THE FUTURE OP GOLD Hartley Withers

31st October 1934

THE

ROYAL INSTITUTE OF

INTERNATIONAL

AFFAIRS

5/> ? n
NOT TO BE TAKEN AWAY

RECORD

OF

GENERAL AT

MEETING

HELD

CHATHAM HOUSE on 31st October 1934.

Subject-

THE

FUTURE

OP GOLD

Speaker:

Mr Hartley Withers.

Members are reminded that in any use made of information received at any meeting of the. Institute the speaker's name shall not be quoted nor the fact mentioned that the information was obtained at a . meeting of the Institute. Th.ese conditions apply equally to information obtalned from written records of meetings.

THS

BOYJi

ISSTITUIB

0?

IITERHATIOHAI.

AWAIRS.

fits:

Report of a Meeting held at Chatham House at 8.30 p.a. on Wednesday, 31st October 1934.

Chairman: MR. BAWTREY.

CHAIRMAN?

I rery much regret that Sir Basil Blackett has

"been unavoidably prevented from coming to-night, so I have got to do my best to take his place. I really do not think it is necessary for me to introduce Mr. Hartley Withers. He is a person of many avocations. He

has been on the Stock Exchange, he has been a financial journalist and an eminent author; he has been in a/banking business and in the Treasury; and every one of his many occupations

would qualify him to address you on an occasion like this on this subject.

- 1 -

MR. HARTLEY

TgTHERS:

The apology with which u n p r a c t i s e d

s p e a k e r s l i k e myself g e n e r a l l y b e g i n t o g i v e an a d d r e s s of t h i s kind i s more than u s u a l l y s i n c e r e on t h i s o c c a s i o n , h e cause I have been s u f f e r i n g a t home from a s e r i e s of domestic d i s a s t e r s , . ^stttr4i!jgHM^
x

'?di-ich"lj^^l^-"#feje- v#^^r.,.du4a^jtoi.h'-w^i^hAd.. t.3u4aars-ea....ia..^tJae

Gsxa&cqvi?9n<b'L#**&' have not had time t o p r e p a r e t h i s sub-

j e c t as i t ought t o have been p r e p a r e d ; .-awe. I am a f r a i d you w i l l have t o l i s t e n t o a very h a l f - b a k e d p e r f o r m a n c e . It

m a t t e r s l e s s because t h e r e a r e p l e n t y of p e o p l e i n t h i s ropm who know a g r e a t d e a l more about gold and i t s f u t u r e t h a n I do, so I hope t h e d i s c u s s i o n w i l l make up f o r any gaps i n my opening t a l k . Also, when one t r i e s t o p e e r i n t o t h e future

about a n y t h i n g , t h e utmost t h a t one can do, whether withp r e p a r a t i o n or .without i t , i s t o o f f e r a few ftAtrnmaxxv g l i m p s e s i n t o t h e *ej and a l l t h a t can be expected of me i s *frao% a

s e r i e s of p l a t i t u d e s . P l a t i t u d e Mo. 1, of o*>goo, -that one hioaawa -o^"g,ftrWflfrad--~-&^> 4pa*^y^''#ii^^ of p r i m i t i v e b a r b a r i s m , i s t h a t geuld. is. a s u r v i v a l in i lilmtt i t d a t e s from t h e time when the

appeal of t h i s n i c e b r i g h t m e t a l t o human v a n i t y made i t i n u n i v e r s a l demand f o r t h e adornment of t h e Chief, and h i s d r i n k i n g c u p s , h i s armour, h i s wife and t h e t e m p l e s of h i s gods and so on. ^ r r i*ince t h e n i t h a s become a s o r t of f e t i c h w i t h t h e

human r a c e , and t h e worship of gold i s i n g r a i n e d now in h u m a n i t y . The i d e a t h a t one should have t o have gold a s a b a c k i n g f o r currency i s e imply a b a r b a r o u s survival. that

P l a t i t u d e Ho. 2 i s t h a t i t i s very s t u p i a and w a s t e f u l we should spend so much time and energy and money in d i g g i n g

- 2 -

g o l d out of t h e "bowels of t h e e a r t h i n one- p a r t of t h e world, s m e l t i n g i t and r e f i n i n g i t and b r i n g i n g i t over h e r e a t g r e a t expense, and b u r y i n g i t a g a i n i n t h e bowels of t h e e a r t h i n t h e v a u l t s of a e e n t r a l bani:.
J )f^AA'' ^&^^mJi^A^ml^^m^s^^^&m^'"&^&us

.j&oaetary mat t e r a . expensive.

It* i s ' b a r b a r o u s ;

it-sis.....stupid,;,,.sfi^a4Xt,.ii.fi

As t o t h e expense,.-#ifeiwie ?/e know t h a t t h a t does n o t m a t t e r in /t.h"m""l>eiaigt. for i t . t h e n p e o p l e want a t h i n g / *they w i l l pay

When S i r Merman Angel 1 demonstrated, t h a t war d i d n o t some

pay e i t h e r t h o s e who won i t or t h o s e who were d e f e a t e d ,

p e o p l e seemed t o t h i n k t h a t he thought he had p r o v e d t h a t war would never happen,-again. S i r Morman, of c o u r s e , knew b e t t e r .

I t was p o i n t e d out a t t h e t i m e , long b e f o r e t h i s l a s t war, by Mr. W e l l s , t h a t t h e r e were a g r e a t many t h i n g s t h a t we h a b i t u a l l y d i d i n t h i s l i f e which d i d not p a y . Mr. Wells i n s t a n c e d If people and i f they

f a l l i n g i n l o v e as one of them, ,a**%lf,wH>r*""f*@.

a r e angry, t h e y w i l l go t o war and damn t h e expenses want g o l d , t h e y w i l l have g o l d , whatovor itr may 000%.

Jjj^&mJ&stkft q u e s t i o n of gal-a'bac>i.ag is-i-re-a-Hy unnecefc&sar-y-'A&r

We may g r a n t tb^-i^4i&> t h a t gold i s a b a r b a r o u s

sur-

v i v a l , and t h a t i t i s a s t u p i d b u s i n e s s t o have t o have i t , t o t a k e a l l t h i s t r o u b l e t o produce a m e t a l which i s very picture

l i t t l e use f o r any o t h e r p u r p o s e except f o r d e n t i s t s , frame makers and j e w e l l e r s i n t h e s e enormous

quantities^just

i n o r d e r t o g i v e mankind c o n f i d e n c e i n h i s c u r r e n c y and c r e d i t

f^^JX

we g r a n t t h a t gold i s a b a r b a r o u s ( s u r v i v a i j a n d a s t u p i d )

raarafBttigeffle-a*, does it^mean t h a t (theref o r e ) g o l d i s l i k e l y t o be

- 3 -

dethroned at any period that one can foresee ?

