1. Freedom for the Gold Market

(L’Opinion, December 19, 1946)

Return the gold market to freedom? But why not? Nothing would do more to promote the financial health one hears about.

At the present time, gold is no longer money; it is merchandise. But it is not, like bread, wheat, or meat, a merchandise of prime necessity. Its purchase by some does not deprive others. None of the arguments still put forth against complete freedom in the sale of products holds good for gold.

Shall we say that the Bank of France’s monopoly of purchase would be violated? But the Bank of France has certainly no illusion about the chances it has to acquire gold at the official price. Whether the market be free or clandestine, it knows that at the present moment it will not be offered a single gram.

Let gold pass from hand to hand, or let it remain hoarded in the same vaults, the situation of the Bank will remain unchanged until the day when she decides to intervene in the market under new conditions.

Freedom of the market offers, therefore, no inconveniences for the individual or for the Bank. On the other hand, it would offer great advantages.

The first would be to lower the quotations for gold, by eliminating the premium due to risks today. And this reduction would certainly be felt in the prices of merchandise and on the Stock Exchange, which today are entirely dominated by monetary considerations.

But this would not be the only reason for a reduction, for the actual holders of stocks, fearing a further reduction, would hasten to liquidate them.

We know that such stocks today are considerable. On this everyone who has followed the foreign exchange market during the last ten years is agreed. The excellent magazine Perspectives, managed by M. Gascuel, has twice published some very suggestive estimates in this regard. According to these estimates, the gold hoarded in France might be about equal to the cash balance of the Bank at the start of this war. This is much more than is necessary to regulate the price of gold.

Besides, the premium for gold in France is so high that it attracts gold from foreign countries, increasing the already existent stock, a situation which had already occurred at the time of the assignats (French paper money 1789-97), when the premium offered for gold within the country surpassed the rates of exchange. This situation, by attracting the metal, even facilitated the recovery of money when the printing of assignats was given up.

However, one may ask whether the demand may not increase at the same time as the offer. I do not believe so.

When the public knows that it will find the merchandise desired at a convenient time it will spread its demand. If the sale of tobacco were free, those who rush to the tobacconist every ten days would postpone their purchases to the following day if they found the place crowded—which, of course, would clear the crowd.

But the main advantage of the free market for gold will be to furnish—no longer through officious data timidly published, but through official quotations similar to those of the foreign exchange—an index to the attitudes of the public.

We hear a good deal today about “l’expérience Poincaré” (the Poincaré experiment) but few people know what it is. One hears that its success was due to the indications furnished at that time by the foreign exchanges. No one today thinks of restoring the freedom of the foreign exchange market, but the necessity of a rule to guide monetary policies is nonetheless imperious. Such an index, operating within normal conditions, would be the best proof of the sincerity of a government in its efforts at reform, and therefore the best means of restoring confidence and of noting the progress of its efforts. It stands to reason that the reduction in the price of gold will not take place without a combination of conditions, the first of which is the restoration of budgetary equilibrium. But freedom in the gold market will be the indispensable complement of it, because what the public needs is to believe. And, like Saint Thomas, it wants to see before it believes.

The sight of gold will work miracles!¹

¹ The liberty of the gold market (but not that of importation) was granted by the law of February 2, 1948. Cf. Rene Sédillot, Le Franc, Sirey, 1953, p. 356.