINNUN.MACKENZIE CO

P&O BUILDING CONNAUGHT ROAD CENTRAL. HONGKONG

NY.K.

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†Noto Maru

Thurs., 5th Nov.

Tues., 24th Nov;

South America (West Coast) via japan, Honolulu,

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London, Marseilles, Antwerp & Rotterdam.

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Hakone Maru

Liverpool va Port Said, Beyrouth, Istanbul, Piraeus,

and Marseilles.

†Toyooka Maru ..

Sydney & Melbourno via Manila & Ports.

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Kamo Maru

Fri., 4th Dec.

..Sat., 7th Nov.

Fri., 20th Nov,

Sat, 6th Doc.

..Mon 16th Nov.

.Sat, 14th Nov.

Wed, 28th Nov.

Sun, 1st Nov.

Thurs., 12th Nov.

Sat., 7th Nov.

Mon., 16th Nov.

Sun., 8th. Nov,

Sat., 21st Nov.

Bombay via Singapore, Penang, & Colombo.

+Denmark Maru

Ginyo Maru

Calcutta via Singapore, Penang G Rangoon.

Tsushima Maru

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Tel. 30291.

Page 10Page 11

Lawrence Simpson, American sallor from Kirkland, Wash.. held in Berlin for a year await». Ing trial on espionage and trea- son charges.