Moit 'I wa&4

*& suggest -that the eQn&harsioa atmwhl'Qh one1 &ggivcs ie the, dii'&at a^poeite. #b.at any article, the value of which is firmly

founded on human barbarism and human stupidity, is just as impregnably founded as anything that you can conceive. I

think if we look round the world we have to acknowledge that this is so. As to barbarism, the leading article in "The Times'* a few days ago pointed out that a fever of militarism, amounting almost to mania/-was sweeping over Europe.
H

According to

The Times" leading article writer and *** Editor, people who

choose their words very carefully, Europe is not only barbarous but very nearly a lunatic. We see Germany burning books We

and harrying Jews^ 4 j x u r g ' ' a l ' i . tbw<i)~4B*<&--e'^^ see Signor Mussolini mobilizing boys of six years old.\

C 'If

we look across the A t l a n t i c to America.) QUO of *foe the ci'iaiB im>

amasfr iatogaetimg thinga t h a t liom livm^ififiiainot

Aao-gioa1 was tho faofr,of' ml\i&to.cI am assured, that the only industry in America which ;ra""iwb- ggmeiq^^ftfe^^A^'fehe sion fwas the beauty parlour intfcmafcry. If these things are so, we need not be afraid t h a t any tenaency towards ^jtAs^mjgm^-;strong enough to shake the s t r e n g t h depres-

of the gold f e t i c h / i s going to up&et the c a l c u l a t i o n s of the Hand GoldfioIdo an4 ofoor gold organisers .yCw-T^^gg-*^? . As -to s t u p i d i t y , we have to remember t h a t i t r e q u i r e s quite a high and b r i l l i a n t s-art o.g, i n t e l l i g e n c e , l i k e Mr. Keynes's, to evolve the idea of a paper currency which would be based upon nothing more t a n g i b l e than the c r e d i t of the Government and the confidence f e l t in the Government; and i t

r e q u i r e s , not, of course, the same order of genius but a f a i r l y high l e v e l of i n t e l l i g e n c e in the general population to ;aake
- 4. -

such a conception (even a, thing that can)be considered by the general p u b l i c , l e t alone a c t u a l l y adopted. We have seen evidence of barbarism approaching manias see much evidence of growing i n t e l l i g e n c e ? do we

I want Ve suggest

to- you t h a t i n t e l l i g e n c e i s in these days r a t h e r at a d i s c o u n t . The highbrow i s a person who i s suspected and to a c e r t a i n ext e n t despised. country. Of course, i t has always been so in t h i s Weiiavo niiTOya dampiacd1 iratclligonoe and- education.

If a fellow was L swot and did h i s lessons and that sort of thing, - he was l i k e t h a t , and i t could not be helped, you wore ou'i'ij)! ' f ui' lrftm. But in other countries i n t e l l i g e n c e and a reasonable examination of d i f f i c u l t questions was thought to be r a t h e r a f i n e occupation. That was so in places l i k e Germany and I t a l y

antl. 88 on-, where they are now busy in r e p r e s s i n g i n t e l l i g e n c e , r e s t r i c t i n g the freedom of speech and of thought and of l i t e r a t u r e , ana arguing by means of doses of c a s t e r o i l or by linli ss*---'- ^-*""a camp where #.'are -boiiiow oa* "of aad not allowed to be dangerous. In France jirbellSvtj-^it i s otherwise, but in Prance the I t takes

reaction against i n t e l l i g e n c e i s in another form. the form of f e a r .

The IPreneh f e e l t h a t they have been l e t

down by us and by the Americans, and they have been afraid ever since. They are under the domination of t h i s t e r r i b l e

fear of thaiffg, which i s very n a t u r a l from t h e i r point of view. These t h i n g s oeing so, I Uiarniu i t %% reasonable to expect t h a t the i n t e l l i g e n c e required for dethroning the golden calf, 4rf oiTg laajf" nag1 fee gxpTCflMiw^ i s not l i k e l y to maice i t s appearance very soon. <!-want a l a c tie point tut that, i t would

take son.e generations under the most favourable circumstances of - 5 -

intelligent education and instruction before you could get the average man - and it is the average man's opinion that counts finally in these matters about confidence ea** currency and go ^arth - to see that you imm*n,,u&^^^]sh&jwl><&ottQ sort of metallic A hacking for yaar. money. Very well then, if,as far as the question of barbarism and stupidity is concerned, we need have no fear if we happen to be bulls of gold mining shares, what about it when we look at the real practical reasons which give gold *i value, apart from, joarb aid om and oftupiaityfr -Th4> reasons -acre, in the,ffirotplace that a gold backing to a currency has been found desirable, or even necessary, in order to restrain governments from using the printing press ad lib* a/4re we likely to see in the reasonably near future ,any development in the direction of entirely trustworthy and entirely intelligent Governments, so eatisoly trustworthy and intelligent that the human race can have complete confidence in their management of the currency without Jseing fettered by having to have gold behind it? C Mr. Menken, t h a t very i n c i s i v e American w r i t e r , i n a book " T r e a t i s e jm Right and Wrong,* o b s e r v e s i n o 1 4 a n t a l l y t h a t a l l governments a r e s c o u n d r e l s . I think that i s a slight

e x a g g e r a t i o n ! but .air this s a f l i g ' t l m c l r . Baldwin, who ought to knov b e t t e r than any of u s , h a s s a i d , rial ^wcV Wrat^-b^t ,to^faftM3lci&d, iwd on t h i s s u b j e c t of a gold-backed c u r r e n c y , a few y e a r s ago: "The g r e a t p o i n t about a gold s t a n d a r d i s t h a t i t i s knavepr.oof.* He went on t o add t h a t t h e r e was no Government on TiiWl' l't 1 '

e a r t h t h a t he would t r u s t t o manage t h e c u r r e n c y . tWfffc.

i s s t i l l as h i g h as evej>*1f was,'~l*w&at r a t h e r h i g h e r , - 6 -

owing

- t t r ' a l l kMds'<QX^qu@-3?-^^ where, and, of c'otttwajgj^A^^Elcountries t h e r e i s some'kind of

a government .jtei^fi might hTaJr^n^ t o come in power, which a c e r -

That n e c e s s i t y f o r g o l d , or t h t argument i n favour of g o l d , i s as s t r o n g as when Mr. Baldwin s a i d i t f i v e or s i x y e a r s ago, and i t does not seem l i l c e l y t o g e t any weaker when we see a t h o r o u g h l y d i s i n t e r e s t e d and e a r n e s t amateur l i k e P r e s i d e n t Roosevelt e x p e r i m e n t i n g mm^ with h i s c u r r e n c y and a r r a n g i n g t h i n g s i n such a manner t h a t t h e u n f o r t u n a t e American lousiness man - who i s only t o o anxious t o g e t "busy and g e t g o i n g a g a i n and push on t h e r e c o v e r y they a l l hope f o r - dimply does not know where he s t a n d s about the monetary p o l i c y of t h e a d m i n i s t r a t i o n , and Im i s in a s t a t e of t h e utmost "bewilderment.

Har^e?lso%. Thogc -ic y o t one soifre reason i n favour of gold as i t used t o JM, anti t h a t was t h e g r e a t i m p o r t a n c e t h a t i t had as e s t a b l i s h i n g a s t a b l e l i n k between t h e c u r r e n c i e s of t h e ,tTTETT!H?Aae^aww>JUB wocteipg.--safe^5^^ and -* r .jntrnrp

facilitating

i n t e r n a t i n n a l t r a d e and i n t e r n a t i o n a l l e n d i n g and f i n a n c e . I n my b e l i e f t h e a b s o l u t e s h u t t i n g up of the international

c a p i t a l market i s a t h i n g which h a s not r e c e i v e d n e a r l y as much a t t e n t i o n as i t ought t o have as one of t h e c a u s e s of t h e p r e s e n t crisis. Seeing t h a t i n old t i m e s between t h r e e hundred and four

hundred m i l l i o n pounds worth of p u r c h a s i n g power used t o be spread a l l o v e r t h e world every y e a r by t h e c r e d i t o r c o u n t r i e s , and t h a t %na&Qa&. A-o -abpoluto3y' tfeut .&ew, -$e need not lo<ric much Ju^rthor i o r tho oauce of t h e p r e s e n t e r i e i s i Eefore t h a t system could be r e v i v e d a t a l l , I think, i t is

f a i r l y obvious t h a t we s h a l l have t o have some approach t o some7 -

(A&V CWW*^

, h^Z^ fat /U^K^T^.

%^A , k*^4t^

a.^Uj'-i^e^^U J

tiling l i k e A s t a b i l i t y in r a t e s of exchange which was produced by the working of the gold standard.,r -Vtijy well then. 3r Ihlnk we have nljsuia out a vuxy f a i ^

case for accepting t h a t gold w i l l be in demand, and w i l l tee in increasing demand, for some time to come as a b a s i s of currency and c r e d i t . Then t h e r e i s the question of supply. As we a l l remem-

ber, a f t e r the war there was a good deal of anxiety as to a p o s s i b l e s c a r c i t y of gold* but owing to the depreciation of the pound and the d o l l a r , which has had the r e s u l t of p u t t i n g up the p r i c e of gold to something l i k e 140s. an ounce ir. the London market, that s i t u a t i o n has been e n t i r e l y a l t e r e d , and the a v a i l a b l e supply of gold under present circumstances i s immensely increased and promises to be increased very much f u r t h e r i f the p r i c e of gold i s maintained. How as to the future p r i c e of gold t h e r e are very varying opinions. In a book by gcMrftKimmt 'Wif&m. Harold iPisher,

e n t i t l e d "England takes the Lead,* t h a t I haa the- i>iae**re of PCvicwiiig net l w g -ago, he stated t h a t gold was l i k e l y to go to 250s. an ounce ana perhaps h i g h e r . His general view was t h a t

the p r i c e of everything was going to blaze very considerably, and gold among other t h i n g s . On the contrary Professor Lionel Eddie, who used to be professor of finance in Chicago, -aa i n t e r e s t i n g onfl thoughtful Anaeyioan cconiwiletrv has l a t e l y written a booktSSSE^^ollars,' A in which he says t h a t anybody who i s speculating in gold shares and imagines t h a t the p r i c e i s going up to 160s. an ounce and going to stay t h e r e , i s reckoning on what i s by no means c e r t a i n , and in fact i s improbable. He thinks the

p r i c e i s much more l i k e l y to go back to the old p r i c e of $20.- an ounce and perhaps even lower.
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MB

argument is that the natural forces of supply and de-

mand are going to "bring a"bout this reaction. When I am told about the natural forces of supply and demand I always want to know what these forces really are, because 1 find the learned economists who talk about them do not seem to be quite sure and do not seem to agree. The general idea seems to be that if the price of a thing goes up, anyboay who has a bit of it is likely to se&l it, and the people who have not got it are less likely to -want it. But things ao not work like that in the City, ao they ? prices go up, people want them more; gotfthem are less inclined to sell.
ft

As

and the people who have It aoespot aiyrirl follow

/"*'"~~"~-^-^,

that a rising market brings outtta*-supply mece-ssarily) especially in a thing like gold which is not used for any practical purpose. Of course, if you are buying materials for building a house and the price goes up very much against you, you are forced to stop because at a point it does not pay you to use them. But when it is a thing which you like to have tttcked.

away in a vault or hidden under the mattress just to make you feel comfortable, there is no limit practically, except what you have got in your pocket, to the price you are prepared, to pay for it. So I ao not feel at all s ure a bout this natural law of supply and demand causing the reaction that Professor Lionel E|die sees. He says, quite truly, that all kinds of people

think that because t f e r e Governments*4*7a certain price for an ounce of golu, that that/eunoe- o f f golci is fixed. But he

says there are an immense number of examples in history of Governments being obliged to make alterations in these prices. ^*#4^-~*igiwW^
9

but I should

like to ask the question whether there is any example in history of a Government doing anything with its currency except debasing it, with the exception, of course, of our own Government, which" for very honourable reasons screwed the pound up to the old parity in 1925 and has been sorry for it ever
since. .Ja6#p**w#a$^^ -itottmes^&T^:' "fmmrnm^v^m^m^iim^i^^

&q*ta^e2^bia#**toy 'asft^a&i&dit^^^r^^ that except, of course, thaj^'the old gold pound had been the sort of basis of foreipf trade and the Government and the Bank of England thoughtythat to get the pound back to the old parity would he^jp trade along. There wj^s^aore to be said for it, I think, than some of the critical of the action ever admitted, but as far as I know whenever/ Governments make any changes in their currency arrangements, it is in the direction of depreciation.
i l J^d>i*ti i 4 i i m i i l x % " " W ! ! l ! B i t r , \f

I should kmoej

the Governments of the world,

having\depreciated their currencies in terms of gold, were going to reverse that process, * would surely lead to deflationayy efffsoftw, which would have a very bad effect on business and industry? I do not think that io at all likely.

However, there -tesmmmv ffofrga are these widely differing opinions. The only things certain about the future of gold

are, I think, that if the present price is maintained, there will be an enormous increase in the output. All over the

V
world any countries|that have got gold are/getting busy on turning it out |naturallyj and there is going to be a very big increase in the output, whieh will have interesting results which I will refer to in a moment. But the thing I should like to be instructed about by this meeting is, can anybody tell me whether this big increase in the output of gold is going to have the effect of an enormous - 10 -

expansion of credit, -which, will have the further effect of raising commodity prices to such an extent that the cost of production of gold will go up ? Because that is a thing that I do

might possibly check the output of gold 4e. a point. not think it is very likely to, because inthe two chief

gold producing countries I do not think the cost of production is going to be allowed to have much effect. In South Africa it is a question of the cost of native labour chiefly, and I do not think the South African Government will allow the cost of native labour to rise much because it would offend the farmers of South Africa, on whose support it depends so much. The Government of South Africa in the

first place wants to bleed the mining industry, gently of course and to a point that will not weaken it too much, and to succour, the farmers. For both those purposes it will want to

keep the cost of production down and the wages of the mine workers low. The second gold producing oountry is either now, or is going to be next"year, Russia. that position; Canada has hitherto held

of course a very long way behind South Africa.

Russia has been coming up hand over fist, enormously increasing its output, and it is expected^to beat Canada. There,

of course, the Soviet Government will turn out gold whatever the cost of production may be. In Australia, and Canada, andfioiMtfirAmotiAoa, all over
, South America, '& O O I M W C , 4 < ] a e g c " ' f r g r j a r f f l ^

*S2dil~sHk"'^e--^^

ASX^x-^mMs^ve "have

sj3m^fee,rK^|;^feyasV~- Everywhere where there is gold people are now beginning to turn it out in increasing quantities. lhat is going to happen to all this gold ? Are the

central banks going- to refuse to take it, or are they just - 11 -

going to take it and sit on it, and if necessary sterilize it ? That is a question we have to consider, and^-^f course* there is also the question of the people who are hoarding gold now in enormous quantities and p utting it away in London banks. . T""waa'

been filling their vaults so fast with mu^gold,

that whe

they were asked whether they- had room for any more, they said, ttWe have plenty of room,/but we shall have to ask the
'' /

architect whether the floor/is strong enough to take/the weight

/ / / \

private hoarders * i c believe in gold more than anything else ugpoway, because they have utterly lost conf i d a n c e i n Governments;Hxey^ffii-cf erto have a M t uf ggid ^ ^ x s aaaewia%re p wt, rtway, The c e n t r a l b a n k s , of c o u r s e , have always been e n t h u s i a s t i c g.;ld h o a r d e r s . When i t waw s u g g e s t e d y d u r i n g the p e r i o d of this

apprehension&cof s c a r c i t y a f t e r t h e w a r / t h a t t h e remedy f o r

was t o reduce t h e r a t i o s t h e c e n t r a l banks had t o keep between t h e i r gold and t h e i r d e p o s i t s , i t was q u i t e a good i d e a .
/v

The

only objection to it was that it was no good talking about it, because the central banks already had a very considerable margin above their legal ratios and obviously meant to go on having it. If we say that it is totally impossible that the

Central Banks should absorb this enormous increase in the supply of gold which seems to be possible in the course of the next few years, the answer to that is thaty- of oouro^ there are no limits to what the central banks may 4o as far as one can tell. Thirty years ago we should have thought it was

quite fantastic for the Bank of Bngland to have nearly two hundred millions of gold in its vaults, bt> then it -*f - 12 and

fit f o r t h e JBank of P r a n c e t o have more than *#<** thousand m i l l i o n s t e r l i n g worth of g o l d . Those a r e aetronomioalJfigureB)wqr But

obviously absurd (according t o a l l o l d - f a s h i o n e d i d e a s . t h e r e they a r e , they a r e f a c t s .

I t seems t o be q u i t e p o s s i b l e t h a t t h i s kind, of(ar&rgantuan gold h o a r d i n g may become a g e n e r a l f a s h i o n and t h a t any c o u n t r y which can a f f o r d i t w i l l do l i k e w i s e , and f u r t h e r t h e r e always t h e p o s s i b i l i t y of going back t o gold c o i n s . is

The

JB'rench Government i s now c o i n i n g hundred f r a n c gold p i e c e s f , <*Hr h a s boguw t aa"a%"""tfaey"'-1 W^-^ay-ngetrisirat"''^^

A n d , of c o u r s e , if t h i s e n o r m o u s expansion of gold p r o d u c e s at the same time an e x p a n s i o n of c r e d i t #i^e4^iM&^*C.. <$t>u m a y s e e such a n e x p a n s i o n of w o r l d t r a d e that thisjgold m a y n o t b e t o o great a b a c k i n g a c c o r d i n g to t h e o l d p r i n c i p l e s . T h e p o s s i b i l i t i e s of expansion i n p r o d u c t i o n and demand and credit a r e a b s o l u t e l y u n l i m i t e d a s long a s y o u could g e t any-

thing like political confidence and as long as there was any real assurance of peace in the world.

fhere

is

, which one h e a r s of o c c a -

s i o n a l l y i n Throgmorton S t r e e t when t h e K a f f i r Market i s not f e e l i n g very w e l l , wheu IJrergT'fflWP'froQ amuy -bwAifcf .that -what "Will jtcipKB'if. t h e gold blocJ(f .A-SM^'orced off gold and a l l t h e count r i e s i n t h e world demonetizes and t h e p r i c e of gold &# simply its^ p r i c e for commercial p u r p o s e s , and a l l t h e monetary h o a r d s ^ &*e thrown on t h e m a r k e t . I cannot see any p o s s i b i l i t y of t h a t h a p p e n i n g . In t h e

f i r s t p l a c e we have seen o u r s e l v e s t h a t one r e s u l t of o u r going off gold wasjthat we have had an immense i n c r e a s e i n our - 13 -

holding of gold In the Bank of England.

Then there is an un-

known amount which is believed to " b e held by the Exchange Equalization ]?un&. lor reasons that I have mentioned earliter it

this address, I cannot see any possibility that these Continental countries can think of abandoning a gola backing to their currency. That they may have to devalue is quite probable,

but that is quite another thing from demonetizing. We must remember that the principal countries in the world are all directly interested in maintaining M s gold fetich. America holds an enormous amount of gold and is a substantial producer. Prance holds an inordinate amount of gold and is at any rate she does not We in the

supposed to want it for the war chests

want toisee the value of it reduced to nothing.

British Empire are the principal producers of gold, and we also are therefore interested in the maintaining of its value. With these three very important countries all wliw* we nagr MHti bulls of gold, I do not think we need have much fear that international action will be taken to deprive gold of its value. So far I have spoken with dim glimpses into the obvious about the ultimate future of gold, but there is one thing one can say about the immediate future, and that is that the present high price of gold is affording most -welcome relief to many countries that are in serious need of it. I have mentioned the very big i n c r e a s e in the Russian output of gold. Russia i s now producing gold worth more than That means

20,000,000 a year at the present p r i c e of gold.

to say that Russia i s in a very d i f f e r e n t p o s i t i o n fuoiiB. *hat ii> <mm^'^rg^vnmj><&m^"^e^' when i t comes t o d i s c u s s i n g questions of c r e d i t . When a man has got a nice solid a s s e t behind him tone

l i k e t h a t , he can t a l k to h i s banker in quite a d i f f e r e n t - 14 -

aJanwr, and t h e banker i s going t o t a l k t o him i n a very ent fcone of voice a l s o . , *.^__,

differ-

pais means 4 c o n s i d e r a b l e r e v i v a l of Russian t r a d e . is J u s t c o n s i d e r what t h a t may mean t o the p o s i t i o n of Germany, and t h e r e f o r e t o t h e p o s i t i o n of a l l C e n t r a l Europe; you can

l e t your i m a g i n a t i o n p a i n t a very p l e a s a n t p i c t u r e of European r e v i v a l i n t h e c o u r s e of t h e next few y e a r s . The same t h i n g i s happening on a much s m a l l e r s c a l e a l l over South America. ) T,1inp ftmrhniii (jnlrl Trnrnti 1 rig TTT ^fTT"""!! n muli beye4f*^56^''-t^ww^tk-eyifa*M
*Jfeem--~i$&*-m*A: <4b*fe~4&ey....a2S& ,gj3uUa#.->.rt**ad ri--'HVfaxieT'---,plwifff&--WBmii'^

I t i s going to make a c o n s i d e r a b l e d i f f e r e n c e t o t h e s e c o u n t r i e s which have been so h a r d h i t by t h e f a l l in. commodity prices. I t -will make q u i t e a d i f f e r e n c e i n t h e i r a c t u a l and imom*tii^tfm9aiXfr rTuiifeiiBe<i&^%&ullijLaa$'

b a l a n c e of t r a d e ;

< c r e d i t * ^a* 11Aiti^"-^4r^^e^l^%^jf'^ yon'''*rWTb'nw^ei3M -*tSsk&*'

>f

*'That much I t h i n k one can s e e c l e a r l y .

As t o when, or on what t e r m s , or whether ever we s h a l l go back to t h e gold s t a n d a r d , and o t h e r i n t e r e s t i n g questions

t h a t a r i s e out of t h i s problem, I w i l l l e a v e them to be d i s cussed by t h e r e s t of t h e m e e t i n g . (Applause.)

- 15 -

CHAIRMAN:

We have all listened with the greatest interest

to Mr. Withere* illuminating and challenging address, and the subject is now open to discussion.

MR, WAI.TN HEWBOUDt

I am particularly interested in the

amount of attention which the lecturer to-night has given to the long planned and calculated development of the production I have been -watching these develop-

of gold in Soviet Siberia.

ments for many years, so far as it was possible to do so, through the eyes of men like , who know mining conditions

in Siberia, and from mining friends of my own in the various parts of Canada who have some knowledge of the similar conditions existing in Siberia. I believe that this is going to- be increasingly the line of Soviet diplomatic method. I believe that they intend to experi*-

ment with the effects of a great bear movement in the production of the only remaining basis of confidence in the capitalist world. You say certain things may happen granted a condition of anything like political confidence, but, as I had the opportunity to point out in America last September, this crisis has left us without any internal confidence in almost all countries, including this onet where it is determined by the duration of this It

kind offfovernmentthat we have got at the present time. is either limited in space, or it is limited in time.

Externally I understand that the degree of confidence existing between the great countries of the world is almost shrinking to a negative quantity. Therefore, if you are going to have a complete absence of confidence within countries in the Governments, and you are going to have a continuance of an absolute lack of confidence between countries; if you are not going to be able to sell - 16

your products abroad because nobody is willing to take them in, or even where they are, someone else comes along and tries to queer tke pitch, you have been reduced to the condition where the only firm basis of confidence is that one in which the Soviet Government are now placing their trust raore than in anything else. I am not arguing now whether they place it rightly or wrongly, but you have to remember the fact that it is a Marxian Government, and you have always to remember the importance that was attached by Marx to gold as the one standard of value. That means that, whether they are right or wrong, they are going now - having assisted the rest of the world to destroy confidence - they are now going to see what will happen by flooding the world with gold and destroying the value of gold. ffi think that that is the line they are going to take. It may seem to you a foolish line, as everything you do seems to them either wicked or foolish. But you have to re-

member that they look at the world from the exactly opposite point of view from what you do. You will hear people get up

in this Institute too often and tell you that Russia is changing. The more it changes, the more it is Leninized; and the

more it is Leninized., the more it is Marxist. I do not belieife they are going to continue very much further with the activities of the Communist International. 1 believe that they are going to continue still more with the method of precipitating economic crises. I have warned several

people in this country in high places in the last few weeks against the danger of assisting Japan to develop a part of Soviet; Siberia wxiich the Soviet Government knows it is not an economic preposition to develop itself, with a view to attract capital long term credits more even than short term credits into - 17 -

Manchukuo and into Japan, in precisely the same way that they attracted long term credits for their own purposes into three countries with whichjfthey dealt very largely - Italy, Austria and Germany. I know how close were the relations MR. WITHERSt MR. KBWBQLDi Between them and Russia, or Japan ? And Russia. I know how close were the

relations of two hanks that went crash in 1931 and the Soviet Government; very close indeed in their trading relations.

Now I believe that they are going to try to do the same thing again in Manchukuo. I do not "believe they ever desire to get creaits direct from this country. Oh no, they are much too clever for that.

They wanted to ask for credits from this country and get them from Germany, Italy and Austria, knowing that you would certainly lend to Germany, Italy and Austria but not to them. I was informed in Berlin in the autumn of 1951 that they had something at that time like one thousand million Marks in Germany., lent at anytning from two years upwards to Russia, which they had been borrowing from you at three months. One indis-

creet person hinted very broadly that that was what they intended to do in Germany, to get you in that position: you had lent for three months, and they had lent for from two years upwards, and they desire naturally to throw the whole capitalist world into this state of a lack of confidence. method of Leninism. I know. If anybody in this Institute should know, I This is the

suppose I ought, seeing that I was intimately associated with the early days and the working out of the theory. that I

object to is the general moral depravity, saying one thing and - 18 -

doing another.

The things they do undermine a l l confidence

amongst i n d i v i d u a l s . But I do c e r t a i n l y believe t h a t t h i s i s the d i r e c t i o n in which you have to look. I do not say what the r e s u l t s will be.

I-t i s very valuable for you to know what they intend to do, and then to begin to examine yourselves -what you think -will happen. (Applause.)

MR. gCC&ESi

I am a gold miner, BO I am very i n t e r e s t e d in I would l i k e to know if Mr. Hewbold could feeocUtility of fclse gold produc-

what hss been sai&.

t e l l us a few figures about the

tion in Russia, because-our experiences are rather contrary to the expression given by Kr. Withers, v i z . that i t i s not very easy to extend the production of gold. You can spend a great we

deal of money, and the public spend a great deal of moneyi

professionald do not seem to be able to increase the supply very fast. Unless you are envisaging a r e a l l y enormous i n c r e a s e

of production in Russia* I do not think i t will, matter very much. We in South Africa are not going to make a huge increase I am extremely s c e p t i c a l about South America as

of production. a large producer.

There i s one country which I t h i n k / w i l l produoo a l o t of gold/, and t h a t i s Hew Zealand, and a very good thing too because i t w i l l help them out of t h e i r d i f f i c u l t i e s . But to what extent can Russia- produce gold in order to put down the p r i c e of gold, ile.1 in order to frighten the c e n t r a l banks into refusing to take i t ? i- pqrfinnp"11Y
rifl n n + >

'\V2jLTr

individuals can control the p r i c e of goXd^^-aBX^oTethanjbhe p r i c e of diamonds. HowjDM^ir^gold does he think the Russians

can produce-^w*d""liGw quickly, because i t i s a thing we are a l l tM^Tng t9,.id9y anal i t i s n o t ^ sift i cm 1 a l l y eaujN - 19 - 1 4 io Hot vory^.

saaTjT snrfiai8n"iy t a tiara an m t a .

I imagine that if yeu bulmi l i i e pieaeut) j j i um i l nation af gold aad put it ' aaete i i t f t o gold prmini m ij t i i i o t 25,^ increase of t&e present proauction of gold in ounces within the next six years is all that you can hope for. optimistic. production. I am not sure that I am not

It takes at least four years to get a mine into

MR. lEWBOLR;

I could not give you the figures, but I am

dealing with the general Soviet theory, and I am certain that having mastered other fields of production, they will make a similar attempt in that direction, and probably wit|i considerably more success in gold mining - as in oil - than in certain other fields. But the figures you could get from them are

rarely very valuable until you have subjected them to about three sieves; in fact, sieving the rubbish out of the gold

ore is rather similar to sieving the rubbish out of Soviet statistics.

MR. ECCLES:

Unfortunately, God or Nature is the dominatYou cannot get it out of

ing factor in the production of gold. the earth unless it is there.

Is there any field in Russia where there exists a regular formation of gold which can be mined on the same sort of scale as we mine in South Africa ?

MR. WITHERS?

Is not the Lena like that ?

MR. ECCLESt

Thorp are mat the reserve funds there.

MR. WITHERS; People tell we tie Lena is as big as the Rand. The Lena is an enormous proposition. - 20 -

MR, ICGLESi

Who knows about the Lena ?

There are a few

engineers who were there before who would not hold with that view There are some bond-holders now. who are somewhat optimistic I would like to ask if there is any geological information ? We would all be very glad to know from the purely scientific point of view what sort of gold formations exist in Russia at present. 3 S C B > EBWBOUDt I think I could put you on to somebody. I

will give you the address.

/Hifi-tfl. LAW

MR. LQfiB;

I would l i k e to ask the l e c t u r e r if he could

give us the source from which he derived the figure of twenty million of gold from the Soviet. I was reading a pamphlet the other day,/and the only r e l i a b l e figures go down to 1926; a f t e r t h a t they are p r e t t y

vague, / f e e pamphlet w*fceeyout t h a t the output has been i n foU' creasing u n t i l r e c e n t l y , n*L/the highest figure they give i s k
%

8,000,000. They point out t h a t some of the best p o s s i b l e sources of supply are about 2,700 miles from the nearest r a i l fail e ad, and/you cannot get the machinery to them except by aeroplane, and "44;^ i s a b i t heavy f o r tfeat. MR. HAROLD GOXt I was p a r t i c u l a r l y glad to hear our in

l e c t u r e r t o - n i g h t say that in s p i t e of a l l the d i f f i c u l t i e s

dealing with gold, you had also to think of the r i s k s of dealing with p o l i t i c i a n s . Personally I always f e e l ino lined... to think

t h a t though?gold/may 39^e/proDlems, there are r i s k s from the t r i c k e r y of p o l i t i c i a n s which are much more s e r i o u s . As regards our own country, I do not knew what wuuld jaappon if the Labour Party had a big majority/-and tfoaught thoy could Claire a ni?e T i t t l e p r o f i t for tJaeMBolvoB/by depreciating - 21 -

the currency, which they could not do if the currency were rigidly based upon gold.

PROFESSOR

MAHMI1G:

As a complete layman, might I ask the

lecturer if he would mind amplifying his statement that he thought the gold hloc} might at some time devalue gold. What are the

facts that enable ua. to form a guess on that subject, which way the gold block are going ? MR, COPE? I was very interested to hear Mr. Withers this

evening, because I have always been a very great reader of his books. fhere are two factors he mentioned as being important with regard to gold. He suggests first of all that the popular

belief in a gold backing is an important factor which will induce the Governments of the world to return to gold. He rather hinted

that the intelligence of the average man in the street was/sufficiently developed to prevent a Government carrying on with/a paper currency.
1 I should i allium1 like to suggest that, although I havo net sc

vevy high 14a of the intolligotige of t , t a , g averago man> that is rather a fact pointing in the opposite direction. #e-/does not

understand these questions at all, ana as soon as he sees the price level fairly stable, he will not worry about the gold in the vaults of the Bank of England. The other point is with regara to the influence gold is said to exert as a check on Government expenditure. MR. WITHERS: No, sir, not expenditure.

MR. COPE; Perhaps I misunderstood Mr. Withers, but I * a , * h e i ; gathered that he hiafcoa/that if a country is on the gold standard, - 22 -

there are definite barriers in the way of upsetting the budgetary equilibrium. That is true, but I do not think that being on a

gold standard is an insuperable barrier to a Government if it wants to spend money. The experience of the past ten years

teaches us that nothing can stop a Government if it really wants to spend. that direction. MR. BUHM? I do not think gold is at allJimpQrtant in (Applause.) May 1 ask for my own personal use some" inforI am one of

mation on a point that has always troubled me ?

those who believe that sooner or later the world must return to gold as a standard. But when he refers to one of the functions of gold being the regulation of prices, I cannot help feeling that we are up against a great difficulty here, because when we had the catastrophic fall in prices, we used the bank rate to exercise its old function of reducing wages and prices; but we

found our economic system was much more rigid than it used to be and much less responsive to the monetary corrective of the bank rate, and we did not succeed in reducing prices and wages owing to the fact of wage agreements and some monopolistic institutions, which broke the impact of the monetary corrective. Therefore I am in a great difficulty in understanding how we can ever get back to those old days when we had this monetary corrective in the shape of the bank rate based upon gold. Some monetary corrective there must be, if we are to bring our prices into harmony with world prices, or otherwise we shall intensify the drift or tendency towards economic nationalism which is now at work in the world. MR. ffRAKKLIN: I m w t gay I was extremely interested in all that Mr. Withers said/. There are a few things/that I think I - 23 -

should like to stress a little morei

AM

He said he thought that i t was not very l i k e l y t h a t we ourselves were close to coming back to the gold s t a n d a r d . / f e e l t h a t t h e - p o s i t i o n of t h i s country i s g-ery/different t h a t of any o t h e r . I

from

We have c e r t a i n l y a reserve of gold in the

Bank of England/not far oheyi of two hunured million pounds^ I p e r f e a t l y agree t h a t i t io qaito i-noonoeivablo /that we should change from using gold as the b a s i s of i n t e r n a t i o n a l c r e d i t , jut i b a l i n g wIl'Luollt duubU H> io aboolutioly c e r t a i n t h a t toe

amount of foreign money/taat we have entrusted to us in t h i s couu t r y p-repp^a hir m T( ry ' mini glerahl e aniiinnti tihm ininmji iinniiiil nf goAd ye have*. If wesfeoula/come to an agreement with foreign Governments that wo BhoulcL r e t u r n to a f u l l gold standard, t h a t is,buying and s e l l i n g gold at p r i c e s approximating to each other, we should be in t h i s p o s i t i o n : ^countries at the present moment have so l i t t l e confidence in t h e i r own c u r r e n c i e s , t h a t they keep l a r g e amounts of money in gold ana very considerable balances/in t h i s
Y^uJjrJLJz, is Ikofr OVA. (AeJhtvrx *"

country.

But what s t r i k e s me as a/Ahing t h a t ..might happen woiaJU

too t h a t th&y might regain confidence in t h e i r own a.Mnt*y, and, ^g,.eo> i our two hundred m i l l i o n pounds worth of gold k*>*^ ^ " ^ miffioicnt ? & ~ J**^-' * sPhx^ H"" lAf^ *' ^ S^uJ **** ^ <wi^v
> U j^n^b^ ~ *AJ*JL e**, eovuL, ^ p / < U f c < ^ ^ - tf f ^ MB iiQaiTOUY; Even if it were worth more than that at the market prices, it would certainly be less than the amount of foreign balances held in this country. Supposing it might

<****> <*^y*

occur to these people, MWe might employ this money ourselves,'1 and they were to attempt to withdraw any very considerable amount of their money from here, we should not be in a position to meet with ease and comfort their withdrawals. You see, we have been off the gold standard twice. - 24 We

have altered our price of gold twice. ous for us to do it a third time. very great risk.

It would be very injudici-

I tiiink le would run a very,

I hope therefore that we shall remain as we

are for a very considerable time to come. There is another thing which iB rather interesting, and that is that after all, large as the amount of gold that is hoarded " b y individuals, especially by foreigners, and kept in this country is, it is really not as much as the amount of gold that was in circulation before the war. The amount of gold in cir-

culation in England, Prance, parts of America, amounted to a larger sum than the amount of gold hoarded by a few individuals. I think that should be borne in mind. Therefore

we should run a very, very great risk if we were to agree to stabilise our gold and with America join the gold bloc, in which theye are very many weak spots. I do not think the gold (Applause.)

bloc is really a very strong combination. affk/HORHSBYi

Does lr. Withers think there can be any

question whatever of stabilization and getting back to the old gold standard until the question of our debt to America has been finally and definitely settled ? CHAIRMAHt As there seem* to be a pause, perhaps you will

forgive me if I intervene for a short time. I have ben tremendously tnterested in Mr. Withers' address, but I must confess there seemed to me a good deal left out. That is not an accusation against him. This is an Li cmenmyuuly

extensive subject, and it would be impossible to exhaust it in one evening. He touched on a variety of possibilities affect-

ing the future of gold currency policy, gold output and so on, but it seemed to me that he did not really come to grips with what I should regard as the salient pointy. - 25 -

He spoke much more about the p r i c e of gold than about i t s purchasing power. I do not mean to say t h a t he forgot the

question of commodity value of gold, a l t o g e t h e r , "but in connections w4tli what/it seemed to me t h a t tire purchasing power ^ ^ involved, he was r a t h e r apt to t a l k about p r i c e . Clearly the p r i c e of gold in England or in any other count r y depends on two d i s t i n c t f a c t o r s , the commodity value of gold and the commodity value of the currency/in which the debt i s reckoned. I should a n t i c i p a t e a treaiefldous/fall in

the purchasing power of gold in the next two or three y e a r s . t h e purchasing power of gold h a s , I should say, a good deal more than doubled in the past f i v e or s i x y e a r s . That i s not

a l t o g e t h e r borne out by index numbers perhaps, but if you take i n t o account the fact t h a t index numbers include a considerable amount of dtKfexx commodities in which the output has been r e s t r i c t e d owing to the r i g i d i t y of * c o s t s , and also t h a t p r a c t i c a l l y every index number i s an index number in some country which has adoptedy/protection, I think i t i s no exaggeration to say t h a t the purchasing power of gold XJE has much more than doubled. That i s , i w^uuld laaj t due to the fact t h a t the monetary aemand for gold in a limited number of countries has been i n o r d i n a t e l y increased. Most countries t h a t hold any con-

s i d e r a b l e amount of gold at a l l are holding two or t h r e e times as much as t h e r e i s any good reason for them to hold. i s p o s s i b l e to say t h a t t h e i r standard has been a l t e r e d , and they are always going to hold incomparably more than they d i d . Even that does not by any means dispose of the view t h a t the value of gold i s going to f a l l p r e c i p i t a t e l y . Take the case of France. I t may be t h a t Prance intends It

permanently to hold n a t | I tilainli,four tiiouoond million pounao, - 26 -

lout ono tliuuuauu m i l l i o n p6unSLg. i m .flHMIfflfflii 06 BiiliiapdiB, over IpOOO m i l l i o n poimd-. fliB't lu miita1igwt/650 mi 11 ionar/g*waAa. That

gold holding has "been accumulated_under conditions in which the commercial demand for credit has dwindled almost to nothing. The holding of bills by the Bank of France is almost negligible. A revival of business would mean a considerable increase of bills. I'rance, like all other countries, is suffering from Revival would mean a much bigger ip^^yJ^^ y ^uo^m^

extreme stagnation of money.

superstructure< &^.i^Jr cu^i \Mjc^^-ex <r>^ - <^u^

Even if these countries adhere to their exaggerated standards of gold reserves, there is reason to suppose that the price level in terms of gold might expand inordinately, and
Ce. Att* j<a~~p&-.

might possibly/doubled even though France/ adheres to t h i s enormous gola r e s e r v e . Take the case of the United S t a t e s , the United S t a t e s has p r o v i s i o n a l l y devalued the d o l l a r to 59 1/16% of i t s old parity. The r e s u l t has been t h a t the gold holding of the

United States i s 8 thousand million d o l l a r s against a monetary c i r c u l a t i o n of 5,300 m i l l i o n d o l l a r s . At the time of America's

most h e c t i c p r o s p e r i t y , the currency was not g r e a t e r but l e s s than i t i s at p r e s e n t ; against which they regarded themselves

as very l a v i s h l y furnished with gold when they held 4,000

million aollars aaa a little more. So that, even assuming nothing in the way of economising

gola, there i s reason to suppose t h a t the world is normally over-supplied with g o l d . J ^ I t i s / p o s s i b l e t h a t , i f the purchasing power of gold f a l l s , t h a t the United S t a t e s w i l l revert to the old d o l l a r p a r i t y . That sounds quite f a n t a s t i c , but i n r e a l i t y in the U.S.A., - 27 -

as in some other c o u n t r i e s , there i s a g r e a t deal of l a t e n t opposition to a r i s e in the p*ie-e/of l i v i n g . ment i s on the whole a n t i - i n f l a t i o n i s t , The Labour move-

so I think i t i s quite

reasonable to suppose fchat a l a r g e f a l l in the purchasing power of gold might lead to a big f a l l / in "the p r i c e of gold in the United S t a t e s . I do not see why the same thing should not

happen in t h i s country. When Mr. Withers talked of a great revival of a c t i v i t y on the b a s i s of redundant gold, t h a t would use up the r e dundant gold, what was implied in what he said was t h a t a l l these c h a r a c t e r i s t i c s of r e v i v a l would mean an increase in the prio-e/of "bills and fraoility/ of c i r c u l a t i o n , and a g i g a n t i c increase in the p r i c e l e v e l . j>
""
tat of

<^. What a t h a t p o i n t s to i s an experience like/1919, when the value of gold f e l l to l e s s than half of what i t had been before the war. That was spread over/the war: i t only came

to a head a f t e r the war was over. There, I think, i s one of the fundamental questions to answer, - How/these d i f f e r e n t f a c t s I have referred to a s e going to effect both the purchasing p w i r and the p r i c e of gold? There i s very good reason to a n t i c i p a t e t h a t the purchasing power of gold w i l l f a l l to l e s s than half and the p r i c e of gold w i l l be adjusted to an extent that may very well r e - e s t a b l i s h the old p a r i t y of gold established by Sir Isaac Hewton. J Of course, a l l t h a t i s very u n c e r t a i n , <a-~-^ -

-" * t h e r e i s one f urther-ltiicriiiment t h a t I think ought to be drawn, t h a t so long as i t i s u n c e r t a i n , a paper currency i s incomparably more r e l i a b l e than a gold currency. You see

t h a t a l l over the world at the present time; -fe&afe the r e a l monetary troubles are occurring in the countries t h a t are attempting to r e t a i n the old gold p a r i t y in s p i t e of the ap- 28 -

preciation of gold.

All the countries that have abandoned gold

are in relatively sxr/water. In a limited number of cases/, countries which have been subject to the strain have failed to survive it and the currency has collapsed. But in all cases where ike/country is

going through anything like normal conditions, you will find both before the war and since, that paper currencies have on the whole been more stable than metallic currencies.
JoKZ^. QzfJJSS, pfatxt} i~tjf SinJk, Q~*J!A^C*K' Of O-TtwJ"Uf*JS~ fc. tKXFzJr lu^o*Av~~Jlr

The existence A r
(UXJNXVB^.,. c^ yj^J^s

of paper currencies has not prevented International lending.

vigry jrecit /part of the r e s t of trie world t h a t was absorbing i n vestments was for a considerable p a r t of the time on a s i l v e r currency. jfr-tthiak I hare aaid ovorything t h a t I kav' ^o oay im the
SHiH^Jfti * *

MR*. HOBSOU;

Do you include the United States in the

countries which are in relatively calm waters at the present time, CHAIRMAN: Oh yes, undoubtedly; compared to Germany or

France certainly.
2

MR. ESS 1 5 * . We thought we were lending in terms and being repaid in terras of a gold currency, but we were wrong. GHAIRMAHt The lending occurred from a country s c a d c on the not The insta-

gold standard to a countryman the gold standard.

bility of the country did not prevent the South Americans from assuming obligations in sterling because their own currencies were unstable. A considerable part of the investments in They took the

South America were not in any currency at all. form of ordinary shares.

Before the war there were far fewer countries - 29 -

on the gold standard tlian t h e r e were supposed to have been. Prance and the c o u n t r i e s forming the Latin aasraixxKX Union were aot on a gold standard, but a b i m e t a l l i c standard. The Bank

of France had a u t h o r i t y to make advances on gold bullion and coin. The b i m e t a l l i c standard of the Latin Union was the

r a t i o of 15-|- to 1, and u n t i l 1928, when Poincare s t a b i l i z e d the gold franc, no gold franc ever e x i s t e d . Therefore there were

very, very few c o u n t r i e s at a l l on the gold standard. J . . . ..^fyf,. Talking about the hoarding of gold, people

seem to think t h a t i t i s only in times of i n s t a b i l i t y of currency t h a t they h-ard. Surely t h a t i s not t h e case. The

Jrench always hoarded, and in India they have hoarded for generations. They hoard when they are making p r o f i t s .

Won*t that grow when the world r e t u r n s to trade n a t u r a l l y ?

I should like to ask whether the gentleman would express an opinion as to what would happen in South Africa if the price of gold when back to 85/-. I should look for another job. Perhaps Mr. Hawtrey would enlighten us on this. Would you give an opinion as to what would happen in

South Africa ? CHAIBMAH; I think it is a great mistake to identify South You ask what would happen? South Africa

Africa with gold.

has already been in precisely that condition six years ago, when not only was the price of gold 85/- but the purchasing power of gold was less than half what it is now. I do not

suppose for a moment that would mean the end of the prosperity of South Africa.

- 30

The output of gold reckoned in ounces has been falling off in South Africa for the past forty-two months. CHAIRKAff: That is only because the present form of taxation is deliberately devised to favour the low grade ores. The

South African Government thinks thatjhow is the opportunity to prolong the life of the mines by concentrating work in low grade ores, which under normal conditions would not be worked at all. Is it not possible that the high grade ores are already exhausted ? CHAIBMAHs So, I do not think so. Am I in order in enquiring what is the

MRS. HETTLEFOLD:

explanation of the really extraordinary increase in the price of gold in the last nine months ? MR. WITHERS: If this discussion has shown one thing more clearly than another, it is how much better it would have been if Mr. Hawtrey had opened instead of me and had this job of answering the questions now. However, I will do my best.

I was asked as to statistics about gold production in Russia. The figuresjthat were supplied to me - I hope Mr.

Franklin will have no objection to my saying I got the figures from his office, which I regard as part of the Government in these matters. was just over They show that the output of Russia in Siberia

1,000,000 fine ounces in 1927 1,700,000 1931 1,990,000 1932 2,814,000 1933 I am t o l d , not in Mr. Ifranklin's office but in places where they think they know-,- t h a t the Russian output i s now increasing - 31 -

very rapidly and will " b e very well over that figure in this present year. As to Mr. iJewbold's very interesting suggestion that Russia is out to break the price of gold by flooding the world with gold, it looks as if it would take Russia a very long time to do anything very serious in that way. At the rate of about

20 millions of gold or even 25 millions of gold -per annum, it would take Russia a long time to make a very definite impression. But if that is behind their MacchiaveHian intention, I am sure we are very glad to be put wise on that subject. I was asked why people were expecting that the gold bloc would demonetise gold. I rather hoped that I had made it clear

that I do not think they would demonetize gold, but some of them may have to devalue. The reason why the people in the Kaffir

market seem to have been scared the other day about the possibility of the gold bloc diminishing was because the gold bloc had held a little minor international conference ana had stated that they none of them intended to make any alteration in their parities - and they did protest too much. There was an interesting point with regard to gold in the Republic, about gold. I was tola that the Republic aid not bother its head I think that is very true of this country. We

do not bother about it as long as our money will buy things when we go into the shops. We do not mind in the least what its va-

lue is in gala or foreign exchanges. There was a very nice story at the time of the General Election of the candidate who held up a Treasury note and said, "This note is now worth fifteen shillings.
tt

JL working man

in the back row said, *l will give you 15/6 for it, Guv*nor.* But I do want to suggest that on the Continent, and especially in places like Prance, where this gold hoarding habit is - 32 -

ingrained, that it is not quite the same.

I was trying to dis-

cuss the matter from a world point of view, and not merely what we think about it in this country. As to the restriction upon Governments and spending and Governments and using the printing press and so forth, I think I expressed myself badly over that. But we know that if a

Government really wants money and is determined to have it, it will get it from the central "bank or somehow, and though it will not do the printing itself, it will get it aone indirectly. But I do feel that the existence of a gold backing makes the average business man feel that his currency is to some extent protected. matter. He may be all wrong about that, but that does not

The gold backing gives him a feeling of more confi-

dence, I think, rightly or wrongly. As to gold regulating prices, I certainly did not mean to imply tla&t when we had a gold standard prices were kept stable. All I meant was that the international relation of prices was kept stable. The exchanges were stable and prices went up and

down together more or less all over the world. As to the settlement of the American debt being necessary before we can return to the gold standard, I should certainly imagine that that is a thing that must be dealt with, and probably would be. fhen Mr. Hawtrey, of course, was extremely interesting on this subject of the price of commodities and laid M s finger on a very

big gap that there was in my attempt at an address to open the discussion. But I do not feel that it by any means follows that

this heavy rise in the price of general commodities is going to happen as he seems to eaepect owing to the expansion of credit which may be possible from an increase in gold and the greater - 33 -

facility.

If half tnat we are told is true about the im-

mensely increased potential productive capacity of the world in all its departments, rising prices due to these causes may surely " b e followed " b y an immense expansion in production, which. may keep the prices of commodities steady and perhaps even a little downwards, as we saw happening in America when they had that immense expansion auring their booming years and the general level of commodities, as measured " b y the index numbers, had a slightly downward tendency. Of course, there was an immense

rise in securities and real estate, and it has always seemed to me that that was the way in which the new money and credit got into the pockets of the public. The observations about Governments and gold have already, I think, been answered as far as I can answer them. Though it

is perfectly true that Governments will get money anyhow, the feeling of the public is that when you are on gold there is some check on the Government. I suppose the check is to this

extent, that when the Government goes to the Bank of England to ask it to provide it with more credit, the Bank of England may make a certain amount of difficulty; but as to how far

that is the case, one is not in a position to say. As to the subject of hoarding, it has been pointed out that this doesnot happen merely in times of depression but at normal times ana times of prosperity. so again. I am afraid I nave given very inadequate answers to the questions raised, and I will leave it at that. CHAIHHAN: It only remains for me to say how very grateful That is so, and that will be

we are to Mr. Hartley Withers both for his address and his replies. (Applause.) - 34 -